<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
DATAMETRICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 95-3545701
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
21135 ERWIN STREET
WOODLAND HILLS, CALIFORNIA 91367
(818) 598-6200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
SIDNEY E. WING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATAMETRICS CORPORATION
21135 ERWIN STREET
WOODLAND HILLS, CALIFORNIA 91367
(818) 598-6200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
THOMAS A. EDWARDS, ESQ. NICK E. YOCCA, ESQ.
LATHAM & WATKINS MICHAEL E. FLYNN, ESQ.
701 "B" STREET, SUITE 2100 STRADLING, YOCCA, CARLSON & RAUTH
SAN DIEGO, CA 92101 660 NEWPORT CENTER DRIVE, SUITE 1600
(619) 236-1234 NEWPORT BEACH, CA 92660
(714) 725-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS 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 THE REGISTRANT ELECTS TO DELIVER ITS LATEST ANNUAL REPORT TO SECURITY
HOLDERS, OR A COMPLETE AND LEGIBLE FACSIMILE THEREOF, PURSUANT TO ITEM
11(A)(1) OF THIS FORM, CHECK THE FOLLOWING BOX: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,300,000 Shares(2) $8.34 $19,182,000 $6,614.48
----------------------------------------------------------------------------------------------
Representatives' Warrants(3) 200,000 $.001 $200 (3)
----------------------------------------------------------------------------------------------
Common Stock, $.01 par value 200,000 Shares(4) $8.34 $1,668,000 $ 575.18
----------------------------------------------------------------------------------------------
Total................... $20,850,000 $7,189.66
</TABLE>
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(1) Estimated solely for purposes of calculating the amount of the
registration fee. Pursuant to Rule 457(c), based upon 2,300,000 shares of
Common Stock and the average of the high and low sales prices of Common
Stock on the American Stock Exchange on May 17, 1995 of $8.34 per share.
(2) Includes 300,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(3) To be issued to the Representatives of the several Underwriters. No fee
pursuant to Rule 457(g).
(4) Issuable upon exercise of the Representatives' Warrants. Pursuant to Rule
416, there are also being registered such additional shares as may become
issuable pursuant to anti-dilution provisions of the Representatives'
Warrants.
----------------
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>
DATAMETRICS CORPORATION
----------------
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-2
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND HEADING PROSPECTUS CAPTIONS
---------------------- -------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk
Factors; Selected Financial
Data
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... *
6. Dilution............................................ *
7. Selling Security Holders............................ *
8. Plan of Distribution................................ Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Registered.......... Description of Capital Stock
10. Interests of Named Experts and Counsel.............. *
11. Information with Respect to the Registrant.......... Prospectus Summary; Risk
Factors; Selected Financial
Data; Management's Discussion
and Analysis of Results of
Operations and Financial
Condition; Business;
Management; Financial
Statements
12. Incorporation of Certain Information by Reference... Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... *
</TABLE>
--------
* Not Applicable.
ii
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 MAY 19, 1995
PROSPECTUS
2,000,000 SHARES
DATAMETRICS CORPORATION
COMMON STOCK
-----------
All of the shares of Common Stock offered hereby are being sold by
Datametrics Corporation (the "Company"). The Common Stock is traded on the
American Stock Exchange ("AMEX") under the symbol "DC." On May 18, 1995, the
closing price for the Common Stock as reported on the AMEX was $8.25 per share.
See "Price Range of Common Stock and Dividend Policy."
-----------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS."
-----------
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.
================================================================================
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
--------------------------------------------------------------------------------
Total(3)......................... $ $ $
</TABLE>
================================================================================
(1) The Company will sell to the Representatives of the Underwriters warrants
to purchase shares of Common Stock. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $255,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock on the same terms and conditions
set forth above for the purpose of covering over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to their right to reject any order in whole or in part. It is expected that
delivery of the shares will be made at the offices of Pennsylvania Merchant
Group Ltd in Radnor, Pennsylvania, on or about , 1995.
-----------
PENNSYLVANIA MERCHANT GROUP LTD CRUTTENDEN ROTH
INCORPORATED
, 1995.
<PAGE>
----------------
DmC(R), LAURA(R) and CYMAX(TM) are trademarks of the Company. Adobe(R) and
PostScript(R) are trademarks of Adobe Systems, Inc.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
CONCURRENT TRANSFER IMAGING TECHNOLOGY
*SPEED *AFFORDABILITY
*QUALITY *SERVICEABILITY
The Company's concurrent transfer imaging technology combines the four most
important features of speed, affordability, quality and serviceability in one
digital color printer. The Company believes that its soon-to-be-launched CYMax
series of high-speed color printers, which are based upon CTI technology, will
print cost effectively, full-color high-quality images at speeds required by
short-run production printers.
SPEED
The Datametrics CYMax color printer can print a full-color, high-quality image
in less than three seconds, or twenty pages per minute. High speed translates
into shorter lead times and higher volumes for short-run production printers.
AFFORDABILITY
The Company believes that the acquisition price and the per page cost of the
CYMax color printer provide a cost effective solution for short-run production
printers.
QUALITY OUTPUT
The CYMax color printer delivers a combination of high speed printing and
quality color imaging. The Company's concurrent transfer imaging technology
uses a ribbon-based pigment marking process that outputs consistent color,
page after page. The Adobe(R) PostScript(R) Level 2 interpreter outputs a
palette of brilliant colors with accurate placement of dots.
<PAGE>
High capacity input rolls of a wide variety of paper stocks, labels or
transparency materials are cut on demand and delivered to the output station,
which allows the mixing of letter, legal, ledger, banners and pages of
virtually any length, all in the same print job.
SERVICEABILITY
While competing technologies require numerous replacement components, the
CYMax color printer supplies consist of four easily-replaceable ribbon
cartridges.
Competitive devices require complex consumable replacement.
CYMax Series Typical Color Laser Printers/Copiers
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Except as otherwise indicated, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
Unless otherwise indicated, all references in this Prospectus to the "Company"
include Datametrics Corporation and its divisions.
THE COMPANY
Datametrics Corporation designs, develops, manufactures and sells high-speed
color printers, high-resolution non-impact printer/plotters and ruggedized
computers, printers and workstations. The Company is focused on the development
of high-speed color digital printers which utilize its proprietary concurrent
transfer imaging ("CTI") printing process, and has recently sold a limited
number of such printers to niche commercial users. The Company intends to
market its CYMAX(TM) ("CYMax") series of high-speed color digital printers,
based on CTI technology, to mass commercial users including short-run
production printers. The Company's high-speed color digital printers have
demonstrated the ability to print full-color, high-quality images on 8 1/2"X11"
pages in less than 3 seconds, or 20 color pages per minute. The Company
believes that no comparably priced digital color printer currently available
prints full-color, high-quality images at speeds equal to the Company's CYMax
series of high-speed color digital printers.
The Company believes that its proprietary CTI technology has numerous
potential applications in the color printer market, ranging from mass
commercial uses to niche applications. The Company has targeted the short-run
production printer market for its initial entry into mass commercial markets.
The short-run production printer market is characterized by printers whose
typical print run is 2,000 documents or less, and includes franchise and
independent quick print shops, in-plant printing departments, sign printers,
copy shops, service bureaus and commercial printers. Industry sources estimate
that in 1994 the market for short-run production color digital printers was
$519 million and is expected to grow to $740 million in 1996. In addition, the
total short-run production market, including color digital printers,
consumables such as ribbons and ink and printer service and maintenance, is
estimated to have been $1.2 billion in 1994 and is estimated to increase to
$2.0 billion in 1996.
In March 1995, the Company signed a multi-year strategic distribution
agreement with the A.B.Dick Company ("A.B.Dick") for the worldwide distribution
of the CYMax series color digital printers. This agreement provides A.B.Dick
with exclusive rights to sell the CYMax series of high-speed color digital
printers into the quick printer and commercial printer segments of the short-
run production printer market, comprising about one-third of the total
addressable market in potential revenues, subject to certain conditions. The
A.B.Dick agreement also provides non-exclusive rights to A.B.Dick to market,
sell and service the CYMax series of high-speed color digital printers into
other print-for-profit market segments and also to in-plant printing
facilities. A.B.Dick has a significant marketing and service presence through
its direct sales force and distribution network in over 80 countries in North
America, Europe, and the Pacific Rim. On May 5, 1995, A.B.Dick announced the
first CYMax high-speed color digital printer to be marketed under its label at
the Drupa exhibition in Dusseldorf, Germany. The Company is currently preparing
beta test units for field evaluation by A.B.Dick and other select customers and
anticipates that production deliveries will commence in calendar 1995.
On May 11, 1995, the Company entered into an agreement with International
Business Machines ("IBM") Corporation to provide field service for the CYMax
series of high-speed color digital printers under maintenance contracts between
the Company and its customers.
3
<PAGE>
In parallel with its pursuit of mass commercial markets, the Company intends
to leverage its CTI technology into niche markets and applications, such as
seismic data plotting, sign making, label and form printing and license plate
printing. In this regard, the Company has sold color printers to Halliburton
Oil Logging Services for use in the oil exploration industry and has a multi-
year agreement with AZON Corporation to develop and apply CTI technology to
print specialty vehicle license plates and street signs utilizing full-size
adhesive color labels.
To date, substantially all of the Company's sales have been derived from
business with the U.S. Department of Defense, other U.S. government agencies
and foreign military-related sales. The Company's military printers utilize
thermal or electrosensitive printer technologies and have greater reliability
than conventional impact printers because they are designed with high
reliability components for use in adverse environmental applications. The
Company manufactures both full military specification ("mil spec") and
ruggedized military printers. The design and component selection allow the
Company's printers to operate reliably under conditions of vibration, shock,
temperature extremes, dirt and grime and nuclear radiation. Several of the
Company's mil spec printers have been included in U.S. Government military
peripheral standardization programs, enabling the armed services to select the
Company's printers for new systems without incurring the expense of developing
new printer documentation for each system. The Company is also a value-added
ruggedizer of computer devices and peripherals, which are encased in shock,
vibration and temperature-resistant housings, for products of equipment
manufacturers such as Digital Equipment Corporation, Hewlett-Packard Company,
Silicon Graphics Inc., Sun Microsystems Inc. and Cray Research.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered hereby (1)....... 2,000,000 shares
Common Stock to be outstanding after
the offering (2)..................... 11,419,460 shares
Use of proceeds....................... To fund the development, manufacture
and marketing of the Company's CYMax
series high-speed color digital
printers; to redeem all of the
Company's outstanding shares of Series
B Redeemable Preferred Stock; and for
other working capital and general
corporate purposes, including possible
acquisitions.
AMEX symbol........................... DC
</TABLE>
--------
(1) Assumes the Underwriters' over-allotment option is not exercised. See
"Underwriting."
(2) Excludes 1,419,290 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options granted and available for grant under
the Company's stock option plans, 200,000 shares of Common Stock issuable
upon exercise of the Representatives' Warrants, 170,000 shares of Common
Stock issuable upon exercise of certain warrants which the Company has
issued and an indeterminate number of shares of Common Stock issuable upon
the exercise of warrants that may be issued with respect to the Series B
Redeemable Preferred Stock. See Notes 8 and 9 of Notes to Financial
Statements, and "Description of Capital Stock" and "Shares Eligible for
Future Sale."
4
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------------------------- ------------------
OCTOBER 28, OCTOBER 27, OCTOBER 25, OCTOBER 31, OCTOBER 30, MAY 1, APRIL 30,
1990 1991 1992 1993(1) 1994 1994 1995
----------- ----------- ----------- ----------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... $26,536 $21,017 $22,358 $23,984 $25,211 $12,367 $ 7,348
Gross profit............ 6,926 6,792 8,407 8,361 8,306 4,077 1,291
Research and development
expenses............... 699 726 1,390 1,951 2,297 975 2,646
Selling, general and
administrative ex-
penses................. 5,255 4,731 5,069 5,547 6,254 3,528 2,806
Income (loss) from oper-
ations................. 972 1,335 1,948 863 (245) (426) (4,161)
Net income (loss)(2).... 564 675 1,337 1,483 31 (213) (4,050)
Earnings (loss) per
common share(3):
Primary............... $ .10 $ .13 $ .30 $ .26 $ -- $ (.03) $ (.40)
Fully diluted......... $ .10 $ .12 $ .22 $ .23 $ -- $ (.03) $ (.40)
Weighted average number
of shares
outstanding(3):
Primary............... 3,616 3,664 3,769 5,458 9,067 7,682 10,186
Fully diluted......... 5,816 5,864 5,946 6,404 9,067 7,682 10,186
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF APRIL 30,
1995
------------------
AS
ACTUAL ADJUSTED(4)
------ ----------
<S> <C> <C>
Working capital......................................... $ 8,754 $22,823
Total assets............................................ 15,953 30,022
Current portion of capital leases and loan obligations.. 514 514
Long-term debt.......................................... 1,369 1,369
Capital lease obligations (less current portion)........ 117 117
Series B redeemable preferred stock..................... 939 --
Stockholders' equity.................................... 9,785 24,793
</TABLE>
--------
(1) Includes the results of Rugged Digital from August 10, 1993, the date of
acquisition by the Company. See Note 2 of Notes to Financial Statements.
(2) Net income for fiscal year 1993 includes a cumulative effect of change in
accounting principle of $938,000. See Note 5 of Notes to Financial
Statements.
(3) See Note 1 of Notes to Financial Statements for an explanation of the
calculation of the number of shares used in computing net income per common
share.
(4) Adjusted to reflect the sale of 2,000,000 shares offered hereby at an
assumed public offering price of $8.25 per share and the initial
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risks
should be considered carefully in evaluating the Company and its business
before purchasing the Common Stock offered hereby.
LOSS IN FIRST SIX MONTHS; EXPECTED LOSS IN FISCAL YEAR 1995; IMPACT ON
LIQUIDITY
The Company reported a net loss of $4,050,000 for the six-months ended April
30, 1995, attributable to the Company's significant investment in its
commercial color printer technology and to declining defense-related sales
during such period. As a result of the Company's expected continued significant
investment in its high-speed color digital printer program, the Company expects
to incur a substantial loss for fiscal year 1995 which it is unable to quantify
at this time. In addition, the proceeds of this offering are necessary to
provide the needed liquidity to maintain this expected significant level of
research and development and to make anticipated production deliveries in
calendar 1995. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
UNCERTAINTY OF COMMERCIAL IMPLEMENTATION OF COLOR PRINTER TECHNOLOGY
The Company's future success depends in large part on the timely and
successful development and marketing in commercial markets of products based
upon the Company's proprietary high-speed color digital printer technology.
Mass commercial implementation of the Company's technology remains uncertain
and is subject to a number of factors including, without limitation, timely
completion of the Company's product offerings, the timing of development of
competing color printing technologies, the availability of adequate
manufacturing capacity and distribution channels and the availability of
adequate working capital to finance development, manufacture and marketing of
the products. Although the Company has sold high-speed color digital printers
to Halliburton Oil Logging Services for use in the oil exploration industry,
the Company has not yet begun to ship CYMax series high-speed color digital
printers into mass commercial markets and is currently negotiating with third
party manufacturers to provide for full-scale production. There can be no
assurance, however, that any such agreements will be signed or, if so, when. If
the Company is unable to complete any of these efforts in a timely manner, such
failure could have a material adverse effect on the timely introduction and
sales of the CYMax series high-speed color digital printer into the short-run
production printer markets. See "Business--High-Speed Color Digital Printer."
DEPENDENCE ON THIRD PARTY DISTRIBUTION CHANNELS TO ACCESS CERTAIN MASS
COMMERCIAL PRINTER MARKETS
Because the Company believes that time-to-market is an important factor in
addressing available commercial markets, such as the short-run production
printer market, its primary distribution strategy is to align itself with
original equipment manufacturers ("OEMs") possessing brand name recognition and
established distribution channels. Accordingly, the Company has been seeking
OEM agreements to provide such distribution capabilities. In March 1995, the
Company signed a multi-year agreement with A.B.Dick for the worldwide
distribution of the Company's CYMax series of high-speed color digital
printers. The Company has received an initial purchase order from A.B.Dick in
excess of $2 million subject to the Company's ability to meet certain product
specifications and other customary contractual requirements. Other than the
initial purchase order, A.B.Dick is not obligated to make any further purchases
under the distribution agreement, and there can be no assurance that it will do
so.
The Company is also seeking other OEM distribution alliances. There can be no
assurance that the Company will be successful in securing other such alliances
and, if so, what capabilities or resources any other such alliance will
actually provide to the Company. Additionally, the Company is presently seeking
to establish third party distribution capabilities through national and/or
regional distribution networks for markets not specifically covered by OEM
candidates. Such distribution channels have not yet been established. There can
be no assurance that the Company will be successful in establishing such
distribution channels. Accordingly, there can be no assurance that the Company
will be able to successfully develop and market its CTI color printer
technology in certain mass commercial markets by these strategies. See
"Business--High-Speed Color Digital Printer."
6
<PAGE>
COMPETITION
The Company competes in each market it serves with numerous other companies,
many of which have far greater name recognition and financial, technical,
marketing and customer service resources than the Company. The principal
competitive factors in the commercial markets in which the Company participates
are image quality, performance and price. Competition in commercial color
printing markets is intense. The commercial color printing market is addressed
by numerous companies with various technologies, each with certain advantages
and disadvantages in terms of image quality, print speed and price. The Company
believes that its CTI technology currently has a print speed advantage over
competitive products and, therefore, is well-suited to high-volume color
printing/plotting. The commercial color printing market is characterized,
however, by rapid technological advances and downward price pressure as
competing technologies mature. The Company's principal competitors in the
commercial markets include Canon, Xerox, Minolta, Ricoh, Xeikon and Indigo.
Most of the Company's competitors have substantially greater financial and
technical resources than the Company. In addition, competitors in the
commercial color printer market are rapidly improving the quality and price of
their current printers. If one or more of the Company's competitors were to
introduce a printer with a significantly enhanced combination of image quality,
speed and price characteristics before the Company introduced its printer, such
introduction could have a material adverse effect on the Company's ability to
market a printer into such markets. If such a competitor's product introduction
occurred after the Company had a printer on the market, such product
introduction could also have a material adverse effect on the success of the
Company's printer in such markets.
In the domestic and international defense markets, the Company's principal
competitors are North Atlantic Industries, Inc., Aydin and Genesco, Inc. In
addition, many airborne electronic data processing and communications prime
contractors have the capability of manufacturing military and airborne
products, and several such companies do presently manufacture products
performing functions similar to the Company's products. In almost all cases,
these companies have substantially greater financial and technological
resources than the Company. In certain applications, the Company's printers are
higher in price than those of its competitors, and many of its competitors have
more experience in the markets for lower-cost military printers than the
Company. Management believes, however, that the Company's printers usually
perform at higher speed and with greater reliability in extreme environments.
There can be no assurance that the Company will be able to compete effectively
in either the commercial or the domestic or international defense markets for
its products. See "Business--Competition."
DEPENDENCE ON DEPARTMENT OF DEFENSE CONTRACTS; DECLINING DEFENSE SALES
The Company is currently highly dependent upon being selected to supply
printers, printer/plotters, ruggedized computers or workstations by government
contractors who have obtained U.S. Department of Defense ("DoD") contracts
which require those products, or by the DoD itself. Accordingly, the Company is
currently dependent upon continued DoD spending on programs which include its
products. For the fiscal years ended October 25, 1992, October 31, 1993 and
October 30, 1994, direct and indirect DoD business represented approximately
72%, 69% and 85%, respectively, of the Company's sales. Substantially all of
the Company's other sales during such periods were derived from business with
other U.S. government agencies and foreign military-related sales.
Since fiscal 1989, the Company has experienced generally declining defense-
related sales, principally as a result of an uncertain defense budget situation
that resulted in contract awards delays and reduced military program funding.
Management expects that these downward trends will continue for the foreseeable
future. The market for the Company's high-end military printers has been
particularly weak during this time period and is expected to continue to be
weak for the foreseeable future. This environment has resulted in substantial
decreases in the Company's backlog of funded orders. The Company's funded
backlog related to DoD business at the end of fiscal years 1990, 1991, 1992,
1993 and 1994 was approximately $15,511,000, $10,434,000, $4,394,000,
$6,629,000 and $5,075,000, respectively. The Company's funded backlog related
to DoD business at April 30, 1995 was $6,687,000.
7
<PAGE>
Companies engaged primarily in supplying equipment and services, directly or
indirectly, to the United States government are subject to special risks
including dependence on government appropriations, termination without cause,
contract renegotiation and competition for the available DoD business. In
addition, many of the Company's contracts provide for the right to audit the
Company's cost records and are subject to regulations providing for contract
price reductions if defective cost or pricing information was provided by the
Company. See "Business--Defense Products."
DEPENDENCE ON MAJOR CUSTOMERS
The Company's business is also substantially dependent on a relatively small
number of customers and defense programs. In fiscal 1994, the Company's five
largest customers in sales, Lockheed Corporation (21.6%), Raytheon Company
(13.5%), Rockwell International (10.7%), Martin Marietta Corporation (10.2%)
and the DoD (6.8%), accounted for an aggregate of 62.8% of total Company sales.
The loss of any one of these customers could have a material adverse effect on
the Company's result of operations and financial condition.
The Company's distribution of its CYMax product line is currently
substantially dependent on future sales by A.B.Dick under its worldwide
distribution agreement with the Company. A.B.Dick has given the Company an
initial purchase order for CYMax products, but there can be no assurance that
A.B.Dick will achieve or sustain a substantial level of sales of the Company's
CYMax series of high-speed color digital printers.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's results of operations are subject to considerable fluctuations
from quarter to quarter due to changes in demand for the Company's products and
other factors, and there can be no assurance that the Company will be
profitable in any particular quarter. Demand for the Company's products in each
of the markets it serves can vary significantly from quarter to quarter due to
revisions in budgets or schedules for customer projects requiring the Company's
products, changes in demand for the customers' products which incorporate or
utilize the Company's products and other factors beyond the Company's control.
In addition, demand for products based upon the Company's CTI technology is
highly uncertain given the emerging nature of the Company's technology, other
competing color printer products and technologies and the commercial color
printer market itself. See "Selected Financial Data" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
TECHNOLOGICAL OBSOLESCENCE
The markets served by the Company, particularly the commercial color printer
market, are characterized by rapid technological advances, downward price
pressure in the marketplace as technologies mature, changes in customer
requirements and frequent new product introductions and enhancements. The
Company's business requires substantial ongoing research and development
efforts and expenditures, and its future success will depend on its ability to
enhance its current products, reduce product costs and develop and introduce
new products that keep pace with technological developments in response to
evolving customer requirements. The Company's failure to anticipate or respond
adequately to technological development or introduction could result in a loss
of anticipated future revenues and impair the Company's competitiveness.
RISKS OF FOREIGN SALES
The Company believes that foreign sales may represent a significant portion
of the Company's future sales. Foreign sales are subject to numerous risks,
including political and economic instability in foreign markets, restrictive
trade policies of foreign governments, inconsistent product regulation by
foreign agencies or governments, the imposition of product tariffs and the
burdens of complying with a wide variety of international and U.S. export laws
and differing regulatory requirements. To date, the Company's foreign sales
have been transacted in U.S. dollars and many payments have been supported by
letters of credit. To the extent, however, that future foreign sales are
transacted in a foreign currency or not supported by a letter of credit, the
Company would be subject to the risk of losses due to foreign currency
fluctuations and difficulties associated with accounts receivable collection.
8
<PAGE>
SOLE OR LIMITED SOURCES OF SUPPLY
The Company relies to a substantial extent on sole suppliers to manufacture
several key components for use in the CYMax series of high-speed color digital
printers, including controllers, print heads and color printer ribbons. The
Company's reliance on sole suppliers for key components involves several risks,
including a potential inability to obtain an alternate supply of required
components and supplies, and reduced control over pricing and the timing of
delivery of the CYMax series high-speed color digital printers. Because the
manufacture of certain of these components, including controllers, print heads
and color printer ribbons, is specialized and requires long lead times, there
can be no assurance that delays in the ability to timely complete production
orders will not be caused by vendors. Any inability to obtain adequate
deliveries, or any other circumstance that would require the Company to seek
alternative sources of supply or to manufacture such components internally,
could delay shipment of the Company's products, increase its cost of goods sold
and have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is currently engaged in
negotiations with other manufacturers for alternate sources of supply of print
heads and color printer ribbons. There can be no assurance, however, that any
agreements with such alternate supply sources will be signed or, if so, when.
See "Business--Sources of Supply."
In the military business area, the Company is generally not dependent upon
any one supplier for any raw material or component which it purchases, and
there are available alternative sources for such raw materials and components.
The Company is currently dependent, however, on certain OEM suppliers for
components used in its rugged computer devices and peripherals. The Company has
year-to-year renewable supply agreements with suppliers which have been renewed
in prior years. In the event any of these contracts are not renewed, however,
the Company's business would be materially and adversely impacted because the
Company would have to purchase similar components upon substantially less
favorable terms and conditions. See "Business--Sources of Supply."
DEPENDENCE ON KEY PERSONNEL
Management believes that the Company's success depends in part upon its
ability to attract and retain highly skilled management, technical, sales and
marketing personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be successful in attracting and retaining
such personnel. None of the Company's employees has an employment contract with
the Company. The Company does not maintain key-man life insurance on any of its
personnel (other than a key-man life insurance policy on the Company's Chairman
of the Board, Garland S. White). See "Management."
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards portions of the hardware designs and operating software
incorporated into its products as proprietary and attempts to protect them with
a combination of patent, copyright, trademark and trade secret laws, employee
and third-party nondisclosure agreements and similar means. Despite these
precautions, it may be possible for unauthorized third parties to copy certain
portions of the Company's products or to "reverse engineer" or otherwise obtain
and use to the Company's detriment information that the Company regards as
proprietary. Moreover, the laws of some foreign countries do not afford the
same protection to the Company's proprietary rights as do U.S. laws. There can
be no assurance, therefore, that any of these protections will be adequate or
that the Company's competitors will not independently develop technologies that
are substantially equivalent or superior to the Company's technologies. See
"Business-- Intellectual Property Rights."
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has from time to time
fluctuated widely and in the future may be subject to similar fluctuations in
response to quarter-to-quarter variations in the Company's operating results,
announcements of technological innovations or new products by the Company or
its competitors, announcements of marketing and distribution arrangements by
the Company, general conditions in the industries in which the Company competes
and other events or factors. In addition, in recent years broad stock market
indices, in general, and the securities of technology companies, in particular,
have
9
<PAGE>
experienced substantial price fluctuations. Such broad market fluctuations also
may adversely affect the future trading price of the Common Stock. In addition,
sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect the future trading price of the Common
Stock. See "Price Range of Common Stock and Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect the future trading price of the Common
Stock. In addition to the 2,000,000 shares of Common Stock offered hereby, all
of the shares of Common Stock currently outstanding are available for immediate
sale in the public market as of May 17, 1995, other than a total of 617,323
shares owned beneficially by officers and directors of the Company which would
otherwise be available for immediate sale in the public market but may not be
sold until 120 days after the date of this Prospectus without the prior written
consent of the Underwriters under the terms of lock-up agreements described
herein under "Underwriting." See also "Shares Eligible for Future Sale."
POSSIBLE DILUTIVE EFFECT OF OUTSTANDING OPTIONS AND WARRANTS
As of May 17, 1995, there were 1,419,290 shares of Common Stock reserved for
issuance upon exercise of outstanding stock options granted and available for
grant under the Company's stock option plans. Of such reserved shares, there
were 1,200,990 shares of Common Stock reserved for issuance upon the exercise
of stock options outstanding under the Company's stock option plans at exercise
prices ranging from $.75 to $5.75 per share, of which options to purchase
660,819 shares are currently exercisable. An additional 218,300 shares of
Common Stock are reserved for issuance upon the exercise of options available
for future grant under such plans. In addition, 200,000 shares of Common Stock
are reserved for issuance upon the exercise of the Representatives' Warrants
and 170,000 shares of Common Stock are reserved for issuance upon exercise of
warrants which the Company has issued. To the extent the trading price of
Common Stock at the time of exercise of any such options or warrants exceeds
the exercise price, such exercise will have a dilutive effect on the Company's
stockholders. See "Shares Eligible for Future Sale."
CERTAIN CHARTER AND BY-LAW PROVISIONS, AND ANTI-TAKEOVER EFFECT OF DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges, including voting rights, of such shares without any further vote or
action by the Company's stockholders. The rights of the holders of Common Stock
will be subject to, and could be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of shares of Preferred Stock under certain circumstances could have the effect
of delaying, deferring or preventing a change of control of the Company. The
Company has no present plan or arrangement to issue any additional shares of
Preferred Stock. Certain provisions of Delaware law could delay or inhibit a
merger, tender offer or proxy contest involving the Company. See "Description
of Capital Stock."
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares offered
hereby, at an assumed public offering price of $8.25 per share, and after
deducting underwriting discounts and commissions, and estimated offering
expenses of $255,000, are estimated to be approximately $15,008,000
($17,297,000 if the Underwriters' over-allotment option is exercised in full).
The original holders of the Company's Series B Redeemable Preferred Stock
(the "Series B Preferred Stock") are entitled to receive warrants to purchase
Common Stock at an exercise price of $.50 per share if
10
<PAGE>
the Series B Preferred Stock remains outstanding on August 10, 1995. See
"Description of Capital Stock." The Series B Preferred Stock is redeemable for
cash at any time in whole or in part, at the Company's option, at a redemption
price equal to 100% of the liquidation preference per share, plus all accrued
and unpaid dividends thereon, if any, to the date of redemption. The Company
intends to use approximately $956,000 of the net proceeds of this offering to
redeem all of the outstanding shares of the Company's Series B Preferred Stock.
The Company intends to use the balance of the net proceeds of this offering
for the development, manufacture and marketing of products based upon its CTI
technology. A significant portion of the proceeds will be used by the Company
in connection with its ongoing investment in the CYMax high-speed color digital
printer program.
In addition, the net proceeds not so utilized will be used for the Company's
other working capital needs and for general corporate purposes. The Company may
also utilize a portion of the net proceeds from the offering for possible
investment in or acquisition of complementary businesses, products, product
development rights and technologies. The Company has no current understanding
or commitment with respect to any such investment or acquisition, however, and
there can be no assurance that any such investment or acquisition will become
available or will be made.
Prior to the use of the proceeds of this offering, the Company will invest
such proceeds in short-term and medium-term interest-bearing instruments, such
as certificates of deposit and short-term governmental obligations.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the AMEX under the symbol "DC." The
following table sets forth for the fiscal periods indicated the high and low
sales prices for the Common Stock as reported on the AMEX:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED OCTOBER 31, 1993
1st Quarter............................................ $2 1/2 $1 1/16
2nd Quarter............................................ 2 5/8 1 1/2
3rd Quarter............................................ 1 13/16 1 1/4
4th Quarter............................................ 3 5/8 1 3/16
FISCAL YEAR ENDED OCTOBER 30, 1994
1st Quarter............................................ $4 1/8 $2 9/16
2nd Quarter............................................ 3 1/4 2 3/8
3rd Quarter............................................ 3 3/16 2 9/16
4th Quarter............................................ 5 1/4 3 7/16
FISCAL YEAR ENDING OCTOBER 29, 1995
1st Quarter............................................ $6 3/8 $3 3/4
2nd Quarter............................................ 9 1/4 5 1/8
3rd Quarter (through May 17, 1995)..................... 9 1/4 8
</TABLE>
For a recent last reported closing price of the Common Stock on the AMEX, see
the cover page of this Prospectus. As of May 17, 1995, the Company had 894
holders of record of Common Stock.
The Company has never paid cash dividends on its Common Stock and has no
plans to pay any such dividends in the foreseeable future. In addition, the
Company's bank line of credit currently prohibits the payment of dividends on
the Common Stock without written permission from the bank. The Company
currently intends to retain any earnings for working capital and general
corporate purposes.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at April 30,
1995, and as adjusted to reflect the sale of 2,000,000 shares of Common Stock
offered hereby at an assumed public offering price of $8.25 per share and the
initial application of the net proceeds therefrom to redeem all of the
outstanding shares of the Company's Series B Preferred Stock. See "Use of
Proceeds."
<TABLE>
<CAPTION>
AS OF APRIL 30,
1995
-----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Current portion of capital lease and loan obligations........ $ 514 $ 514
======= =======
Long-term debt due after one year............................ $ 1,369 $ 1,369
Capital lease obligations (less current portion)............. 117 117
Series B redeemable preferred stock (1)...................... 939 --
Stockholders' equity:
Preferred stock, $.01 par value--5,000,000 shares
authorized (1)............................................ -- --
Common stock $.01 par value--15,000,000 shares authorized,
9,417,582 shares issued and outstanding (11,417,582 shares
as adjusted) (2).......................................... 94 114
Additional paid-in capital................................. 14,813 29,801
Accumulated deficit........................................ (5,122) (5,122)
------- -------
Total stockholders' equity............................... 9,785 24,793
------- -------
Total capitalization......................................... $12,210 $26,279
======= =======
</TABLE>
--------
(1) See Note 8 of Notes to Financial Statements.
(2) Excludes 1,421,168 shares of Common Stock reserved for issuance at April
30, 1995 upon exercise of outstanding stock options granted and available
for grant under the Company's stock option plans, 170,000 shares of Common
Stock issuable upon exercise of warrants issued by the Company and 200,000
shares of Common Stock issuable upon exercise of the Representatives'
Warrants. See Notes 8 and 9 of Notes to Financial Statements, and
"Description of Capital Stock" and "Shares Eligible for Future Sale."
12
<PAGE>
SELECTED FINANCIAL DATA
This following selected financial data has been derived from and should be
read in conjunction with the Company's audited financial statements and
related notes and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" included elsewhere herein. The selected
financial data as of October 1990, 1991 and 1992 and for the years ended
October 1990 and 1991 have been derived from financial statements not included
herein. The selected statement of operations data for the six months ended May
1, 1994 and April 30, 1995 and the selected balance sheet data as of April 30,
1995 are taken or derived from the unaudited financial statements of the
Company. In the opinion of management, such unaudited financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for such periods. The results
of operations for the six months ended April 30, 1995 are not necessarily
indicative of the results to be expected for the fiscal year ending October
29, 1995. Amounts are in thousands, except per share data.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------------------------- ------------------
OCTOBER 28, OCTOBER 27, OCTOBER 25, OCTOBER 31, OCTOBER 30, MAY 1, APRIL 30,
1990 1991 1992 1993(1) 1994 1994 1995
----------- ----------- ----------- ----------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Sales................... $26,536 $21,017 $22,358 $23,984 $25,211 $12,367 $7,348
Gross profit............ 6,926 6,792 8,407 8,361 8,306 4,077 1,291
Research and development
expenses............... 699 726 1,390 1,951 2,297 975 2,646
Selling, general and
administrative
expenses............... 5,255 4,731 5,069 5,547 6,254 3,528 2,806
Income (loss) from
operations............. 972 1,335 1,948 863 (245) (426) (4,161)
Interest income
(expense), net......... (408) (191) (129) (65) 2 (58) (39)
Cumulative effect of
change in accounting
principle(2)........... -- -- -- 938 -- -- --
Extraordinary item,
utilization of
operating loss and tax
credit carryforwards... 221 -- -- -- -- -- --
Net income (loss)....... 564 675 1,337 1,483 31 (213) (4,050)
Series A preferred stock
dividends paid(3) -- 385 190 114 -- -- --
Earnings (loss) per
common share(4):
Primary................ $ .10 $ .13 $ .30 $ .26 $ -- $ (.03) $ (.40)
Fully diluted.......... $ .10 $ .12 $ .22 $ .23 $ -- $ (.03) $ (.40)
Weighted average number
of shares
outstanding(4):
Primary................ 3,616 3,664 3,769 5,458 9,067 7,682 10,186
Fully diluted.......... 5,816 5,864 5,946 6,404 9,067 7,682 10,186
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 28, OCTOBER 27, OCTOBER 25, OCTOBER 31, OCTOBER 30, APRIL 30,
1990 1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital......... $2,718 $3,620 $4,856 $8,708 $12,361 $8,754
Total assets............ 10,985 11,502 9,626 16,460 19,950 15,953
Note payable to bank.... 1,247 1,677 460 1,150 600 --
Long-term debt (less
current portion)....... 853 307 -- -- -- 1,369
Capital lease
obligations (less
current portion)....... -- -- 33 138 32 117
Series B redeemable
preferred stock........ -- -- -- 965 940 939
Series A preferred
stock(3)............... 2,572 2,572 2,489 -- -- --
Stockholders' equity.... 4,082 4,561 5,725 8,470 13,661 9,785
</TABLE>
--------
(1) Includes the results of Rugged Digital from August 10, 1993, the date of
acquisition by the Company. See Note 2 of Notes to Financial Statements.
(2) See Note 5 of Notes to Financial Statements.
(3) All remaining shares of Series A Preferred Stock were converted into
Common Stock during fiscal 1993.
(4) See Note 1 of Notes to Financial Statements for an explanation of the
calculation of the number of shares used in computing net income per
common share.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The Company designs, develops, manufactures and sells high-speed color
printers, high resolution non-impact printer/plotters and ruggedized computers,
printers and workstations. Historically, the Company's products have been used
primarily for U.S. military applications. Over the past several years, the
Company has been significantly impacted by reductions in the U.S. defense
budget. In response, in fiscal 1989 the Company instituted cost containment
measures, increased operating efficiencies and focused its efforts on
maintaining higher margin products in its manufacturing mix and on cash
generation. In addition, the Company began to initiate efforts to reduce its
dependency on defense spending by applying its technology and experience to
commercial, industrial and international markets. For the past four fiscal
years, the Company has focused its research and development activities on
commercial applications of its products and technologies, in particular the
Company's proprietary, high-speed color printer technology.
The Company's operating cycle is long term and involves various types of
production contracts and varying production delivery schedules. Management
believes that inflation and changing prices have not had a material effect on
the Company's results of operations for the periods covered by the financial
statements included herein. The contract process in which products are offered
for sale is generally set before costs are incurred and the prices are based on
estimates of these costs which include the anticipated impact of inflation.
Accordingly, results of a particular period, or period-to-period comparisons of
recorded sales and profits, may not be indicative of future operating results.
The following comparative analysis should be viewed in this context.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
-------------------------- -----------------
OCT. 25, OCT. 31, OCT. 30, MAY 1, APR. 30,
1992 1993 1994 1994 1995
-------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Sales...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............. 62.4 65.1 67.1 67.0 82.4
----- ----- ----- ----- -----
Gross profit............... 37.6 34.9 32.9 33.0 17.6
Operating expenses:
Research and development
expenses................ 6.2 8.1 9.1 7.9 36.0
Selling, general and
administrative expenses. 22.7 23.1 24.8 28.5 38.2
----- ----- ----- ----- -----
Income (loss) from
operations................ 8.7 3.7 (1.0) (3.4) (56.6)
Interest income (expense),
net....................... (0.6) (0.3) -- (0.5) (0.5)
Amortization of excess of
acquired net assets over
cost...................... -- 0.3 1.2 1.1 2.1
----- ----- ----- ----- -----
Income (loss) before provi-
sion for income taxes and
cumulative effect of
change in accounting prin-
ciple..................... 8.1 3.7 0.2 (2.8) (55.0)
Provision (benefit) for in-
come taxes................ 2.2 1.4 0.1 (1.1) --
Cumulative effect of change
in accounting principle... -- 3.9 -- -- --
----- ----- ----- ----- -----
Net income (loss).......... 5.9% 6.2% 0.1% (1.7)% (55.0)%
===== ===== ===== ===== =====
</TABLE>
14
<PAGE>
Six Month Period Ended April 30, 1995 Compared To The Six Month Period
Ended May 1, 1994
Sales for the six month period ended April 30, 1995 were $7,348,000, a
decrease of $5,019,000 or 41% compared to $12,367,000 for the same period the
prior year. Sales from printer and workstation contracts relating to the
MILSTAR program declined $4,800,000 to $1,300,000, while other defense-related
workstation sales remained constant, other defense related printer sales
increased $400,000 and sales to other customers declined $619,000. The MILSTAR
program, which accounted for $4,600,000 in sales in the second half of fiscal
1994, is expected to account for less than $500,000 in the second half of
fiscal 1995. There can be no assurance that other DoD-related sales will
replace the MILSTAR program sales.
Gross profits for the six month period ended April 30, 1995 were $1,291,000
(18% of sales), a decrease of $2,786,000 or 68% compared to $4,077,000 (33% of
sales) for the same period the prior year. Gross profits as a percentage of
sales were adversely impacted by the Company's product mix shifting to lower
margin ruggedized products from higher margin full mil spec products and lower
production levels without a corresponding reduction in expenses.
Research and development expenses were $2,646,000 for the six month period
ended April 30, 1995, an increase of $1,671,000 or 171%, compared with $975,000
for the same period the prior year. Substantially all fiscal 1995 expenditures
related to the development of the Company's high-speed color digital printer
products.
Selling, general, and administrative expenses for the six month period ended
April 30, 1995 were $2,806,000 (38% of sales), a decrease of $722,000 or 20%
compared with $3,528,000 (29% of sales) for the same period the prior year.
This decrease was attributable to lower defense-related sales and marketing
expenses, consisting primarily of reduced commissions and payroll, partially
offset by increased marketing expenses for the Company's high-speed color
digital printer.
Net interest expense amounted to $39,000 for the six month period ended April
30, 1995, a net decrease of $19,000 compared with $58,000 for the same period
the prior year. This decrease was due to lower borrowings and higher interest
income partially offset by increased capital leases. Amortization of excess of
acquired net assets over cost was $152,000 for the six month period ended April
30, 1995 compared to $141,000 for the same period last year. The amortization
was a result of the acquisition of Rugged Digital in August 1993.
The net loss for the six months ended April 30, 1995 amounted to $4,050,000,
compared with a net loss of $213,000 for the same period in the prior year.
This was due to a decrease in gross profit of $2,786,000, an increase in
research and development costs of $1,671,000, and an increase in taxes of
$132,000, the aggregate of which was partially offset by a decrease in selling,
general, and administrative expenses of $722,000, a decrease in net interest
expense of $19,000, and an increase in amortization of excess of acquired net
assets over costs of $11,000.
Reduced military sales during fiscal 1995, along with increased competition
in the ruggedized peripheral market, increased research and development costs,
and higher interest expense due to capital leases and loans are expected to
result in a substantial loss for the Company in fiscal 1995.
Fiscal Year 1994 Compared with Fiscal Year 1993
Sales for the year ended October 30, 1994 were $25,211,000, an increase of
$1,227,000 or 5.0%, compared with sales of $23,984,000 in the prior year. In
fiscal 1994, decreases in nonmilitary-related sales of $1,163,000 and
international military printer sales of $1,363,000 were offset by increases in
printer and keyboard sales related to the DoD of $341,000 and ruggedized
computer and computer workstation sales of $6,618,000, reflecting twelve
months' results of such sales compared to less than three months in 1993. In
addition, in fiscal 1994, the Company only recognized $233,000 in sales (0.9%
of total Company sales) compared to $2,780,000 (11.6% of Company sales) in
fiscal 1993 from contracts for printers and keyboards
15
<PAGE>
for NASA's Space Station Freedom. In November 1993, the Company's contract was
terminated for convenience by McDonnell Douglas Corporation for reasons
unrelated to the Company's product. The Company's backlog of funded orders not
recognized as sales increased from $7,793,000 at October 31, 1993 to
$10,459,000 at October 30, 1994. This increase resulted primarily from
contracts with the Canadian Defense Department, partially offset by the DoD
delays in contract awards and reduced funding of military programs.
Gross profit for fiscal 1994 was $8,306,000 (32.9% of sales), a decrease of
$55,000, or 0.7%, compared with $8,361,000 (34.9% of sales) for the prior year.
Gross profit as a percent of sales decreased 0.8% in fiscal 1994 due to a
change in product mix. The remaining 1.2% gross profit decrease was due to a
cost overrun on a contract for a new black-and-white military printer.
Research and development expenses were $2,297,000 for fiscal year 1994
compared with $1,951,000 for the prior year. This increase was due to an
accelerated development schedule for the Company's high-speed color printer
technology in order to shorten time-to-market. The Company expects that this
development effort will cause research and development expenses to continue to
increase in fiscal 1995. The research and development expenses incurred in 1994
related to development of a high-speed commercial color printer technology and
product enhancements, lower-cost black-and-white printers and ruggedization of
newer-model workstations. The research and development expenses incurred in
fiscal 1993 related to development of a high-speed commercial color printer
technology, product enhancements and lower-cost black-and-white printers.
Selling, general and administrative expenses for fiscal 1994 were $6,254,000
(24.8% of sales) compared with $5,547,000 (23.1% of sales) for the prior year.
The increase was due to increased expenses associated with marketing the
Company's color printer technology.
Net interest income amounted to $2,000 for the year ended October 30, 1994
compared with net interest expense of $65,000 for fiscal 1993. This change in
interest expense was due to decreased borrowings and investment income on the
proceeds of the Company's common stock offering in 1994.
Net income for the fiscal year ended October 30, 1994 amounted to $31,000
compared with $1,483,000 for the prior year. This decrease of $1,452,000 was
attributable to a decrease in gross profit of $55,000, an increase in research
and development costs of $346,000, an increase in selling, general and
administrative costs of $707,000 and a change in accounting principle in fiscal
1993 resulting in a $938,000 gain. These amounts were partially offset by a
decrease in interest expense of $67,000, an increase in amortization of excess
of acquired net assets over cost of $205,000 and a decrease in income tax
expense of $322,000.
The Company had net deferred tax assets of $559,000 at October 30, 1994.
Management has determined that, based on the Company's carryback opportunities
and historical and expected future earnings from recurring operations, the
Company will more likely than not recognize these net deferred tax assets.
Ultimate recognition of these tax assets is dependent, to some extent, on
future revenue levels and margins. It is the intention of management to assess
the appropriate level for the valuation allowance each quarter.
Fiscal Year 1993 Compared with Fiscal Year 1992
Sales for the year ended October 31, 1993 were $23,984,000, an increase of
$1,626,000 or 7.3%, compared with sales of $22,358,000 in the prior year. In
fiscal 1993, nonmilitary-related printer sales increased by $1,800,000,
international military printer sales decreased by $600,000, printer and
keyboard sales related to the U.S. Department of Defense decreased by
$3,900,000, and Rugged Digital sales added $4,300,000 during the year. The
decrease in DoD printer and keyboard sales in fiscal 1993 was the result of an
uncertain defense budget situation that resulted in contract award delays and
reduced military program funding. In addition, in fiscal 1993, the Company
recognized $2,780,000 in sales (11.6% of total Company sales) from contracts
for printers and keyboards for NASA's Space Station Freedom. The Company's
backlog
16
<PAGE>
of funded orders not recognized as sales increased from $6,795,000 at October
25, 1992 to $7,793,000 at October 31, 1993. This increase resulted primarily
from the U.S. Department of Defense contracts relative to Rugged Digital
business partially offset by award delays and reduced military program funding
discussed above.
Gross profit for the year ended October 31, 1993 was $8,361,000 (34.9% of
sales), a decrease of $46,000 or 0.5% compared with $8,407,000 (37.6% of sales)
for the prior year. Gross profit as a percent of sales decreased 1.1% in fiscal
1993 due to a change in product mix. The remaining 1.6% gross profit decrease
was due to a cost overrun on a military color printer interface which may be
recovered on future orders.
Research and development expenses were $1,951,000 for fiscal year 1993
compared with $1,390,000 for the prior year. This increase was due to an
accelerated development schedule for the Company's high-speed color printer
technology in order to shorten time to market. The research and development
expenses incurred in fiscal 1993 related to development of a high-speed
commercial color printer technology, product enhancements and lower-cost black-
and-white printers. The research and development expenses incurred in fiscal
1992 related to product development for high-speed commercial color printer
technology and a low-cost, rugged, black-and-white printer and keyboard as well
as enhancements to existing products.
Selling, general and administrative expenses for the year ended October 31,
1993 were $5,547,000 (23.1% of sales) compared with $5,069,000 (22.7% of sales)
for the prior year. The increase was due to increased expense for marketing
relating to the Company's color printer technology.
Interest expense amounted to $65,000 for the year ended October 31, 1993
compared with $129,000 for the prior year. This reduction was due to decreased
borrowings and a lower overall interest rate.
The cumulative effect of change in accounting principle was the result of the
Company's adoption, effective as of the beginning of fiscal 1993, of a new
standard related to accounting for income taxes, Statement of Financial
Accounting Standards No. 109 (SFAS No. 109). The effect of adopting SFAS No.
109 was a one-time benefit to income of $938,000.
Net income for the year ended October 31, 1993 amounted to $1,483,000
compared with $1,337,000 for the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has entered into a revolving line of credit with a bank (the
"Credit Agreement"). The advance rate is eighty percent (80%) of eligible
accounts receivable, plus eighty percent (80%) of eligible progress billing
receivables, to a maximum of the progress billing receivable sublimit, which
will not exceed the lesser of ten percent (10%) of eligible accounts receivable
or $500,000. The lending facility is capped at $7,000,000 and expires on March
4, 1996. The interest rate is prime plus .25%. The loan is secured by
substantially all the Company's assets. As of May 17, 1995, the Company had
borrowings outstanding of $1,200,000 under the Credit Agreement and remaining
availability of approximately $1,000,000 under the terms of the Credit
Agreement.
The Credit Agreement requires the Company to maintain certain financial
ratios and restricts or limits the Company's ability to (i) create certain
liens, (ii) convey, transfer, or sell assets out of the ordinary course, (iii)
incur additional indebtedness, (iv) redeem or repurchase any class of stock,
and (v) pay dividends on its preferred or common stock. The Company is in
compliance with all of its covenants.
From time to time the Company receives advance payments on certain contracts.
These funds may be used for working capital requirements and other general
corporate purposes until needed to complete the contracts. At April 30, 1995,
the Company had $24,000 of advance payments in excess of costs.
17
<PAGE>
The Company's working capital and current ratios at the end of fiscal years
1992, 1993, 1994 and the period ending April 30, 1995 were $4,856,000,
$8,708,000, $12,361,000 and $8,754,000 and 2.4, 2.6, 3.7 and 3.8 respectively.
The Company expects to purchase approximately $1,700,000 of capital equipment
(including capitalized leases) during fiscal 1995, of which $1,283,000 of such
equipment had been purchased as of April 30, 1995. The Company's other
principal commitments for fiscal 1995 are lease obligations for the Company's
facility, operating leases, principal and interest due on equipment borrowings,
redemption of the Series B Preferred Stock and interest on bank borrowings. The
Company intends to use a portion of the proceeds of this offering to redeem all
of the outstanding shares of its Series B Preferred Stock. See "Use of
Proceeds."
Due to the Company's significant level of research and development costs and
the reduced sales and margins in its military business, the Company has
experienced negative cash flow from operations of $496,000 for the first six
months of fiscal year 1995. This negative cash flow from operations is expected
to continue for the remainder of fiscal year 1995.
The Company intends to fund its continued investment in its high-speed color
digital printers through a public offering of common stock. The proceeds of
such offering are necessary to provide the needed liquidity to maintain this
expected significant level of research and development and to make anticipated
production deliveries in calendar 1995. The Company intends to finance its
defense-related capital requirements and other liquidity needs from the
existing line of credit, capital leases and working capital. In addition,
pursuant to an agreement reached in February 1995, the Company expects that in
the third fiscal quarter of 1995, Cruttenden Roth Incorporated will exercise
the warrants previously granted to it in connection with the Company's public
offering consummated in March 1994, and the Company will receive the aggregate
warrant exercise price of $535,500 in cash.
BUSINESS ENVIRONMENT
As part of its business strategy, the Company has been investing substantial
resources in developing its commercial business. Results for 1995 are expected
to be impacted by continued significant investment in the Company's CYMax high-
speed color digital printer program, during which time the Company expects to
introduce products to the market for field evaluation. During calendar 1995,
the Company expects to make initial customer deliveries and to slowly increase
production, which the Company anticipates will begin generating incremental
commercial revenues.
Companies engaged in supplying equipment and services to U.S. government
defense programs are subject to special risks including dependence on
government appropriations, contract termination without cause, contract
renegotiation, and the intense competition for the available defense business.
Over the past several years, the Company has been significantly impacted by
market changes in the DoD. DoD budget forecasts indicate that overall funding
will continue to decrease for the foreseeable future, and the Company
anticipates that the results of its military business operations will continue
to be adversely affected by such decreases.
Reduced military sales during fiscal 1995, along with increased competition
in the ruggedized peripheral market, increased research and development costs,
and higher interest expense due to capital leases and loans are expected to
cause a substantial loss for the Company in fiscal 1995.
Because of the foregoing, as well as other factors affecting the Company's
operating results, past financial performance should not be considered to be a
reliable indicator of future performance.
18
<PAGE>
BUSINESS
The Company designs, develops, manufactures and sells high-speed color
printers, high-resolution non-impact printer/plotters and ruggedized computers,
printers and workstations. The Company is focused on the development of high-
speed color digital printers which utilize its proprietary concurrent transfer
imaging ("CTI") printing process and has recently sold a limited number of such
printers to niche commercial users. The Company intends to market its CYMax
series of high-speed color digital printers, based on CTI technology, to mass
commercial users including short-run production printers. The Company's high-
speed color digital printers have demonstrated the ability to print full-color,
high-quality images on 8 1/2"X11" pages in less than 3 seconds, or 20 color
pages per minute. The Company believes that no comparably priced digital color
printer currently available prints full-color, high-quality images at speeds
equal to the Company's CYMax series of high-speed color digital printers.
The Company believes that its proprietary CTI technology has numerous
potential applications in the color printer market, ranging from mass
commercial uses to niche applications. The Company has targeted the short-run
production printer market for its initial entry into mass commercial markets.
The short-run production printer market is characterized by printers whose
typical print run is 2,000 documents or less and includes franchise and
independent quick print shops, in-plant printing departments, sign printers,
copy shops, service bureaus and commercial printers. In March 1995, the Company
signed a multi-year strategic distribution agreement with A.B.Dick for the
worldwide distribution of the CYMax series of high-speed color digital
printers. The Company is currently preparing beta test units for field
evaluation by A.B.Dick and other select customers and anticipates that
production deliveries will commence in calendar 1995.
The Company was incorporated in California in October 1962 and was
reincorporated in Delaware in April 1987. The Company's principal executive
offices are located at 21135 Erwin Street, Woodland Hills, California 91367,
and its telephone number is (818) 598-6200.
COMPANY BACKGROUND
The Company pioneered the development of high-speed, non-impact printers for
tactical military applications. At present, ruggedized printers remain the
Company's core product line, and the U.S. military remains its largest source
of revenue. Building from this base, the Company has developed and manufactured
other high-performance, high-reliability electronics communications equipment
for aerospace, defense, industrial and commercial markets. The Company's
current product line includes printers, printer/plotters and ruggedized
computers and workstations with diverse capabilities ranging from stringent
military specifications to varying commercial standards.
Over the past several fiscal years, the Company has been significantly
impacted by market changes in the DoD. DoD budget forecasts indicate that
overall funding will continue to decrease for the foreseeable future. The
Company's primary response to these adverse defense market conditions has been
to develop and aggressively pursue opportunities for its CYMax series of high-
speed color digital printers.
19
<PAGE>
BUSINESS STRATEGY
The Company's overall business strategy is to continue to aggressively pursue
opportunities to apply its technology and experience to the commercial
marketplace and thereby reduce its dependence on the U.S. defense industry. The
key elements of the Company's business strategy include:
Aggressively Pursue Mass Commercial Applications for CYMax High-Speed Color
Digital Printers.
The Company plans to market its CYMax high-speed color digital printers into
certain mass commercial markets, such as the short-run production printer
market, through its strategic distribution agreement with A.B.Dick and its
pursuit of OEM and reseller distribution agreements. The benefits the Company
is seeking through such agreements are a combination of established
distribution channels, financial support and brand name product recognition.
Leverage CTI Technology to Penetrate Niche Market Applications.
The Company intends to leverage its CTI technology into niche market
applications, such as seismic data plotting, sign making, label and form
printing and specialty vehicle license plate printing. These niche markets are
application driven and generally require a unique configuration of the printer.
The Company believes that such niche market applications may help foster long
term customer relationships as the products are customized with customer-funded
non-recurring engineering. The Company believes that it has the financial
resources and technical capabilities to manufacture and market such printer
configurations for these niche markets without the assistance of strategic
alliances.
Strengthen its Manufacturing and Service Capabilities through Third Party
Arrangements.
The Company is pursuing strategic manufacturing and field service alliances.
The Company believes that this strategy will allow it to increase manufacturing
capacity and service capabilities, while at the same time, focusing on its core
competencies in the development and marketing of technologically advanced,
high-speed color digital printers. As part of this strategy, on May 11, 1995,
the Company signed an agreement with IBM Corporation pursuant to which IBM
Corporation will provide field maintenance services for the Company's CYMax
series of high-speed color digital printers.
Continue to Invest in Product Development.
The Company believes that its CYMax series of high-speed color digital
printers offer a superior combination of image quality, speed and price for its
targeted applications. The Company plans to invest in significant ongoing
product development efforts to enhance image quality, reduce product and
operating costs and increase functionality and speed.
Preserve Leading Position in Military Printer Markets and Expand Rugged
Digital Operations.
The Company traditionally has been the leading manufacturer of high end, mil
spec printers. In spite of the significantly reduced market size over the past
few years, the Company believes that mil spec printers will continue to be an
important revenue source in the future. The Company intends to preserve a
leading position in this market through early identification of programs,
support of government program offices in formulating product requirements and
incremental investments in research and development to develop lower cost
military capable products. In addition, the Company has expanded its Rugged
Digital product line of ruggedized computers and peripherals, adding equipment
from several computer manufacturers in addition to its historical line of
Digital Equipment Corporation hardware products. This expansion has broadened
the Company's addressable defense markets and solidified its position in
traditional defense markets.
HIGH-SPEED COLOR DIGITAL PRINTER
The Company has designated its third generation high-speed color printers
targeted at commercial markets as the CYMax series of high-speed color digital
printers. The CYMax series of high-speed color digital printers, as well as the
Company's earlier generations of high-speed color printers, incorporates the
20
<PAGE>
Company's proprietary color printer technology utilizing a concurrent transfer
imaging process. CTI technology utilizes a unique high-speed, high-resolution
electronic print mechanism, proprietary image enhancement software algorithms,
paper alignment and control, and thermal energy management systems. The CTI
printing process utilized by the Company's high-speed technology has fewer
moving parts than most competing technologies and, as such, is expected to be
more reliable and easier to maintain. The Company has demonstrated that
products based on CTI technology can print a full-color, high-quality image on
an 8 1/2" x 11" page in less than three seconds, or 20 color pages printed per
minute. The Company believes that its CYMax series of high-speed color digital
printers will print full-color, high-quality images at a faster speed than any
comparably priced digital color printer now on the market.
The Company developed its first color printer in 1988 and shipped its first
product in 1989. In 1990, the Company initiated research and development on
high-speed thermal transfer printer technology. Beginning in 1991, under a
contract with Halliburton Oil Logging Services ("Halliburton") the Company
customized its technology to manufacture a high-speed, high-resolution color
printer for oil exploration. Halliburton utilizes the printers to plot seismic
sensor data on a continuous basis. Output plots are up to 400 feet long and are
printed at speeds of three inches per second. In September 1993 the Company
signed an OEM agreement with AZON Corporation of Johnson City, New York for
development of a configuration of a high-speed color printer for printing
specialty vehicle license plates. This printer will be used in a system for the
State of New York which is expected to go on-line in the latter part of 1995.
In fiscal 1994, the Company began an intensive program to develop a high-
speed color digital printer for the short-run production printer market. In
November 1994, the Company demonstrated a prototype of this third generation
high-speed color printer, designated as the CYMax series, at the Comdex show in
Las Vegas, Nevada and the XPLOR show in Phoenix, Arizona. On May 5, 1995,
A.B.Dick announced the first CYMax high-speed color digital printer to be
marketed under its label at the Drupa exhibition in Dusseldorf, Germany, one of
the largest printing shows in the world. Held every five years, the Company
believes that Drupa is attended by over 1,500 exhibiting manufacturers of
printing related equipment. The Company is currently preparing beta test units
for field evaluation by A.B.Dick and other select customers and anticipates
that production deliveries will commence in calendar 1995.
The Company's commercial color printer product strategy is based on providing
products that offer the best combination of image quality, speed, and price
(including acquisition price and operating costs) to certain target markets,
including the short-run production printer market. The Company believes that no
product or technology to date has offered all three of these characteristics at
satisfactory levels in a single product to such target markets. The Company
believes that its initial CYMax product offering, printing at a speed of 20
pages per minute, is the fastest digital color printer in the world in its
price category. Based on industry data, the Company believes that the
acquisition price for the initial CYMax product will be about one-half the
price of competitive products that print at lower speeds than the CYMax
product. The Company expects that the total operating costs of the CYMax
product series will be about 60% of the operating cost of competitive printers,
primarily due to the very low maintenance costs resulting from the simplicity
of the CYMax design. Since CYMax will be sold into print-for-profit
environments, the Company will continue to make significant research and
development investments in areas that will reduce the CYMax product's operating
costs, such as development of ribbon conservation techniques. The Company also
plans to make significant ongoing research and development investment to
enhance its image quality and to increase print speed.
In March 1995, the Company signed a multi-year strategic distribution
agreement with A.B.Dick of Niles, Illinois, for the worldwide distribution of
the CYMax series high-speed color digital printers. This agreement provides
A.B.Dick with exclusive rights to sell the CYMax products into the quick
printer and commercial printer segments of the short-run production printer
market, comprising about one-third of the total addressable market in potential
revenues, subject to certain conditions. The A.B.Dick agreement also provides
non-exclusive rights to A.B.Dick to market and sell the CYMax products into
other print-for-profit market segments and also to in-plant printing
facilities. A.B.Dick has a significant marketing and service
21
<PAGE>
presence through its direct sales force and distribution network in over 80
countries in North America, Europe, and the Pacific Rim. The Company is also
pursuing agreements with OEMs and resellers with strengths in market segments
not specifically covered by A.B.Dick.
On May 11, 1995, the Company entered into an agreement with IBM Corporation
pursuant to which IBM Corporation will provide field service for the CYMax
series printers under maintenance contracts between the Company and its
customers. The Company believes this alliance will enhance its competitive
positioning by providing its customers with the assurance that their printers
will be properly maintained by an established field service organization.
HIGH-SPEED COLOR DIGITAL PRINTER MARKETS
Market Overview. Industry sources estimate that in 1994 the short-run
production market for color printers was $519 million and is expected to grow
to $740 million in 1996. In addition, the total short-run production market,
including color digital printers, consumables such as ribbons and ink, and
printer service and maintenance, is estimated to have been $1.2 billion in 1994
and is estimated to increase to $2.0 billion in 1996.
Currently, the U.S. color printer market is dominated by traditional offset
presses. Traditional offset presses require very long set-up times and are
cost-effective only for very large print volumes, generally in excess of 5,000
document print runs. The color printer market is changing dramatically,
however, with the introduction of computer-driven electronic printers.
Electronic printers allow each printed page in a print run to be unique and do
not have lengthy set-up procedures like traditional offset presses, allowing
for color printing on demand. As a result of technological advances, the cost
of printing small runs of color documents on demand is being reduced
substantially. Electronic color printers currently can print short runs of
2,000 documents or less on a cost-effective basis. Based on industry data, the
Company believes that print runs of 2,000 documents or less currently account
for over 50% of the total number of U.S. color print runs annually. As the cost
of printing small runs of color documents on demand continues to decline, the
demand by consumers for short-run color printing services, and accordingly, the
demand for short-run production printers, is expected to grow substantially.
Short-Run Production Printer Market. Potential customers in this market
include franchise quick-print shops, independent quick-print shops, in-plant
printing departments, sign printers, copy shops, service bureaus, commercial
printers and institutions. The following table shows the number of short-run
production printers worldwide in 1994, and is based primarily on data compiled
by selected private market research firms.
<TABLE>
<CAPTION>
NORTH AMERICA REST OF WORLD TOTAL
------------- ------------- -----
(IN THOUSANDS OF PRINTSHOPS)
<S> <C> <C> <C>
In-Plants............................... 29.0 63.5 92.5
Sign Shops.............................. 33.0 58.3 91.3
Quick Printers.......................... 25.0 53.8 78.8
Other(1)................................ 18.7 27.9 46.6
----- ----- -----
Total................................... 105.7 203.5 309.2
===== ===== =====
</TABLE>
--------
(1) This category includes commercial printers, copy shops, service bureaus and
institutions.
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<PAGE>
The short-run production printer market has a fairly narrow range of
principal suppliers and print technologies. The following table shows the
principal suppliers, print technologies, printer speeds and range of suggested
retail printer prices in the short-run production printer market:
<TABLE>
<CAPTION>
APPROXIMATE
MANUFACTURER'S
SUGGESTED RETAIL
SUPPLIER PRINT TECHNOLOGY SPEED (PPM) PRICE
-------- ---------------- ----------- -----------------
<S> <C> <C> <C>
DATAMETRICS CORPORATION:
CYMax 3240 Concurrent Transfer 20 $39,000
Imaging Process
PRINTER/COPIER
SUPPLIERS:
Canon CLC 700 (sim- Electrophotographic 7 $74,000
plex)(1)
Canon CLC 800 (du- Electrophotographic 7 $84,900
plex)(1)
Xerox Majestik Electrophotographic 6 $67,500
Minolta CF80 Electrophotographic 7 $77,500
Ricoh 8015 Electrophotographic 15 $88,500
DIGITAL PRESS SUPPLIERS:
Xeikon DCP-1(2) Electrophotographic 35 $220,000-$320,000
Indigo E-Print 1000 Hybrid--Offset and Liquid Ink 33 $250,000-$420,000
</TABLE>
--------
(1) Marketed also under the Eastman Kodak label.
(2) Marketed also by AM Multigraphics and by Agfa-Gevaert Belgium.
The Company believes that its CTI technology has numerous applications in the
short-run production printer market. The two segments of this market that the
Company has initially targeted are the print-for-profit and in-plant market
segments. The Company believes that a print speed of between 15-20 color pages
per minute is required in order for a printer to be effectively utilized in
these two market segments. The Company believes that no printer currently being
sold into these two market segments can achieve the price/performance of the
Company's color printers, with the highest priced electrophotographic printers
coming closest with an average print speed of up to 15 pages per minute. As
such, the 20 color page per minute speed achieved by printers using the
Company's CTI technology would represent a print speed advantage compared with
electrophotographic printers now being sold into such market segments. Other
printer products now sold into the short-run production printer market,
primarily digital presses, are generally characterized by their high print
speed (over 30 pages per minute) and their high acquisition cost (over $200,000
per printer). Printers based on the Company's CTI technology now have a print
speed of 20 color pages per minute, but are expected to have an acquisition
cost (approximately $39,000) significantly below other printers now sold into
this market. The Company believes that 20 color pages per minute is
sufficiently fast to operate effectively in the short-run production printer
market and that this market offers an attractive opportunity for its printers
on the basis of a significantly lower acquisition price alternative.
23
<PAGE>
Printer Technologies. The following table compares key aspects of the
Company's CTI technology with certain competitive print technologies which the
Company believes are capable of cost-effectively serving the short-run
production printer market:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE FULL-COLOR APPROXIMATE
MANUFACTURER'S PAGES AVERAGE COST
PRINTER SUGGESTED PRINTED PER
TECHNOLOGY ADVANTAGES DISADVANTAGES RETAIL PRICE PER MINUTE COLOR PAGE(1)
----------------------- ---------------- ---------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
DATAMETRICS TECHNOLOGY:
CONCURRENT TRANSFER High print Moderate image $39,000 20 $.36-$.39
IMAGING (paper makes speed; Low degradation on
only one pass through acquisition and lower grades of
four thermal heads and maintenance paper; Moderate
ribbon stations) costs; Excellent cost/page for
transparencies; low color print
Low cost/page coverage
for high color
print coverage
COMPETITIVE
TECHNOLOGIES:
ELECTROPHOTOGRAPHY (an Minimal High acquisition $67,500- 6-15 $.59-$.61
electronic image is degradation on and maintenance $88,500
produced to which lower grades of costs; Low print
electrically charged paper; Good speed
toner particles are transparencies
attracted, deposited
on the media and fused
to the paper through
heat and pressure)
DIGITAL COLOR PRESS: Very high print Very high $220,000- 33-35 $.40-$.55
(several technologies, speed; Minimal acquisition and $420,000
including degradation on maintenance
electrophotography and lower grades of costs
hybrid offset press) paper; High
image/print
quality
</TABLE>
--------
(1) The approximate average cost per full-color page data shown above is based
on industry data. The cost per full-color page includes all costs
associated with printing including consumables, maintenance, printer
amortization, labor and electricity. The cost per full-color page shown in
the table is based upon 50% print coverage on the page, which the Company
believes is the average color print coverage per page in the short-run
production printer market. The cost per full-color page for the Company's
CTI technology does not vary based on the color print coverage. For the
other printer technologies shown above, the cost per color page is
dependent upon the percentage of color print coverage on the page.
24
<PAGE>
Niche Markets. In parallel with its pursuit of distribution alliances to
enter mass commercial markets, the Company intends to leverage its current CTI
technology into other niche OEM markets and applications, such as seismic data
plotting, sign making, label and form printing and specialty vehicle license
plate printing. These niche markets are application driven and will generally
require a unique configuration of the printer. As such, customer-funded non-
recurring engineering may be sought to customize the product. The Company
believes that it has the financial resources and technical capabilities to
manufacture printers for these niche markets itself without the assistance of
strategic alliances. The Company pursues these niche markets through trade show
presentations, advertising and its contacts in the commercial printer industry.
An example of entry into such a niche market is the Company's September 1993
agreement with AZON Corporation ("AZON"), a leading U.S. supplier of
architectural and engineering drawing materials and pioneer in the coating of
full-color computer aided design and graphics products. Under the terms of the
agreement, the Company developed and delivered a second generation high-speed
color digital printer based upon CTI technology to be used for printing a new
generation of specialty vehicle license plates and street signs utilizing full-
size adhesive color labels. The agreement covers research and development, non-
recurring engineering expenses, production printers and consumables and has an
estimated sales value in excess of $11 million if all options are exercised by
AZON. There can be no assurance, however, that AZON will exercise the contract
options. In addition, either party may terminate the agreement on sixty days'
notice. AZON has the exclusive right to sell this specialty printer
configuration in certain vertical markets. In October 1994, AZON was awarded a
contract with the State of New York for a license plate system, which will
utilize the Company's printers.
DEFENSE PRODUCTS
The Company currently designs, develops, manufactures and sells mil spec and
ruggedized printers and ruggedized computers and workstations for use in U.S.
DoD applications. Products sold by the Company into the DoD markets can be
categorized into two basic groups: military printers and ruggedized computers.
For the year ended October 30, 1994, approximately 85% of the Company's
revenues were derived from DoD business and included contractors with U.S.
government contracts as well as the DoD itself.
Mil spec products are designed specifically for military requirements and
must meet stringent requirements for operation in adverse environments, such as
shock, vibration, extreme temperatures and nuclear radiation. As such, these
products are more reliable and significantly more expensive than ruggedized or
commercial products. At the other end of the spectrum, commercial products, as
the name implies, are designed principally for commercial applications, but in
some cases are suitable for military use. These products are generally
significantly less expensive than mil spec products. In a broad intermediate
category are ruggedized products, which generally have been configured to
operate in adverse environments but do not meet full mil spec requirements.
Military Printers. The Company manufactures a broad range of printers which
are categorized as either mil spec or ruggedized. These printers utilize
thermal printing or impact printing technologies. The Company's printers are
purchased and utilized by companies and organizations which manufacture, sell
or use data processing or data communications systems that require "hard copy"
printouts and into which the Company's products are incorporated. The Company's
military printers have greater reliability than conventional commercial
printers and are designed for use in severe environmental applications. The
design and component selection allow the Company's printers to withstand dirt
and grime, corrosion, droppage, bullets, moisture, extremes in hot and cold
temperature, and in some cases, nuclear radiation. In connection with U.S.
Government military peripheral standardization programs, the DoD has approved
and assigned nomenclature (military identification) to standard computer
peripherals for its defense systems. Several of the Company's mil spec printers
have been included in this standardization program enabling the armed services
to select the Company's printers for new systems without incurring the expense
of developing new printer documentation for each system. The Company believes
that the inclusion of the Company's mil spec printers in this standardization
program influenced the selection of the Company's printers for several defense
programs.
25
<PAGE>
The Company's high-resolution thermal printers utilize a thermal direct
imaging method of printing. In the past, printers utilizing the thermal
printing process generally could not meet the specifications required in
certain rigorous environments. Due to technological improvements, thermal
printers can now be built to meet the specifications required for more adverse
environments while providing inherent quiet, reliable printing operation. The
Company has also developed a low-cost impact printer, targeted at the low end
of the environmentally severe market. This low-cost "ruggedized" product
utilizes industrial (high-reliability, military rated) components, encased in a
rugged case to withstand moderately severe environments.
The Company's highest sales volume thermal printer is the DmC 1600 military
printer/plotter. The DmC 1600's are used for the U.S. Navy's Tactical Flag
Command Center ("TFCC"). The TFCC System provides the hard copy data utilized
by the Fleet Commander when tactical decisions are required during crisis
situations. The TFCC system is presently proposed for most of the Navy's
nuclear super aircraft carriers, battleships and cruisers. In addition, DmC
1600's are used for the U.S. Navy standard display consoles that are utilized
on virtually every fighting ship in the fleet. The DmC 1600 is qualified for
the Navy's rigorous environmental standards. Special versions of the DmC 1600
thermal printer have been selected for the U.S. Army REGENCY NET secure
communications systems, the U.S. Navy's on-board anti-submarine warfare
training program, and the MILSTAR Communication Satellite Program, the DoD's
global communications system.
The Company has completed initial deliveries of a number of high resolution
color printer/plotters, the DmC Series 1900, to the U.S. Navy. This product
line utilizes the thermal transfer process to produce high- resolution, full
color images on plain paper. The thermal transfer technology used with respect
to the DmC Series 1900 differs from the direct imaging thermal process in that
it uses plain paper and a multi-colored ribbon instead of direct imaging paper.
These products provide between 40,000 and 90,000 pixels (picture elements) per
square inch and up to 16,000,000 colors, shades or tones. This printer has been
selected by the U.S. Navy for utilization within a number of Aegis subsystems.
The military color printer market has been slow to develop, however, due to
cost considerations. The Company believes that the demand for military color
printers will increase if acquisition and operating costs are reduced.
Ruggedized Computers. In August 1993, the Company consummated the acquisition
of Rugged Digital Systems. See Note 2 of Notes to Financial Statements. The
Rugged Digital business is now operated as a part of the Defense Business Unit
of the Company. The Rugged Digital division combines environmental and
mechanical engineering technology with computer technology to produce products
that perform identically to commercial counterparts, but are able to operate in
adverse environments. Rugged Digital offers ruggedized versions of computer
devices and peripherals encased in shock, vibration and temperature resistant
housing, for products of equipment manufacturers such as Digital Equipment
Corporation, Hewlett-Packard Company, Silicon Graphics Inc., Sun Microsystems
Inc. and Cray Research. This process often requires Rugged Digital to design
and manufacture cases, controls, backplanes and power supplies. Rugged
Digital's products require much shorter development and testing periods than
mil spec products. As such, Rugged Digital's products allow the military to
deploy rapidly state-of-the-art computer technology at a price greatly reduced
from full mil spec systems. These timing and price factors are responsive to
current U.S. military procurement trends.
A substantial portion of Rugged Digital's total revenue for the past three
years has been derived from an ongoing contractual effort with Lockheed
Corporation to provide several suites of superminicomputers and workstations
for the MILSTAR Program. Based on an ongoing contractual effort, following the
acquisition by the Company, the Rugged Digital division received the production
follow-on addendum for five production systems. This award was in addition to
the existing cost plus fee incentive contract.
In addition, the Company's Rugged Digital division has been bidding
ruggedized workstations to the international marketplace. To date the Rugged
Digital division has sold workstations to Kawasaki Heavy Industries of Japan
for the Japanese P3 maritime patrol aircraft and to Thomson CSF of France.
Other
26
<PAGE>
significant bids have been made to potential customers in Italy (Alenia),
France (Thomson CSF), Israel (Elbit), and Korea (Goldstar). Results of these
bidding efforts should be known in 1995. There can be no assurance, however,
that the Rugged Digital division will receive any such additional orders.
International Military. The Company believes that international markets offer
promising growth opportunities for the Company's high-end monochrome and color
printers and ruggedized computers and workstations. While the U.S. military has
been experiencing decreased funding over the past several years, certain other
countries, principally in the Pacific Rim, have been increasing their
participation in and spending for their own defense. In order to address this
market, the Company has contracted with sales representatives for numerous
foreign markets, including Italy, the United Kingdom, Spain, France, Australia,
New Zealand, South Korea, Taiwan, Sweden and Norway. The Company also actively
seeks selected opportunities to present its products at international military
trade shows in order to increase its general international presence and to
allow potential customers to formulate new program requirements based on the
Company's products.
Distribution and Sales. The Company distributes its defense products directly
through both domestic and international sales forces. The Company employs its
own direct sales force selling within North America, which is supported in
certain regions by independent, commission-only sales representatives. The
Company's international sales efforts are coordinated by its director of
international sales, who supervises 18 independent, commission-only sales
representatives in various countries throughout the world, each covering
specified territories.
In addition, the Company has sought to distribute its defense products
through teaming agreements with other companies. The Company has arranged with
Cray Research for Cray's sales personnel to sell the Company's ruggedized Cray
computers, and has participated as a sub-contractor to GTE (the prime
contractor) in the U.S. Army's Omnibus Common Hardware Systems-II Program, a
multi-year program for computer peripheral hardware. The Company has also been
engaged in on-going negotiations with Thomson CSF (France) to carry the
Company's defense products in Thomson's international sales catalog.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company is involved in both Company-sponsored and customer-sponsored
research and development. In the latter case, customers contract directly for
such activities. The customer-sponsored research and development primarily
consists of non-recurring engineering costs relating to production contracts.
In addition to design technology, this non-recurring engineering includes
development of maintenance and operator manuals, drawings, reliability and
maintainability analysis, technical design audits and data required to support
field repairs. Such costs do not qualify as research and development costs as
defined by Financial Accounting Standards Board Statement No. 2 and,
accordingly, have not been disclosed as such in the Company's financial
statements.
The Company expended approximately $1,390,000, $1,951,000 and $2,297,000 on
research and development during the fiscal years ended October 25, 1992,
October 31, 1993 and October 30, 1994 respectively, and $2,646,000 during the
six months ended April 30, 1995. The Company had no material backlog of
commercial product orders as of October 30, 1994. The research and development
expenses incurred in fiscal 1992 through 1995 related to product development
for a high-speed color digital printer and a low-cost rugged black and white
printer, as well as enhancements to existing products. Research and development
expenses relating to the Company's high-speed color digital printer were
primarily for the development of the CYMax printer and ongoing image quality
improvements.
The Company is currently negotiating with several third party manufacturers
for full-scale production of the CYMax series high-speed color digital
printers. Such third party manufacturing is expected to commence in early 1996.
Until that time, the Company plans to manufacture the printers at its facility
in
27
<PAGE>
Woodland Hills, California. The Company also manufactures its mil spec and
ruggedized printers and ruggedized computers and workstations at its Woodland
Hills facility.
SERVICE
In the commercial business area, the Company's strategy is to use third
parties to provide field service and support. On May 11, 1995, the Company
entered into an exclusive agreement with IBM Corporation to provide field
service for the CYMax series high-speed color digital printers under
maintenance contracts between the Company and its non-OEM or reseller
customers. The agreement contains customary termination and renewal provisions.
In addition, A.B.Dick has the right under its agreement with the Company to
provide service and support for high-speed color digital printers sold under
its label. The Company currently anticipates that A.B.Dick will offer to
provide field service and support to A.B.Dick's customers.
Pursuant to maintenance agreements, repair orders or warranty provisions, the
Company generally services its military printers with its own employees at its
facilities. In-house, non-warranty repairs and maintenance service provided
4.6% of the Company's sales in fiscal 1994. For both military and commercial
products, the Company's standard warranty period is 90 days, although longer
warranty periods are available at customer request for an additional charge.
Sales of spare parts for the Company's products amounted to 14.2% of fiscal
1994 revenue. The Company also sells documentation, such as handbooks,
operational manuals, schematics and other technical data to assist its
customers in maintaining their own equipment.
BACKLOG
The Company's backlog of funded orders not yet recognized as revenue at
October 31, 1993, October 30, 1994, and April 30, 1995 was approximately
$7,793,000, $10,400,000 and $13,609,000 respectively. Approximately 60% of the
October 30, 1994 backlog is expected to be delivered during the fiscal year
ending October 29, 1995.
Substantially all of the Company's backlog consists of orders which are
subject to termination at the convenience of the customer at any time. In the
event of such a termination, the Company is entitled to receive reimbursement
for its costs and, as long as the contract would have been profitable,
negotiated profit. Other than the contract with McDonnell Douglas for NASA's
Space Station Freedom, in recent years the Company has experienced no
significant terminations prior to completion of orders.
SOURCES OF SUPPLY
The Company relies to a substantial extent on sole suppliers to manufacture
several key components for use in the CYMax series of high-speed color digital
printers, including controllers, print heads and color printer ribbons. The
Company is currently engaged in negotiations with other manufacturers for
alternate sources of supply of print heads and color printer ribbons. There can
be no assurance, however, that any agreements with such alternate supply
sources will be signed or, if so, when. The Company's reliance on sole
suppliers for key components involves several risks, including a potential
inability to obtain an alternate supply of required components and supplies,
and reduced control over pricing and the timing of delivery of the CYMax series
high-speed color digital printers. Because the manufacture of certain of these
components, including controllers, print heads and color printer ribbons, is
specialized and requires long lead times, there can be no assurance that delays
in the ability to timely complete production orders will not be caused by
vendors. Any inability to obtain adequate deliveries, or any other circumstance
that would require the Company to seek alternative sources of supply or to
manufacture such components internally, could delay shipment of the Company's
products, increase its cost of goods sold and have a material adverse effect on
the Company's business, financial condition and results of operations.
28
<PAGE>
In the military business area, the Company is generally not dependent upon
any one supplier for any raw material or component which it purchases, and
there are available alternative sources for such raw materials and components.
The Company is currently dependent, however, on certain OEM suppliers for
components used in its rugged computer devices and peripherals. The Company has
year to year renewable supply agreements with suppliers which have been renewed
in prior years. In the event any of these contracts are not renewed, however,
the Company's business would be materially and adversely impacted because the
Company would have to purchase similar components upon substantially less
favorable terms and conditions. See "Risk Factors--Reliance on Certain
Suppliers."
COMPETITION
The Company competes in each of its target markets against other companies,
many of which have substantially greater financial, technical, marketing,
distribution and other resources than the Company. The principal competitive
factors in the markets in which the Company participates are image quality,
product performance and price.
Competition in color printing markets is intense, based on product
performance (principally image quality and print speed) and price. The market
is addressed by numerous companies with various technologies, each with certain
advantages and disadvantages in terms of image quality, print speed and price.
The Company believes that its CTI technology currently has a print speed
advantage over competitive products and, therefore, is well-suited to high-
volume color printing/plotting. The color printing market is characterized,
however, by rapid technological advances and downward price pressure as
competing technologies mature. The Company's principal competitors in the
commercial markets include Canon, Xerox, Minolta, Ricoh, Xeikon and Indigo.
Most of the Company's competitors have substantially greater financial and
technical resources than the Company. See "Risk Factors--Competition."
In domestic and international defense markets, the Company's principal
competitors are North Atlantic Industries, Inc., Aydin and Genesco, Inc. In
addition, many airborne electronic data processing and communications prime
contractors have the capability of manufacturing military and airborne
products, and several such companies do presently manufacture products
performing functions similar to the Company's products. In almost all cases,
these companies have substantially greater financial and technological
resources than the Company. In certain applications, the Company's printers are
higher in price than those of its competitors, and many of its competitors have
more experience in the markets for lower-cost military printers than the
Company. Management believes, however, that the Company's printers usually
perform at higher speed and with greater reliability in extreme environments.
INTELLECTUAL PROPERTY RIGHTS
It is the Company's policy to obtain appropriate proprietary rights
protection for any potentially significant new technology acquired or developed
by the Company. The Company has trademark registrations covering its "DmC(R)"
logo and LAURA(R), (the designation for the Company's high speed color
printer/plotter) and an application pending for CYMAX(TM) (the designation for
the Company's latest generation high-speed color digital printer targeted at
the short-run production printing market). The Company has been granted two
U.S. patents relating to its high-speed color digital printer. The Company also
has 23 U.S. patent applications pending relating to its high-speed color
digital printer. These two patents plus the 23 additional patent applications
also have been filed in certain targeted countries covered under the Patent
Cooperation Treaty ("PCT") and in Israel. There can be no assurance, however,
that any patents will be granted pursuant to these various applications in the
U.S. and abroad.
In addition, the Company relies on copyright and trade secret laws to protect
its proprietary rights. The Company attempts to protect its trade secrets and
other proprietary information through agreements with customers and suppliers,
proprietary information agreements with the Company's employees and consultants
and other similar measures. There can be no assurance, however, that the
Company will be successful in protecting its proprietary rights.
29
<PAGE>
While management believes that the Company's trademarks, patents, patent
applications, and other proprietary know-how have significant value, changing
technology makes the Company's future success dependent principally upon its
employees' technical competence and creative skills for continuing innovation.
EMPLOYEES
As of May 17, 1995, the Company employed 156 persons on a full-time basis.
None of the Company's employees is represented by a union or is subject to a
collective bargaining agreement. The Company believes that its relations with
its employees are excellent.
GOVERNMENTAL REGULATION
The Company's manufacturing operations are subject to various federal, state
and local laws, including those restricting or regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of, or otherwise restrict, its
operations because of such regulations, and compliance with applicable
environmental laws has not had a material effect upon the capital expenditures,
financial condition or results of operations of the Company.
PROPERTIES
The Company's operations are conducted from a 65,000 square foot facility in
Woodland Hills, California. The facility lease provides for a ten-year term
through July 2004, with options for the Company to terminate the lease after
eight years and to extend the lease for an additional five years. Management
believes that an additional 10,000 square feet of short-term manufacturing
space may be required in the near future.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Garland S. White 67 Chairman of the Board(1)
Sidney E. Wing 64 President, Chief Executive Officer and
Director(3)
John J. Van Buren 50 Senior Vice President, Chief
Financial Officer and Treasurer
Gerald A. Horwitz 59 Senior Vice President
Carl C. Stella 56 Senior Vice President
Ronald N. Iversen 47 Vice President/Commercial
Business Unit
Dann V. Angeloff 59 Director(1)
Richard A. Foster 59 Director(1)(2)
Burton L. Kaplan 66 Director(3)
Richard W. Muchmore 75 Director(2)
Kenneth K. Zeiger 62 Director(2)(3)
</TABLE>
--------
(1) Member of Audit Committee
(2) Member of Compensation and Stock Option Committee
(3) Member of Nominating Committee
Following is a brief biography of each of the directors and executive
officers of the Company:
Mr. White has held his present position of Chairman of the Board of
Directors since March 1986. Mr. White is also the President of GW Products
Management, a sole-proprietorship founded in 1990. Mr. White was Chief
Executive Officer of the Company for more than five years until September
1988. Mr. White was President of the Company for more than five years until
August 1986 and then became President again from January 1988 to September
1988.
Mr. Wing was appointed to his present position in September 1988. From
September 1986 to September 1988, he was President and Chief Operating Officer
of Resdel Engineering Corporation in Arcadia, California. Prior to this time
for more than five years, he was Vice President of Business Development with
Interstate Electronics in Anaheim, California.
Mr. Van Buren has been Vice President, Chief Financial Officer and Treasurer
since April 1989. He was Controller, Electronic Instrumentation Division,
Eaton Corporation from October 1986 to April 1989 and Controller, Measurement
& Control Operations, Eaton Corporation from September 1985 to October 1986.
Mr. Horwitz has been Senior Vice President of the Company since August 1990.
From March 1990 to August 1990, he served as the Company's Vice President of
Business Development. For more than three years prior to that time, Mr.
Horwitz was Division Vice President, System Integration Division at
Ultrasystem Space and Defense.
Mr. Stella has been Senior Vice President since August 1990 and was Vice
President from October 1987 to August 1990. From 1984 to October 1987, he was
a manager at Trident Program Office, Ocean Technology, Inc. From 1976 to 1984,
he was director of engineering, Ocean Technology Inc.
Mr. Iversen was appointed Vice President of the Company's newly-created
Commercial Products Unit in August 1993. From April 1991 to August 1993, he
was the founder and President of Nugen Distribution
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<PAGE>
International. From February 1984 to March 1991, he held a number of different
positions at Dataproducts Corporation, including Vice President, Marketing for
the last two such years.
Mr. Angeloff became a director of the Company in May 1993. Since 1976, he has
been the president of The Angeloff Company, a corporate financial advisory firm
founded by Mr. Angeloff. Mr. Angeloff is also a director of Nicholas/Applegate
Growth Equity Fund, Nicholas/Applegate Investment Trust, Seda Specialty
Packaging, Storage Equities, Inc. and Storage Properties, Inc.
Mr. Foster became a director of the Company in December 1990. Mr. Foster has
been an independent business consultant since August 1991. For more than five
years prior to that time he was President of Interstate Electronics
Corporation, Anaheim, California.
Mr. Kaplan became a director of the Company in 1982. Mr. Kaplan was President
and Chief Operating Officer of Burtree, Inc., Van Nuys, California, a
privately-held manufacturer of precision machined and sheet metal fabricated
components for electronics and hydraulics industries from July 1975 until his
retirement on February 1986. Since February 1986, Mr. Kaplan has been a
business consultant.
Mr. Muchmore has been a director of the Company since prior to 1970. Mr.
Muchmore was a Vice President and a Director of Raychem Corporation, an
electronics component manufacturing business located in Menlo Park, California
from February 1957 to March 1974. Mr. Muchmore has been an independent business
consultant since March 1974.
Mr. Zeiger has been a director of the Company since 1986. He was President,
Chief Operating Officer and a Director of AVW Electronic System, Inc. from
March 1988 to March 1991. From October 1987 until March 1988 and from March
1991 until August 1993, Mr. Zeiger was an independent business consultant.
Since August 1993, Mr. Zeiger has been Chief Executive Officer of KZC
Enterprises, Inc.
Each of the Company's outside directors receives an annual retainer fee of
$7,500 for services as a director, except for Mr. White who receives an annual
retainer of $15,000 plus a monthly retainer fee of $1,000 for services as
Chairman of the Board. In addition, outside directors (other than Mr. White)
receive $800 for each in-person Board meeting and Committee meeting, together
with reimbursement of out-of-pocket expenses. The Committee chairmen receive
$1,600 per in-person Committee meeting. In February 1995, the Company entered
into a consulting agreement with Mr. Angeloff under which he receives a $6,000
monthly retainer for service on the Board of Directors and for providing
financial advisory and consulting services to the Company. The agreement
provides that if Mr. Angeloff's services are requested on a capital raising or
merger/acquisition assignment the Company will pay Mr. Angeloff additional
monthly retainers of $10,000 or $7,500, respectively, for a minimum two month
term. Mr. Angeloff receives no other fees for Board or Committee meetings.
32
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of May 10, 1995, the number and percentage
ownership of the Company's Common Stock by each director of the Company and by
all officers and directors of the Company as a group. To the Company's
knowledge, no person or entity owns 5% or more of the Company's Common Stock.
Except as otherwise indicated, and subject to applicable community property and
similar laws, each of the persons named has sole voting and investment power
with respect to the Common Stock shown as beneficially owned. An asterisk
denotes beneficial ownership of less than 1%.
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE
NATURE OF OF
BENEFICIAL OUTSTANDING
NAME AND ADDRESS(1) OWNERSHIP SHARES
------------------- ---------- -----------
<S> <C> <C>
Burton L. Kaplan........ 334,254(2) 3.5%
Garland S. White........ 115,155(3) 1.2%
Sidney E. Wing.......... 172,465(4) 1.8%
Kenneth K. Zeiger....... 25,476(5) *
Richard A. Foster....... 35,321(6) *
Richard W. Muchmore..... 11,876(7) *
Dann V. Angeloff........ 11,254(8) *
All Officers and Direc-
tors as a group (16
persons)............... 1,177,179 12.5%
</TABLE>
--------
(1) The address for all persons listed is c/o the Company, 21135 Erwin Street,
Woodland Hills, California 91367.
(2) Includes 11,876 shares subject to non-qualified stock options which are
presently exercisable. Such options have an exercise price of $2.875 and
expire on December 16, 1998. Excludes 25,312 shares subject to non-
qualified stock options which are not presently exercisable. Of such
options, 20,312 have an exercise price of $2.875 and expire on December 16,
1998 and 5,000 shares have an exercise price of $5.75 and expire on
December 12, 1999.
(3) Includes 13,446 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 1,570 have an exercise price of
$1.375 and expire on August 13, 2001, 9,375 have an exercise price of
$2.875 and expire on December 16, 1998, and 626 have an exercise price of
$5.75 and expire on December 12, 1999. Excludes 24,679 shares subject to
non-qualified stock options which are not presently exercisable. Of such
options, 1,555 have an exercise price of $1.375 and expire on August 13,
2001, 18,750 have an exercise price of $2.875 and expire on December 16,
1998 and 4,374 have an exercise price of $5.75 and expire on December 12,
1999.
(4) Includes 170,000 shares subject to incentive stock options which are
presently exercisable. Of such options, 150,000 have an exercise price of
$1.25 and expire on September 5, 1998, 18,750 have an exercise price of
$3.25 and expire on October 27, 1998, and 1,250 have an exercise price of
$5.75 and expire on February 22, 2000. Excludes 50,000 shares subject to
incentive stock options which are not presently exercisable. Of such
options, 31,250 options have an exercise price of $3.25 and expire on
October 27, 1998 and 18,750 have an exercise price of $5.75 and expire on
February 22, 2000.
(5) Includes 11,876 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 11,250 have an exercise price of
$2.875 and expire on December 16, 1998 and 626 have an exercise price of
$5.75 and expire on December 12, 1999. Excludes 23,124 shares subject to
non-qualified stock options which are not presently exercisable. Of such
options, 18,750 have an exercise price of $2.875 and expire on December 16,
1998 and 4,374 have an exercise price of $5.75 and expire on December 12,
1999.
(6) Includes 35,321 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 23,445 have an exercise price of
$1.375 and expire on August 13, 2001, 11,250 have an exercise price of
$2.875 and expire on December 16, 1998, and 626 have an exercise price of
$5.75 and expire on
33
<PAGE>
December 12, 1999. Excludes 24,679 shares subject to non-qualified stock
options which are not presently exercisable. Of such options, 1,555 have an
exercise price of $1.375 and expire on August 13, 2001, 18,750 have an
exercise price of $2.875 and expire on December 16, 1998 and 4,374 have an
exercise price of $5.75 and expire on December 12, 1999.
(7) Includes 11,876 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 11,250 have an exercise price of
$2.875 and expire on December 16, 1998 and 626 have an exercise price of
$5.75 and expire on December 12, 1999. Excludes 23,124 shares subject to
non-qualified stock options which are not presently exercisable. Of such
options, 18,750 have an exercise price of $2.875 and expire on December 16,
1998 and 4,374 have an exercise price of $5.75 and expire on December 12,
1999.
(8) Includes 6,254 shares subject to non-qualified stock options which are
presently exercisable. Of such options, 5,628 have an exercise price of
$2.875 and expire on December 16, 1998 and 626 have an exercise price of
$5.75 and expire on December 12, 1999. Excludes 13,746 shares subject to
non-qualified stock options which are not presently exercisable. Of such
options, 9,372 have an exercise price of $2.875 and expire on December 16,
1998 and 4,374 have an exercise price of $5.75 and expire on December 12,
1999.
34
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 15,000,000 shares of Common Stock, $.01
par value, of which 9,417,582 are issued and outstanding, and 5,000,000 shares
of Preferred Stock, $.01 par value, of which 615,000 have been designated as
Series B Preferred Stock, of which 545,950 are issued and outstanding as of May
17, 1995.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
stockholders, to issue from time to time shares of Preferred Stock in one or
more classes or series and to fix the designations, voting rights, liquidation
preferences, dividend rights, conversion rights, rights and terms of redemption
(including sinking fund provisions) and certain other rights and preferences of
the Preferred Stock. The issuance of shares of Preferred Stock under certain
circumstances could adversely affect the voting power of the holders of Common
Stock and may have the effect of delaying, deferring or preventing a change in
control of the Company. In connection with the acquisition of Rugged Digital,
the Company issued 613,110 shares of Series B Preferred Stock to holders of
Rugged Digital subordinated debt, of which 545,950 are presently issued and
outstanding. Series B Preferred Stock ranks senior to the Common Stock and
subordinate to all indebtedness of the Company. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the Company, the
holders of the Series B Preferred Stock will be entitled to receive an
aggregate liquidation preference of $955,413 ($1.75 per share) over the Common
Stock. The Series B Preferred Stock is redeemable for cash at any time in whole
or in part, at the Company's option, at a redemption price equal to 100% of the
liquidation preference per share ($1.75 per share). The Company intends to use
a portion of the proceeds of this offering to effect the redemption of all of
the Series B Preferred Stock. See "Use of Proceeds."
Pursuant to the agreements under which the Series B Preferred Stock was
issued, the original holders of the Series B Preferred Stock have a contractual
right to receive warrants to purchase Common Stock (the "Warrants") in the
event that the Series B Preferred Stock remains outstanding on August 10, 1995.
Each original holder of Series B Preferred Stock who owns shares of Series B
Preferred Stock on such date (the "Warrant Issuance Date") shall receive a
Warrant to purchase that number of shares of Common Stock (rounded to the
nearest whole share) equal to the product of (1) a fraction, the numerator of
which is 200,000 and the denominator of which is 613,110, the aggregate number
of shares of Series B Preferred Stock issued in connection with the merger with
Rugged Digital, and (2) the number of shares of Series B Preferred Stock held
by such holder on the Warrant Issuance Date. In addition, as long as any shares
of Series B Preferred Stock are outstanding, every three months following the
Warrant Issuance Date (each, a "Subsequent Issuance Date"), the Company shall
issue and deliver to each of the original holders who owns shares of Series B
Preferred Stock a warrant to purchase that number of shares of Common Stock
(rounded to the nearest whole share) equal to the product of (1) a fraction,
the numerator of which is 25,000 and the denominator of which is 613,110, and
(2) the number of shares of Series B Preferred Stock held by such holder on the
Subsequent Issuance Date. Each Warrant provides that the exercise price for
each share of Common Stock covered thereby is $.50, and that it is exercisable
for a period from issuance through 30 days after the date on which no shares of
Series B Preferred Stock remain outstanding. The Warrant rights apply only to
shares of Series B Preferred Stock that are outstanding as of the Warrant
Issuance Date or a Subsequent Issuance Date, as the case may be, and no such
rights accrue with respect to shares of Series B Preferred Stock which are
redeemed or which otherwise cease to be outstanding prior to any such date. The
rights arising under the Warrants are personal to each original holder and may
not be sold, assigned or otherwise transferred, by operation of law or
otherwise, to any other person or entity. Because the Company has the right to
redeem the Series B Preferred Stock at any time at the liquidation preference,
the Company does not anticipate that it will ever issue any Warrants.
As of the date of this Prospectus, the Company has no plan or arrangement for
the issuance of any additional shares of Preferred Stock.
35
<PAGE>
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted on by stockholders, and, except as otherwise required by law or
provided in any resolution adopted by the Board of Directors with respect to
any other series or class of the Common Stock or series of the Preferred Stock,
holders of such shares will exclusively possess all voting power. The Restated
Certificate of Incorporation of the Company does not provide for cumulative
voting for the election of directors. Subject to any preferential rights of any
other outstanding shares of the Preferred Stock designated by the Board of
Directors from time to time, when and as dividends or other distributions are
declared, whether payable in cash, in property or in securities of the Company,
the holders of shares of Common Stock will be entitled to share equally, share
for share, in such dividends or other distributions. The Common Stock has no
preemptive rights and no redemption, sinking fund or conversion provisions. All
shares of Common Stock are fully paid and nonassessable. As of May 17, 1995
there were 894 holders of the Company's Common Stock.
CERTAIN CHARTER PROVISIONS
The Company's Restated Certificate of Incorporation eliminates, to the
fullest extent permitted by law, the liability of its directors to the Company
and its stockholders for monetary damages for breach of the directors'
fiduciary duty. This provision is intended to afford the Company's directors
the benefit of the Delaware General Corporation Law, which provides that
directors of Delaware corporations may be relieved of monetary liability for
breach of their fiduciary duty of care, except under certain circumstances
involving breach of a director's duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law or any
transaction from which the director derived an improper personal benefit.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 of the Delaware General Corporation Law
("Section 203"), which restricts certain transactions and business combinations
between a corporation and an "Interested Stockholder" owning 15% or more of the
corporation's outstanding voting stock for a period of three years from the
date the stockholder becomes an Interested Stockholder. Subject to certain
exceptions, unless the transaction is approved by the Board of Directors and
the holders of at least 66 2/3% of the outstanding voting stock of the
corporation (excluding shares held by the Interested Stockholder), Section 203
prohibits significant business transactions such as a merger with, disposition
of assets to or receipt of disproportionate financial benefits by the
Interested Stockholder, or any other transaction that would increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an Interested Stockholder, the
Interested Stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain stock plans).
REGISTRAR AND TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is Chemical Trust
Company of California. Its telephone number is (213) 621-8000.
36
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of May 17, 1995, 1,419,290 shares of Common Stock were reserved for
issuance upon exercise of stock options which remained outstanding or available
for grant under the stock option plans of the Company. Of the authorized but
unissued shares of Common Stock, as of May 17, 1995, an aggregate of 10,500
shares were reserved for issuance upon exercise of stock options available for
grant under the Company's 1993 Stock Option Plan, 205,000 shares were reserved
for issuance upon exercise of stock options available for grant under the 1993
Directors' Stock Option Plan and 2,800 shares were reserved for issuance upon
exercise of stock options available for grant under the Company's 1986 Stock
Option Plan.
As of May 17, 1995, 170,000 shares of Common Stock were reserved for issuance
upon exercise of outstanding warrants to purchase Common Stock issued to
Cruttenden Roth Incorporated. The Company has entered into a Letter Agreement
dated February 17, 1995, as amended (the "Letter Agreement"), with Cruttenden
Roth Incorporated pursuant to which Cruttenden Roth Incorporated has agreed to
exercise its 170,000 warrants at an exercise price of $3.15 per share. The
Company filed a "shelf" registration statement on Form S-3 (the "Shelf
Registration Statement") on April 11, 1995 with the Securities and Exchange
Commission which registers the resale of these 170,000 shares. The Company
anticipates closing this transaction with Cruttenden Roth Incorporated promptly
after the Shelf Registration Statement is declared effective by the Securities
and Exchange Commission which the Company expects will be prior to the
consummation of this offering.
Upon completion of the sale of 2,000,000 shares of Common Stock offered
hereby, the Company will have 11,419,460 shares of Common Stock outstanding,
assuming no exercise of options outstanding under the Company's stock option
plans after May 17, 1995 and no other changes in the Company's outstanding
shares. All of these shares will be available for immediate sale in the public
market, other than a total of 617,323 shares held by officers and directors
that may not be sold for 120 days after the date of this Prospectus without the
Representatives' prior written consent under the terms of lock-up agreements.
37
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters") have severally agreed to purchase
from the Company the numbers of shares of Common Stock set forth opposite their
respective names in the table below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
------------ ----------------
<S> <C>
Pennsylvania Merchant Group Ltd .........................
Cruttenden Roth Incorporated.............................
---------
2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent. The nature of the Underwriters'
obligation is that they are committed to purchase all shares of Common Stock
offered hereby if any of such shares are purchased.
The Company has been advised by the Underwriters, for whom Pennsylvania
Merchant Group Ltd ("PMG") and Cruttenden Roth Incorporated ("CRI") are acting
as Representatives (the "Representatives"), that the Underwriters propose
initially to offer the shares of Common Stock directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers (which may include Underwriters) at such public offering price
less a concession not to exceed $ per share. The Underwriters may allow, and
such dealers may reallow, a discount not to exceed $ per share in sales to
certain other dealers. After the offering to the public, the public offering
price and concessions and discounts may be changed by the Representatives of
the Underwriters.
The Company granted to the Underwriters an option, exercisable not later than
30 days after the date of this Prospectus, to purchase up to an additional
300,000 shares of Common Stock, at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the table above bears to the number of shares of Common Stock
offered hereby, and the Company will be obligated pursuant to the option to
sell such shares to the Underwriters. The Underwriters may exercise the option
only for the purposes of covering over-allotments, if any, made in connection
with the distribution of the shares of Common Stock to the public.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales of shares of the Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
38
<PAGE>
All of the Company's current directors and officers, who will own an
aggregate of 617,323 shares of Common Stock upon the completion of this
offering, have agreed not to sell, offer to sell, contract to sell or otherwise
dispose of any of their shares of Common Stock or any other security
convertible into or exchangeable for, or options or warrants to purchase or
acquire, shares of Common Stock without the prior written consent of PMG for a
period of 120 days after the date of this Prospectus. See "Shares Eligible for
Future Sale." In addition, the Company has agreed not to sell, issue, contract
to sell, offer to sell or otherwise dispose of any shares of Common Stock or
any other security convertible into or exchangeable for shares of Common Stock
without the prior written consent of PMG during the same period.
The Company has agreed to sell to the Representatives, for nominal
consideration, warrants to purchase 200,000 shares of Common Stock. The
warrants will have an exercise price per share equal to $ (120% of the
public offering price), be exercisable beginning on the first anniversary of
the date of this Prospectus for a period of four years thereafter, and contain
certain anti-dilution, registration rights and exercise provisions. Until the
first anniversary of the date of this Prospectus, the warrants may not be sold,
transferred, assigned or hypothecated, except to the Underwriters or certain
dealers, or their officers, directors or partners, subject to certain
conditions.
CRI acted as the Company's representative in connection with the sale to the
public by the Company of 2,300,000 shares of Common Stock which was consummated
on March 23, 1994. In connection with such distribution, CRI received warrants
to purchase 170,000 shares of Common Stock at an exercise price of $3.15 per
share. These warrants became exercisable on March 23, 1995 and remain
exercisable for a period of four years thereafter. Pursuant to the terms of the
Letter Agreement, CRI has agreed to exercise all of such warrants and resell
all shares of Common Stock underlying such warrants as soon as practicable
after effectiveness of the Shelf Registration Statement. See "Shares Eligible
for Future Sale."
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, San Diego, California. Certain legal matters will
be passed upon for the Underwriters by Stradling, Yocca, Carlson & Rauth,
Newport Beach, California.
EXPERTS
The financial statements of the Company as of October 31, 1993 and October
30, 1994 and for each of the three years in the period ended October 30, 1994
appearing in this Prospectus and the Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
included or incorporated by reference herein and in the Registration Statement,
and are included in reliance upon such report given upon the authority of such
firm 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-2 under the Act, with respect
to the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to such Registration
Statement, exhibits and schedules. Statements contained in this Prospectus as
to the contents of any contract or any other document referred to are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by
such reference to subject exhibit.
39
<PAGE>
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith, files reports, proxy or
information statements, and other information with the Commission. Such
reports, proxy statements and other information, as well as the Registration
Statement of which the Prospectus is a part and the exhibits and schedules
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the following Regional Offices: 7
World Trade Center, 13th Floor, New York, New York 10048, and Northwestern
Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials also can be obtained from the Public Reference Section
of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, by mail at prescribed rates. The Common Stock is traded
on the AMEX, and the Company's reports, proxy or information statements and
other information filed with the AMEX may be inspected at the AMEX's offices at
86 Trinity Place, New York, New York 10006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended October 30, 1994,
Quarterly Report on Form 10-Q for the quarter ended January 29, 1995, Quarterly
Report on Form 10-Q/A for the quarter ended January 29, 1995 and Quarterly
Report on Form 10-Q for the quarter ended April 30, 1995, which have been filed
by the Company with the Commission, are incorporated by reference in this
Prospectus.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Prospectus modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into the document). Requests for copies should be
directed to John J. Van Buren, Senior Vice President and Chief Financial
Officer, Datametrics Corporation, 21135 Erwin Street, Woodland Hills,
California 91367, telephone (818) 598-6200.
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors....................... F-2
Balance Sheets as of October 30, 1994 and October 31, 1993.............. F-3
Statements of Operations for the years ended October 30, 1994, October
31, 1993 and October 25, 1992.......................................... F-4
Statements of Stockholders' Equity for the years ended October 30, 1994,
October 31, 1993 and October 25, 1992.................................. F-5
Statements of Cash Flows for the years ended October 30, 1994, October
31, 1993 and October 25, 1992.......................................... F-6
Notes to Financial Statements........................................... F-7
Unaudited Balance Sheet as of April 30, 1995 and Balance Sheet as of
October 30, 1994....................................................... F-16
Unaudited Statements of Operations for the six months ended April 30,
1995 and May 1, 1994................................................... F-17
Unaudited Statements of Cash Flows for the six months ended April 30,
1995 and May 1, 1994................................................... F-18
Notes to Unaudited Financial Statements................................. F-19
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Datametrics Corporation
We have audited the accompanying balance sheets of Datametrics Corporation as
of October 30, 1994 and October 31, 1993, and the related statements of
operations, stockholders' equity, and cash flows for each of the three fiscal
years in the period ended October 30, 1994. 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 financial position of Datametrics Corporation at
October 30, 1994 and October 31, 1993 and the results of its operations and its
cash flows for each of the three fiscal years in the period ended October 30,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 5 to the financial statements, effective October 26,
1992, the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Ernst & Young LLP
Woodland Hills, California
December 9, 1994, except
for the fourth paragraph of Note 6,
as to which the date is
December 23, 1994
F-2
<PAGE>
DATAMETRICS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 988 $ 199
Accounts receivable.................................. 8,730 8,491
Inventory............................................ 6,038 5,043
Income taxes receivable.............................. 325 --
Prepaid expenses..................................... 267 53
Deferred tax asset................................... 571 529
------- -------
Total current assets............................... 16,919 14,315
------- -------
Property and equipment, at cost:
Machinery and equipment.............................. 3,710 3,366
Furniture, fixtures & computer equipment............. 2,172 1,491
Leasehold improvements............................... 363 433
------- -------
6,245 5,290
Accumulated depreciation and amortization............ (3,970) (4,351)
------- -------
Net property and equipment........................... 2,275 939
Deferred tax asset..................................... 64 507
Other assets........................................... 692 699
------- -------
$19,950 $16,460
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank................................. $ 600 $ 1,150
Accounts payable..................................... 1,917 2,668
Accrued commissions and payroll...................... 845 1,079
Accrued warranty..................................... 182 272
Other accrued liabilities............................ 368 303
Advance payments and progress payments on contracts.. 538 11
Current portion of capital lease obligations......... 108 124
------- -------
Total current liabilities.......................... 4,558 5,607
Capital lease obligations.............................. 32 138
Other long-term liabilities............................ 150 330
Deferred tax liability................................. 76 --
Excess of acquired net assets over cost................ 533 950
Series B redeemable preferred stock 613,110 shares
authorized, 564,556 shares issued and outstanding in
1994 (613,110 in 1993) (liquidation preference and
redemption price $988 in 1994 and $1,073 in 1993)..... 940 965
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value--15,000,000 shares
authorized, 9,258,452 shares issued and outstanding
in 1994 (6,896,922 in 1993)......................... 93 69
Additional paid-in capital........................... 14,608 9,412
Accumulated deficit.................................. (1,040) (1,011)
------- -------
Total stockholders' equity......................... 13,661 8,470
------- -------
$19,950 $16,460
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
DATAMETRICS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 25,
1994 1993 1992
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Sales.......................... $ 25,211 $ 23,984 $ 22,358
Cost of sales................ 16,905 15,623 13,951
------------ ------------ ------------
Gross profit............... 8,306 8,361 8,407
Operating expenses:
Research & development....... 2,297 1,951 1,390
Selling, general &
administrative.............. 6,254 5,547 5,069
------------ ------------ ------------
8,551 7,498 6,459
------------ ------------ ------------
Income (loss) from
operations................ (245) 863 1,948
Interest income (expense), net. 2 (65) (129)
Amortization of excess of
acquired net assets over cost. 293 88 --
------------ ------------ ------------
Income before provision for
income taxes and cumulative
effect of change in accounting
principle..................... 50 886 1,819
Provision for income taxes..... 19 341 482
------------ ------------ ------------
Income before cumulative effect
of change in accounting
principle..................... 31 545 1,337
Cumulative effect of change in
accounting principle.......... -- 938 --
------------ ------------ ------------
Net income................... 31 1,483 1,337
Preferred stock dividends and
accretion..................... (60) (66) (190)
------------ ------------ ------------
Net income (loss) applicable
to common stockholders...... $ (29) $ 1,417 $ 1,147
============ ============ ============
Earnings per share of common
stock:
Primary:
Income before cumulative
effect of change in
accounting principle....... $ -- $ 0.09 $ 0.30
Cumulative effect of change
in accounting principle.... -- 0.17 --
------------ ------------ ------------
Net income..................... $ -- $ 0.26 $ 0.30
============ ============ ============
Fully diluted:
Income before cumulative
effect of change in
accounting principle....... $ -- $ 0.08 $ 0.22
Cumulative effect of change
in accounting principle.... -- 0.15 --
------------ ------------ ------------
Net income..................... $ -- $ 0.23 $ 0.22
============ ============ ============
Weighted average number of
shares outstanding:
Primary...................... 9,067 5,458 3,769
Fully diluted................ 9,067 6,404 5,946
</TABLE>
See accompanying notes.
F-4
<PAGE>
DATAMETRICS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A
PARTICIPATING
CONVERTIBLE
PREFERRED
STOCK COMMON STOCK
------------- ---------------- ADDITIONAL TOTAL
NUMBER PAID-IN ACCUMULATED STOCKHOLDERS'
AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT EQUITY
------------- --------- ------ ---------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balances at October 27,
1991................... $2,572 3,611,576 $36 $ 5,528 $(3,575) $ 4,561
Preferred stock
dividends............ -- -- -- -- (190) (190)
Conversion of
preferred stock...... (83) 71,000 1 82 -- --
Issuance of common
stock................ -- 18,000 -- 17 -- 17
Net income............ -- -- -- -- 1,337 1,337
------ --------- --- ------- ------- -------
Balances at October 25,
1992................... 2,489 3,700,576 37 5,627 (2,428) 5,725
Preferred stock
dividends............ -- -- -- -- (66) (66)
Conversion of
preferred stock...... (2,489) 2,129,000 21 2,468 -- --
Issuance of common
stock................ -- 1,067,346 11 1,317 -- 1,328
Net income............ -- -- -- -- 1,483 1,483
------ --------- --- ------- ------- -------
Balances at October 31,
1993................... -- 6,896,922 69 9,412 (1,011) 8,470
Preferred stock
accretion............ -- -- -- -- (60) (60)
Issuance of common
stock................ -- 2,361,530 24 5,196 -- 5,220
Net income............ -- -- -- -- 31 31
------ --------- --- ------- ------- -------
Balances at October 30,
1994................... $ -- 9,258,452 $93 $14,608 $(1,040) $13,661
====== ========= === ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
DATAMETRICS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 25,
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 31 $1,483 $1,337
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Cumulative effect of change in
accounting principle.................. -- (938) --
Amortization of excess of acquired net
assets over cost...................... (293) (88) --
Depreciation........................... 552 680 659
Loss (gain) on disposal of assets...... (6) 16 6
Changes in assets and liabilities, net of
effects from acquisition of Rugged
Digital Systems, Inc. (RDS):
Accounts receivable.................... (239) (1,586) 1,349
Inventory.............................. (995) 189 115
Prepaid expenses....................... (214) 174 97
Accounts payable....................... (751) 1,436 (272)
Accrued commissions and payroll........ (234) (143) 121
Advance and progress payments from
customers............................. 527 (216) (702)
Other accrued expenses................. 65 (152) (94)
Income taxes........................... (325) (291) (461)
Accrued warranty....................... (90) (50) 68
Other.................................. 180 (202) (87)
------ ------ ------
Net cash provided by (used in) operating
activities.............................. (1,792) 312 2,136
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment............................... (1,882) (428) (176)
Cash received from acquisition of RDS,
net..................................... -- 533 --
------ ------ ------
Net cash provided by (used in) investing
activities................................ (1,882) 105 (176)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable.............. 4,100 8,150 8,370
Payments on notes payable................ (4,650) (7,460) (9,587)
Proceeds from the issuance of common
stock................................... 5,220 100 17
Payments on long-term debt............... (85) (889) (533)
Payments on capital lease obligations.... (122) (77) (6)
Cash dividends on preferred stock........ -- (114) (190)
------ ------ ------
Net cash provided by (used in) financing
activities................................ 4,463 (290) (1,929)
Net increase in cash and cash equivalents.. 789 127 31
Cash and cash equivalents at beginning of
the year.................................. 199 72 41
------ ------ ------
Cash and cash equivalents at end of the
year...................................... $ 988 $ 199 $ 72
====== ====== ======
Cash paid (received) during the year for:
Interest, net............................ $ (1) $ 53 $ 143
Income taxes............................. (186) 359 944
Noncash investing and financing activities:
Accrued dividends on preferred stock..... -- -- 47
Conversion of preferred stock to common
stock................................... -- 2,489 83
Issuance of capital lease obligations.... -- 266 56
Issuance of 982,000 shares for
acquisition of RDS...................... -- 1,228 --
Exchange of Series B Preferred Stock for
subordinated debt of RDS................ -- 950 --
Series B Preferred Stock escrow
settlement.............................. (85) -- --
</TABLE>
See accompanying notes.
F-6
<PAGE>
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
OCTOBER 30, 1994
NOTE 1. SUMMARY OF SIGNIFICANT POLICIES
Business. Datametrics Corporation, a Delaware corporation ("the Company"), is
engaged primarily in the design, development, manufacture and sale of high-
speed, non-impact printers; high-resolution, non-impact printer/plotters; and
ruggedized computers and computer workstations. The Company's fiscal year ends
on the last Sunday of each October.
Basis of presentation. Certain prior year amounts have been reclassified to
conform with the 1994 presentation.
Revenue recognition. Revenues include both product sales and revenues
applicable to long-term design and production contracts. A majority of revenues
from product sales and long-term contracts are recorded as units are shipped.
Revenues applicable to certain fixed-price, long-term contracts (principally
design and development contracts) are recognized on the percentage-of-
completion (cost-to-cost) method, whereby revenue is measured by relating costs
incurred to total estimated costs. Sales under cost-reimbursement-type
contracts are recorded as costs are incurred. Applicable estimated profits are
included in sales in the proportion that incurred costs bear to total estimated
costs. Any anticipated losses on contracts are charged to income when
identified.
The Company provides an accrual for future warranty costs at the time of
revenue recognition based upon the relationship of prior year sales to actual
warranty costs. The warranty for the Company's products generally covers
defects in material and workmanship. The current accrual represents the average
outstanding warranty of approximately nine months.
Major customers. Approximately 85%, 69% and 72% of the Company's sales during
fiscal years 1994, 1993 and 1992, respectively, were to various U.S. government
agencies/Department of Defense under prime contracts or to prime contractors
having sales to such agencies. Export sales to foreign customers amounted to
$3,060,000 ($2,527,000 to Europe and $533,000 to the Pacific Rim) or 13% of
total sales in fiscal year 1993.
Cash and cash equivalents. The Company considers securities purchased within
three months of their date of maturity to be cash equivalents. Due to the short
maturity of these instruments, carrying value on the Company's balance sheet
approximates fair value.
Inventory. Stockroom inventory is stated at the lower of cost (first-in,
first-out) or market. The Company evaluates at least annually its stockroom
inventory for potential obsolescence or excessive levels based upon backlog and
forecasted usage. Contract inventory costs include purchased materials, direct
labor and manufacturing overhead. General and administrative costs are expensed
in the period incurred.
Property and equipment. Depreciation and amortization of property and
equipment are provided, using the straight-line method, over the following
estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment 2 to 5 years
Furniture, fixtures and computer equipment 3 to 8 years
Leasehold improvements Shorter of the remaining term
of the lease or the life of the asset
</TABLE>
Net income per share. Primary net income per share is based on the weighted
average number of shares of common stock outstanding and common stock
equivalents after reducing net income by preferred stock dividends. Fully
diluted net income per share additionally assumes the conversion of the
outstanding convertible preferred stock and the elimination of the related
dividend.
NOTE 2. ACQUISITION
On August 10, 1993, the Company acquired Rugged Digital Systems, Inc. (Rugged
Digital), a developer of ruggedized computers and computer workstations used
primarily by the military. The acquisition was
F-7
<PAGE>
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 30, 1994
accounted for as a purchase and accordingly, the purchase price and direct
costs of the acquisition have been allocated to the respective assets and
liabilities of Rugged Digital based upon their estimated fair values at the
date of the acquisition. The excess of the fair value of the net assets
acquired over the total purchase price was first allocated to reduce Rugged
Digital noncurrent assets to zero. The remaining excess value is being
amortized on a straight-line basis over three years, which represents
management's estimate of the period of benefit. Accumulated amortization of the
excess of fair value was $381,000 at October 30, 1994 and $88,000 at October
31, 1993.
The purchase price for accounting purposes consisted of 982,000 shares of
common stock at $1.25 a share ($1,228,000) and $432,000 of capitalized merger
costs for a total price of $1,660,000.
The operating results of Rugged Digital are included in the Company's results
of operations from the date of acquisition. The following unaudited pro forma
data presents the results of operations as if the acquisition had occurred at
the beginning of fiscal 1993 and does not purport to be indicative of what
would have occurred had the acquisition been made as of that date (in thousands
except per share data):
<TABLE>
<S> <C>
Sales............................................................ $33,067
Income before cumulative effect of change in accounting princi-
ple............................................................. $ 453
Net income....................................................... $ 1,391
Earnings per share of common stock:
Primary:
Income before cumulative effect of change in accounting
principle..................................................... $ .06
Net income..................................................... $ .21
Fully diluted:
Income before cumulative effect of change in accounting
principle..................................................... $ .06
Net income..................................................... $ .19
Weighted average number of shares outstanding:
Primary........................................................ 6,195
Fully diluted.................................................. 7,141
</TABLE>
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
U.S. government or its prime contractors:
Amounts billed......................................... $3,931 $6,538
Recoverable costs and accrued profits on progress
completed, not billed................................. 2,935 613
------ ------
6,866 7,151
Foreign, commercial and other............................ 2,132 1,387
------ ------
8,998 8,538
Less billed but uncollected progress payments............ (268) (47)
------ ------
$8,730 $8,491
====== ======
</TABLE>
F-8
<PAGE>
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 30, 1994
NOTE 4. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Stockroom inventory....................................... $4,133 $3,640
Contracts in process...................................... 2,616 1,462
------ ------
6,749 5,102
Less progress payments received on contracts.............. (711) (59)
------ ------
$6,038 $5,043
====== ======
</TABLE>
NOTE 5. INCOME TAXES
Effective October 26, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method of accounting for
deferred income taxes with the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The cumulative
effect of adopting SFAS No. 109 was a one-time benefit to income of $938,000,
or $0.17 per share on a primary basis, in the year ended October 31, 1993.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components
of the Company's net deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Net operating loss carryforwards.......................... $1,258 $1,154
General business credit carryforwards..................... 895 549
Inventory accounting methods.............................. 629 816
Deferred compensation accounting methods.................. 98 190
Product warranty accruals................................. 79 150
Other..................................................... 52 155
Book over tax depreciation................................ -- 398
------ ------
Total deferred tax assets............................... 3,011 3,412
------ ------
Tax over book depreciation................................ (76) --
------ ------
Total deferred tax liabilities.......................... (76) --
------ ------
2,935 3,412
Valuation allowance for deferred tax assets............... (2,376) (2,376)
------ ------
Net deferred tax assets................................. $ 559 $1,036
====== ======
</TABLE>
Management has determined, based on the Company's carryback opportunities and
historical and expected future earnings, that the Company will more likely than
not recognize these net deferred tax assets.
Net operating loss and tax credit carryforwards of $3,170,000 and $471,000,
respectively, for federal income tax purposes will expire at various times
between 1998 and 2005 and are the result of the Company's acquisition of Rugged
Digital. This acquisition constituted an ownership change of Rugged Digital for
federal income tax purposes. As a result of this ownership change, the amount
of Rugged Digital's net operating loss carryforward generated prior to the
ownership change that may be utilized against the Company's future taxable
income will be limited to approximately $170,000 annually and will result in a
portion of the net operating loss carryforward expiring prior to utilization.
F-9
<PAGE>
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 30, 1994
The provision for income taxes on income before the cumulative effect of a
change in accounting principle is composed of the following (in thousands):
<TABLE>
<CAPTION>
LIABILITY
DEFERRED METHOD METHOD
----------------- ---------
1994 1993 1992
-------- ------- ---------
<S> <C> <C> <C>
Current:
Federal.................................... $ (469) $ 60 $370
State...................................... 11 107 239
Deferred:
Federal.................................... 369 204 (87)
State...................................... 108 (30) (40)
-------- ------- ----
$ 19 $ 341 $482
======== ======= ====
</TABLE>
The components of the provision for deferred income taxes for the year ended
October 25, 1992 are as follows:
<TABLE>
<S> <C>
Revenue recognition under long-term contracts....................... $ 64
Other, net.......................................................... 63
----
$127
====
</TABLE>
The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory tax rate on income before income taxes and cumulative effect of
change in accounting principle (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- -----
<S> <C> <C> <C>
Federal income tax computed at statutory rate.......... $17 $301 $ 618
State income tax, net of federal benefits.............. 3 51 109
General business tax credit carryovers................. -- -- (243)
Other, net............................................. (1) (11) (2)
--- ---- -----
$19 $341 $ 482
=== ==== =====
</TABLE>
NOTE 6. DEBT
The Company currently has a revolving line of credit agreement (the "Credit
Agreement") with a bank, collateralized by substantially all the Company's
assets, which allows the Company to borrow up to $3,000,000 at the bank's
reference rate plus .25% (7.75% reference rate at October 30, 1994 and 6.0%
reference rate at October 31, 1993).
The Credit Agreement requires the Company to maintain certain financial
ratios and restricts or limits the Company's ability to (i) create certain
liens; (ii) convey, transfer or sell assets; (iii) make capital expenditures;
(iv) incur additional indebtedness; (v) redeem or repurchase any class of its
stock; and (vi) pay dividends on its preferred or common stock. In addition,
the Credit Agreement requires the Company to achieve net income on an annual
basis and not incur losses in two consecutive quarters.
F-10
<PAGE>
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 30, 1994
The Credit Agreement was renewed on November 23, 1994 with the same terms and
conditions and expires on January 31, 1995. The Company is currently in
negotiations with several other banks and expects to enter into a new line of
credit. There can be no assurance, however, that the Company will be able to
obtain a new line of credit and, if so, on what terms. The balance outstanding
at October 30, 1994 was $600,000. As of December 9, 1994 there were no
outstanding balances against the Credit Agreement.
In addition, on December 23, 1994, the Company borrowed approximately
$925,000 at interest rates of 10.5%-10.8%, payable in monthly installments of
approximately $30,000, including interest, over a three-year period. The
borrowings are collateralized by furniture and fixtures with a net book value
of $895,000 at October 30, 1994.
NOTE 7. LEASES
The Company currently leases its building under an operating lease and leases
various equipment under operating and capital leases. The building lease
expires in fiscal 2004.
Minimum future rental commitments under non-cancelable operating leases
having remaining terms of one year or longer and capital leases for the twelve-
month periods subsequent to October 30, 1994 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
----------- --------- -------
(IN THOUSANDS)
<S> <C> <C>
1995................................................... $ 636 $114
1996................................................... 610 33
1997................................................... 614 --
1998................................................... 638 --
1999................................................... 645 --
Thereafter............................................. 3,114 --
------ ----
$6,257 147
======
Less imputed interest.................................. (7)
----
Present value of minimum capital lease payments........ $140
====
</TABLE>
Property and equipment under capital leases have a cost of $318,000 and an
accumulated depreciation of $190,000 at October 30, 1994.
Rental expenses charged to operations were $653,000, $704,000 and $675,000
for the fiscal years 1994, 1993 and 1992, respectively.
NOTE 8. PREFERRED STOCK
An aggregate of 5,000,000 shares are currently authorized and the Board of
Directors is authorized, without further action by the stockholders, to issue
shares of preferred stock in one or more classes or series and to fix the
designations, voting rights, liquidation preferences, dividend rights,
conversion rights, rights and terms of redemption (including sinking fund
provisions) and certain other rights and preferences of the preferred stock.
F-11
<PAGE>
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 30, 1994
The holders of Series A Preferred Stock were entitled to receive cumulative
quarterly cash dividends at an annual rate of $0.0875 (7%) per share paid
quarterly. During fiscal 1993, all shares outstanding were converted to common
stock on a one-for-one-basis.
During fiscal 1993, the Company issued 613,110 shares of Series B Redeemable
Preferred Stock with a liquidation preference and redemption price of $1.75 per
share in connection with its acquisition of Rugged Digital. The holders are not
entitled to dividends. Certain of the Series B Redeemable Preferred
Stockholders (the "Escrow Participants") placed 285,715 shares in escrow to
cover certain indemnification claims, up to an amount of $500,000, that the
Company might have arising out of the acquisition. The escrow agreement was
scheduled to expire on August 10, 1994. On August 9, 1994, the Company
submitted an indemnification claim to the Escrow Participants for approximately
$720,000. The Escrow Participants have rejected a majority of the
indemnification claim and the Company is pursuing its rights under the Rugged
Digital acquisition agreement. The Escrow Participants have accepted
approximately $85,000 of the claim, and 48,554 shares were released from escrow
and returned to the Company. The balance of the shares continue to be held in
escrow pending resolution of the remaining claims.
The original holders of the Series B Redeemable Preferred Stock have a
contractual right to receive warrants to purchase Datametrics Common Stock in
the event that the Series B Redeemable Preferred Stock remains outstanding on
August 10, 1995. The warrants would be exercisable on a one-for-one basis for
shares of Datametrics common stock and in the aggregate would be exercisable
for a number of shares of Datametrics common stock equal to 32.6% of the then-
outstanding shares of Series B Redeemable Preferred Stock. The warrant exercise
price would be $.50 per share. The Company currently intends to redeem all of
the Series B Redeemable Preferred Stock before the right to receive warrants
would be effective.
NOTE 9. STOCK OPTION PLANS AND WARRANTS
At October 30, 1994, the Company has reserved 1,599,674 shares of its common
stock for issuance pursuant to the exercise of options issued primarily under
its incentive stock option plans.
The Company has three incentive stock option plans and one non-qualified plan
(1993 Directors' Stock Option Plan) described as follows:
1982 Plan--This plan was adopted in 1982 and provided for the issuance of
200,000 shares of the Company's common stock.
1986 Plan--This plan, as amended, was adopted in 1986 and provides for the
issuance of 700,000 shares of the Company's common stock.
1993 Plan--This plan was adopted by the Board of Directors in 1993 and
provides for the issuance of 500,000 shares of the Company's common stock.
1993 Directors' Stock Option Plan--This plan was adopted in 1994 and provides
for the issuance of 400,000 shares of the Company's common stock.
Both the 1982 and 1986 plans have similar terms. The plans were established
for the granting of options to key employees at an exercise price not less than
the fair market value on the date of the grant, as determined by the Board of
Directors. The options become exercisable equally over 16 quarters from the
date of grant and expire 10 years from the date of grant. The Company may grant
the options during a 10-year period beginning on the date the plan originated.
F-12
<PAGE>
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 30, 1994
The 1993 plans differ from the earlier plans in that the options expire five
years from the date of grant. The Directors' Stock Option Plan is similar to
the 1993 plan but provides for the issuance of options to members of the Board
of Directors.
The following table summarizes the options exercisable and available for
grant at October 30, 1994:
<TABLE>
<CAPTION>
EXERCISABLE
----------------------
AVAILABLE
NUMBER PRICE RANGE FOR GRANT
------- -------------- ---------
<S> <C> <C> <C>
1982 Plan................................ 91,550 $ .75 - 2.375 --
1986 Plan................................ 499,462 $ .75 - 4.3125 27,800
1993 Plan................................ 63,025 $2.6875 - 3.25 103,000
1993 Directors Plan...................... 30,939 $ 2.875 235,000
</TABLE>
Information on options under the Company's plans is as follows at October 30,
1994:
<TABLE>
<CAPTION>
SHARES UNDER OPTION PRICE
OPTION RANGE
------------ ----------------
<S> <C> <C>
Outstanding at October 31, 1993............ 810,404 $ .25 - $3.25
Granted.................................... 537,000 2.6875 - 4.3125
Terminated................................. (52,000) .25 - 2.875
Exercised.................................. (61,530) .25 - 2.6875
--------- ----------------
Outstanding at October 30, 1994............ 1,233,874 $ .25 - 4.3125
========= ================
</TABLE>
The following table summarizes the options exercisable and available for
grant at October 31, 1993:
<TABLE>
<CAPTION>
EXERCISABLE
--------------------
AVAILABLE
NUMBER PRICE RANGE FOR GRANT
------- ------------ ---------
<S> <C> <C> <C>
1982 Plan.................................. 112,868 $.75 - 2.375 --
1986 Plan.................................. 493,937 $.25 - 3.125 800
1993 Plan.................................. -- -- 150,000
</TABLE>
Information on options under the Company's plans is as follows at October 25,
1992:
<TABLE>
<CAPTION>
SHARES UNDER OPTION PRICE
OPTION RANGE
------------ -------------
<S> <C> <C>
Outstanding at October 25, 1992............... 757,750 $ .25 - 3.125
Granted....................................... 170,000 1.435 - 3.25
Terminated.................................... (32,000) 1.00 - 1.50
Exercised..................................... (85,346) 1.25 - 1.875
------- -------------
Outstanding at October 31, 1993............... 810,404 $ .25 - 3.25
======= =============
</TABLE>
There are 170,000 shares of common stock reserved for issuance upon exercise
of warrants sold for $0.001 per warrant to the underwriters of the Company's
March 24, 1994 offering of common stock. The warrants are exercisable for a
period of five years beginning March 24, 1995 and have a per-share exercise
price equal to $3.15 (120% of the initial public offering price of $2.625).
F-13
<PAGE>
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 30, 1994
NOTE 10. CONTINGENCIES
The Company is, from time to time, the subject of claims and suits arising
out of matters occurring during the operation of the Company's business. In the
opinion of management, the liability, if any, under such current claims and
suits would not materially affect the financial position or the results of the
operations of the Company.
NOTE 11. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution 401(k) plan, as amended, covering
a majority of its employees. The plan allows eligible employees to contribute
up to 17% of their gross salary. Company contributions are voluntary and at the
discretion of the Board of Directors. There were no Company contributions in
fiscal 1994. Company contributions amounted to $94,000 and $140,000 for fiscal
years 1993 and 1992, respectively. Employees vest in Company contributions
based upon their years of vesting service, as defined.
In October 1989, the Company entered into agreements with two officers to
provide deferred compensation benefits upon their retirement. The Company has
accrued $229,000 and $324,000 at October 30, 1994 and October 31, 1993,
respectively, representing the net present value of the future benefits to be
paid, of which $148,000 and $228,000, respectively, have been classified as
long-term.
During November 1994, the Company established a Supplemental Employee
Retirement Plan (SERP), a defined benefit pension plan covering certain
officers to whom the plan is offered. Normal retirement age is 65, but
provision is made for earlier retirement. Benefits under the plan are generally
payable for up to fifteen years after a participant's retirement. However, the
participant may elect a lump-sum payment equal to 90% of the net present value
of the benefit amount at the participant's retirement date. Although all
necessary actuarial determinations are not complete, management does not
believe that the adoption of the SERP will have a material effect on the
financial position or future results of operations of the Company.
NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
1994 JANUARY 31 MAY 2 JULY 31 OCTOBER 30
---- ---------- ------ ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Sales............................... $5,634 $6,733 $5,873 $ 6,971
Gross profit........................ 1,685 2,392 1,926 2,303
Net income (loss)................... (242) 29 27 217
Income (loss) per common share:
Primary........................... $(0.03) $ -- $ -- $ 0.02
Fully diluted..................... $(0.03) $ -- $ -- $ 0.02
Weighted average number of common
shares
outstanding:
Primary........................... 7,762 7,985 9,720 10,045
Fully diluted..................... 7,762 7,985 9,720 10,045
</TABLE>
F-14
<PAGE>
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
OCTOBER 30, 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
1993 JANUARY 31 MAY 2 AUGUST 1 OCTOBER 31
---- ---------- ------ -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales.............................. $5,321 $5,406 $5,474 $7,783
Gross profit....................... 2,119 2,137 1,993 2,112
Cumulative effect of change in ac-
counting principle................ 938 -- -- --
Net income......................... 1,185 175 79 44
Income per common share:
Primary.......................... $ .26 $ .03 $ .01 $ .01
Fully diluted.................... $ .19 $ .03 $ .01 $ .01
Weighted average number of common
shares outstanding:
Primary.......................... 4,375 5,351 5,147 7,025
Fully diluted.................... 6,101 6,338 6,000 7,243
</TABLE>
Per share data may not always add to the total for the year because each
figure is independently calculated.
F-15
<PAGE>
DATAMETRICS CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 30,
1995 1994
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 676 $ 988
Accounts receivable.................................... 4,060 8,730
Inventory.............................................. 5,998 6,038
Income taxes receivable................................ 447 325
Prepaid expenses....................................... 278 267
Deferred tax asset..................................... 449 571
------- -------
Total current assets................................. 11,908 16,919
Property and equipment, at cost:
Machinery and equipment................................ 4,667 3,710
Furniture, fixtures & computer equipment............... 2,430 2,172
Leasehold improvements................................. 374 363
------- -------
7,471 6,245
Accumulated depreciation and amortization.............. (4,311) (3,970)
------- -------
Net property and equipment............................. 3,180 2,275
Deferred tax assets...................................... 64 64
Other assets............................................. 821 692
------- -------
$15,953 $19,950
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank................................... -- $ 600
Accounts payable....................................... $ 1,172 1,917
Accrued commissions and payroll........................ 578 845
Accrued warranty....................................... 144 182
Other accrued liabilities.............................. 460 368
Advance payments and progress payments on contracts.... 286 538
Current portion of capital lease and loan obligations.. 514 108
------- -------
Total current liabilities............................ 3,154 4,558
Capital lease obligations................................ 117 32
Long term debt due after one year........................ 1,369 --
Other long-term liabilities.............................. 132 150
Deferred tax liability................................... 76 76
Excess of acquired net assets over cost.................. 381 533
Series B redeemable preferred stock 613,110 shares
authorized, 545,950 shares
issued and outstanding in 1995 (564,556 in 1994)
(liquidation preference
and redemption price $955 in 1995 and $988 in 1994)..... 939 940
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value--15,000,000 shares
authorized;
9,417,582 shares issued and outstanding in 1995
(9,258,452 in 1994)................................... 94 93
Additional paid-in capital............................. 14,813 14,608
Accumulated deficit.................................... (5,122) (1,040)
------- -------
Total stockholders' equity........................... 9,785 13,661
------- -------
$15,953 $19,950
======= =======
</TABLE>
See accompanying notes.
F-16
<PAGE>
DATAMETRICS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED
-----------------
APRIL 30, MAY 1,
1995 1994
--------- -------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Sales....................................................... $ 7,348 $12,367
Cost of sales............................................. 6,057 8,290
------- -------
Gross profit............................................ 1,291 4,077
Operating expenses:
Research & development.................................... 2,646 975
Selling, general & administrative......................... 2,808 3,528
------- -------
5,452 4,503
------- -------
Loss from operations.................................... (4,161) (426)
Interest expense, net....................................... 39 58
Amortization of excess of acquired
net assets over cost....................................... (152) (141)
------- -------
Income (loss) before provision for income taxes........... (4,048) (343)
Provision (benefit) for income taxes........................ 2 (130)
------- -------
Net income (loss)........................................... (4,050) (213)
Preferred stock accretion................................... (32) (30)
------- -------
Net income (loss) applicable to common stockholders....... $(4,082) $ (243)
======= =======
Net income (loss) per share of common stock: $ (0.40) $ (0.03)
======= =======
Weighted average number of shares outstanding:
Primary................................................... 10,186 7,682
Fully diluted............................................. 10,186 7,682
</TABLE>
See accompanying notes.
F-17
<PAGE>
DATAMETRICS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDING
-----------------
APRIL 30, MAY 1,
1995 1994
--------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................... $(4,050) $ (213)
Adjustments:
Amortization of excess of acquired net assets............ (152) (141)
Depreciation and amortization............................ 397 290
Changes in balance sheet items:
Accounts receivable...................................... 4,670 2,963
Inventory................................................ 40 (528)
Prepaid expenses......................................... (11) (21)
Accounts payable......................................... (745) (1,222)
Accrued commissions and payroll.......................... (267) (446)
Advance and progress payments from customers............. (252) 464
Other accrued liabilities................................ 92 (72)
Income taxes............................................. -- (172)
Other.................................................... (218) (385)
------- -------
Net cash provided by (used in) operating activities.......... (496) 517
Cash Flows from Investing Activities:
Capital expenditures for property and equipment............ (1,084) (189)
------- -------
Net cash used in investing activities........................ (1,084) (189)
Cash Flows from Financing Activities:
Borrowings on notes payable................................ 750 3,500
Payments on notes payable.................................. (1,350) (4,650)
Proceeds from the issuance of common stock................. 206 5,192
Borrowings of long-term debt............................... 1,841 --
Payments on long-term debt................................. (95) --
Payments on capital lease obligations...................... (84) (68)
------- -------
Net cash provided by financing activities.................... 1,268 3,974
Net increase (decrease) in cash and cash equivalents......... (312) 4,302
Cash and cash equivalents at the beginning of the period..... 988 199
------- -------
Cash and Cash Equivalents at the End of the Period........... $ 676 $ 4,501
======= =======
Cash paid during the period for:
Interest................................................... $ 61 $ 69
Income Taxes............................................... -- 19
Noncash investing and financing activities:
Accretion on preferred stock............................... 16 30
Issuance of capital lease obligations...................... 199 --
</TABLE>
See accompanying notes.
F-18
<PAGE>
DATAMETRICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1995
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
Financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the statements and
notes thereto included in the Company's latest Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
The information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of Management, necessary to present a
fair statement of the results of operations for the interim periods. Much of
the Company's business is longer term and involves varying development,
production, and delivery schedules. Accordingly, results of a particular
quarter or quarter-to-quarter comparisons of recorded sales and profits may not
be indicative of future operating results or results for the fiscal year ending
October 29, 1995.
From our latest Annual Report on Form 10-K for which the following notes have
been omitted: note (2) pertains to the acquisition; note (3) pertains to
accounts receivable; note (4) pertains to inventory; note (5) pertains to
income taxes; note (7) pertains to leases; note (8) pertains to preferred
stock; note (9) pertains to stock option plans and warrants; note (10) pertains
to contingencies; note (11) pertains to employee benefit plans; and note (12)
pertains to quarterly financial data (unaudited).
Inventories are stated at the lower of cost (first-in, first-out) or market
and include materials, labor, and overhead.
Inventories as of April 30, 1995 are as follows:
<TABLE>
<S> <C>
Raw Material................................ $4,522,000
Work-in Process............................. 1,476,000
----------
$5,998,000
==========
</TABLE>
F-19
<PAGE>
NOTE 2. DEBT
The Company has entered into a revolving line of credit agreement (the
"Credit Agreement") with a bank. The advance rate is eighty percent (80%) of
eligible accounts receivable, plus eighty percent (80%) of eligible progress
billings receivables, to a maximum of the progress billing receivables
sublimit, which will not exceed the lesser of ten percent (10%) of eligible
receivables or $500,000. The lending facility is capped at $7,000,000 and
expires on March 4, 1996. The interest rate is prime plus .25%. The loan is
secured by substantially all the Company's assets. There was no outstanding
balance at April 30, 1995. As of May 17, 1995 the Company had borrowings
outstanding of $1,200,000 under the Credit Agreement and remaining availability
of approximately $1,000,000 under the terms of the Credit Agreement.
The Credit Agreement requires the Company to maintain certain financial
ratios and restricted or limited the Company's ability to (i) create certain
liens, (ii) convey, transfer, or sell assets, (iii) incur additional
indebtedness, (iv) redeem or repurchase any class of stock, and (v) pay
dividends on its preferred or common stock. The Company is in compliance with
all of its covenants.
F-20
<PAGE>
Graphic Image Appendix
----------------------
1. The inside front cover of the Prospectus contains representations of the
Company's CYMax logo above a photograph of the CYMax high-speed color
digital printer. The phrase "Datametrics CYMax Series of high-speed color
digital printers" appears below the photograph.
2. In the center of the gatefold there is a photograph of the CYMax
high-speed color digital printer with its lid raised. Also in the center of
the gatefold is a collage of various representative color printer outputs,
including price tags, merchandising labels, a jazz festival advertisement,
a real estate flyer, a drawing of a commercial artist, a newsletter, bar
charts and graphs, a personalized calendar, a happy birthday banner and a
map. In the lower right hand corner of the gatefold are line drawings of
the CYMax color printer and its four ribbon cartridges and a color laser
printer with its consumable replacement parts.
3. The inside back cover contains representations of the Company's CYMax and
DmC logos and a photograph of a bengal tiger. The phrase "A new era in
high speed color printing" appears below the photograph.
4. Representations of The Company's DmC logo appear on the outside front
and back covers of the Prospectus.
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 10
Price Range of Common Stock and Dividend Policy........................... 11
Capitalization............................................................ 12
Selected Financial Data................................................... 13
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 14
Business.................................................................. 19
Management................................................................ 31
Principal Stockholders.................................................... 33
Description of Capital Stock.............................................. 35
Shares Eligible for Future Sale........................................... 37
Underwriting.............................................................. 38
Legal Matters............................................................. 39
Experts................................................................... 39
Additional Information.................................................... 39
Incorporation of Certain Documents by Reference........................... 40
Index to Financial Statements............................................. F-1
</TABLE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
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2,000,000 SHARES
COMMON STOCK
-----------------
PROSPECTUS
-----------------
PENNSYLVANIA MERCHANT GROUP LTD
CRUTTENDEN ROTH
INCORPORATED
, 1995
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of expenses incurred in connection
with this Registration Statement. All such expenses will be paid by the
Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 7,190
NASD fee........................................................ 2,418
AMEX fee........................................................ 17,500
Legal fees and expenses......................................... 100,000
Public accountants' fees and expenses........................... 50,000
Printing and engraving expenses................................. 65,000
Blue Sky fees and expenses...................................... 10,000
Miscellaneous expenses.......................................... 2,892
--------
TOTAL $255,000
========
</TABLE>
--------
All of the above items except the registration fees are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As authorized by the Delaware General Corporation Law, the Company's Restated
Certificate of Incorporation and the Company's Restated By-Laws provide that no
director of the Company will be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
which involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does not
limit or eliminate the rights of the Company or any stockholders to seek non-
monetary relief such as an injunction or rescission in the event of a breach of
a director's duty of care.
ITEM 16. EXHIBITS.
The Exhibit Index is attached hereto on page E-1.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such
II-1
<PAGE>
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, 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 that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Woodland Hills, State of California, on May 18,
1995.
DATAMETRICS CORPORATION
By /s/ Sidney E. Wing
___________________________________
Sidney E. Wing
President and Chief Executive
Officer
Each person whose signature appears below authorizes Sidney E. Wing and John
J. Van Buren and either of them, with full power of substitution and
resubstitution, his true and lawful attorneys-in-fact, for him in any and all
capacities, to sign any amendments (including post-effective 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.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Garland S. White Chairman of the Board May 18, 1995
____________________________________
Garland S. White
/s/ Sidney E. Wing President and Chief May 18, 1995
____________________________________ Executive Officer, Director
Sidney E. Wing (Principal Executive
Officer)
/s/ John J. Van Buren Senior Vice President and May 18, 1995
____________________________________ Chief Financial Officer,
John J. Van Buren Treasurer (Principal
Financial and Accounting
Officer)
/s/ Dann V. Angeloff Director May 18, 1995
____________________________________
Dann V. Angeloff
/s/ Richard A. Foster Director May 18, 1995
____________________________________
Richard A. Foster
/s/ Burton L. Kaplan Director May 18, 1995
____________________________________
Burton L. Kaplan
Director
____________________________________
Richard W. Muchmore
/s/ Kenneth K. Zeiger Director May 18, 1995
____________________________________
Kenneth K. Zeiger
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Form S-2 Registration
Statement or are incorporated herein by reference. Where an exhibit is
incorporated by reference, the number which precedes the description of the
exhibit indicates the document to which the cross-reference is made.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBERS DESCRIPTION OF EXHIBIT PAGE NO.
------- ---------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement (1).
3.1 Restated Certificate of Incorporation of Registrant, as
currently in effect (incorporated by reference to
Exhibit 3.1 to Registrant's Form 8-K dated April 15,
1987).
3.2 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of
Series B Preferred Stock and Qualifications,
Limitations and Restrictions Thereof dated August 10,
1993 (incorporated by reference to Exhibit 4.1 to
Registrant's Form 8-K dated August 10, 1993).
3.3 Bylaws of Registrant, as currently in effect
(incorporated by reference to Exhibit 3.2 to
Registrant's Form 10-K for the year ended October 28,
1990).
4.1 Form of Representatives' Warrant Agreement (1).
5.1 Opinion of Latham & Watkins (to be filed by amendment).
10.3 Lease for Woodland Hills facility between the Company
and Manufacturers Life Insurance Company dated as of
December 19, 1993, as amended on August 31, 1994
(incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-K for the year ended October 30,
1994).
10.4 Agreement between the Company and Sidney E. Wing dated
March 17, 1989 (incorporated by reference to Exhibit
10.4 to Registrant's Form 10-K for the year ended
October 29, 1989).
10.5 Deferred Compensation Agreement between the Company and
Garland S. White dated October 18, 1989 (incorporated
by reference to Exhibit 10.5 to Registrant's Form 10-K
for the year ended October 29, 1989).
10.6 Amended and Restated Agreement and Plan of Merger dated
as of May 12, 1993 between Registrant and Rugged
Digital Systems, Inc. ("Rugged Digital") (incorporated
by reference to Exhibit 2 to Registrant's Form 8-K
dated May 12, 1993).
10.7 Escrow Agreement dated August 10, 1993 among the
Registrant and others relating to the acquisition of
Rugged Digital (incorporated by reference to Exhibit
4.3 to Registrant's Form 8-K dated August 10, 1993).
10.8 Debt Exchange Agreement dated August 10, 1993 among
Registrant and debtholders of Rugged Digital
(incorporated by reference to Exhibit 4.2 to
Registrant's Form 8-K dated August 10, 1993).
10.9 Security and Loan Agreement between Registrant and
Imperial Bank executed March 21, 1995, as amended May
15, 1995 (incorporated by reference to Exhibit 10.1 to
Registrant's Form 10-Q for the period ended April 30,
1995).
10.10 Agreement between the Company and The Angeloff Company
dated February 15, 1995 (incorporated by reference to
Exhibit 10.2 to Registrant's Form 10-Q for the period
ended April 30, 1995).
21 List of Subsidiaries (1).
23.1 Consent of Ernst & Young LLP, Independent Auditors (1).
23.2 Consent of Latham & Watkins is contained in Exhibit 5.1
(to be filed by amendment).
24.1 Power of Attorney (1) (included on the signature page
hereto).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBERS DESCRIPTION OF EXHIBIT PAGE NO.
------- ---------------------- ----------
<C> <S> <C>
99.1 The Datametrics Employee Savings Plan and The Trust
Agreement Pursuant To The Datametrics Employee Savings
Plan (incorporated herein by reference to Exhibit 28 to
Registrant's Registration Statement on Form S-8 filed on
November 12, 1985
(SEC File 33-1469)).
99.2 The Amended and Restated 1993 Stock Option Plan of
Datametrics Corporation (incorporated herein by reference
to Exhibit 28.2 to Registrant's Form 10-K for the year
ended October 31, 1993).
99.3 The 1986 Stock Option Plan of Datametrics Corporation, as
amended (incorporated herein by reference to Exhibit 28.1
to Registrant's Registration Statement on Form S-8 filed
on June 10, 1987 (SEC File No. 33-14969) and Exhibit 28.5
to Registrant's Form 10-K for the year ended October 29,
1988).
99.4 The 1982 Stock Option Plan of Datametrics Corporation, as
amended (incorporated herein by reference to Exhibit 28.2
to Registrant's Registration Statement on Form S-8 filed
on June 10, 1987 (SEC File No. 33-14969)).
99.5 The 1993 Directors' Option Plan of Datametrics
Corporation (incorporated by reference to Exhibit 28.5 to
Registrant's Form 10-K for the year ended October 31,
1993).
99.6 Datametrics Corporation Supplemental Executive Retirement
Plan and Master Trust Agreement (incorporated herein by
reference to Exhibit 28.6 to Registrant's Form 10-K for
the year ended October 30, 1994).
</TABLE>
-------
(1) Filed herewith.
<PAGE>
EXHIBIT 1.1
2,000,000 SHARES
DATAMETRICS CORPORATION
COMMON STOCK
__________________
UNDERWRITING AGREEMENT
__________________
Radnor, Pennsylvania
May __, 1995
Pennsylvania Merchant Group Ltd
Cruttenden Roth Incorporated
As Representatives of the Several Underwriters
Named in Schedule I Attached Hereto
Suite 390, Fidelity Court
259 Radnor-Chester Road
Radnor, Pennsylvania 19087
Dear Sirs:
Datametrics Corporation, a Delaware corporation (the "Company"), proposes
to issue and sell an aggregate of 2,000,000 shares of its Common Stock, $0.01
par value (the "Common Shares"), to Pennsylvania Merchant Group Ltd ("PMG") and
Cruttenden Roth Incorporated (collectively with PMG, the "Representatives") and
the several underwriters named in Schedule I hereto (collectively with the
Representatives, the "Underwriters" and individually, an "Underwriter," which
terms shall also include any Underwriter substituted as hereinafter provided in
Section 11). The aforementioned 2,000,000 Common Shares to be issued and sold
to the several Underwriters by the Company are hereinafter referred to as the
"Offered Shares." The Offered Shares shall be offered to the public at an
initial offering price of $__________ per Offered Share (the "Offering Price").
In addition, the several Underwriters, in order to cover over-allotments in
the sale of the Offered Shares, may purchase from the Company within 30 business
days after the Effective Date (as hereinafter defined), for their own account
for offering to the public at the Offering Price, up to 300,000 additional
Common Shares (the "Optional Shares"), upon the terms and conditions set forth
in Section 4 hereof. The Offered Shares and the Optional Shares are hereinafter
collectively referred to as the "Shares." The Company, intending to be legally
bound hereby, confirms its agreement with each of the Underwriters as follows:
<PAGE>
1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to, and agrees with, the several Underwriters that:
(a) The Company has prepared in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the rules,
regulations, releases and instructions (the "Regulations") of the
Securities and Exchange Commission (the "SEC") under the Act in effect
at all applicable times and has filed with the SEC a registration
statement on Form S-2 (File No. 33-________) and one or more
amendments thereto registering the Shares under the Act. Any
preliminary prospectus included in such registration statement or
filed with the SEC pursuant to Rule 424(a) of the Regulations is
hereinafter called a "Preliminary Prospectus." The various parts of
such registration statement, including all exhibits thereto and the
information contained in any form of final prospectus filed with the
SEC pursuant to Rule 424(b) of the Regulations in accordance with
Section 5(a) of this Agreement and deemed by virtue of Rule 430A of
the Regulations to be part of such registration statement at the time
it was declared effective, each as amended at the time such
registration statement became effective, are hereinafter collectively
referred to as the "Registration Statement." The final prospectus in
the form included in the Registration Statement or first filed with
the SEC pursuant to Rule 424(b) of the Regulations and any amendments
or supplements thereto is hereinafter referred to as the "Prospectus."
(b) The Registration Statement has become effective under the Act
as of the Effective Date, and the SEC has not issued any stop order
suspending the effectiveness of the Registration Statement or
preventing or suspending the use of any Preliminary Prospectus nor has
the SEC instituted, threatened to institute or, to the Company's
knowledge, contemplated proceedings with respect to such an order. No
stop order suspending the sale of the Shares in any jurisdiction
designated by the Representatives pursuant to Section 5(f) hereof has
been issued, and no proceedings for that purpose have been instituted
or are threatened or, to the Company's knowledge, contemplated. The
Company has complied with any request of the SEC, or any state
securities commission in a state designated by the Representatives
pursuant to Section 5(f) hereof, for additional information to be
included in the Registration Statement or Prospectus or otherwise.
Each Preliminary Prospectus conformed to the Act and the Regulations
as of its date and did not as of its date contain an untrue statement
of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading,
except the foregoing shall not apply to statements in or omissions
from any Preliminary Prospectus in reliance upon and in conformity
with information furnished to the Company in writing by or on behalf
of any Underwriter through the Representatives expressly for use
therein. The Registration Statement on the date on which it was
declared effective by the SEC (the "Effective Date") conformed, and
any post-effective amendment thereof on the date it shall become
effective, and the Prospectus at the time it is filed with the SEC
pursuant to Rule 424(b) of the Regulations and on the Closing Date (as
defined in Section 3 hereof) and any Option Closing Date (as defined
in Section 4(b) hereof), will conform to the requirements of the Act
and the Regulations, and neither the Registration Statement, any post-
effective amendment
2
<PAGE>
thereof nor the Prospectus will, on any of such respective dates,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, except that this representation and
warranty does not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by or
on behalf of any Underwriter through the Representatives expressly for
use therein. It is understood that the statements appearing in any
Preliminary Prospectus, the Prospectus or the Registration Statement
(A) on the inside front cover page with respect to stabilization, (B)
in the table in the section entitled "Underwriting," and the second
paragraph following such table with respect to the amount of the
dealers' concession and allowance and reallowance discount and (C) in
the section entitled "Legal Matters" with respect to the identity of
counsel for the Underwriters constitute the only information furnished
in writing by or on behalf of any Underwriter for inclusion in any
Preliminary Prospectus, the Prospectus or the Registration Statement.
(c) The Company is a corporation duly organized, validly existing
and in good standing under the laws of Delaware, with all necessary
power and authority, corporate and other, and all required licenses,
permits, certifications, registrations, approvals, consents and
franchises to own or lease and operate its properties and to conduct
its business as described in the Prospectus and to execute, deliver
and perform this Agreement. The Company is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on
the Company.
(d) The Company does not own any stock or other equity interest
in, or control, directly or indirectly, any corporation, partnership
or other entity other than Datametrics, Limited, which has no assets
and conducts no business.
(e) The Company has all necessary power and authority to execute
and deliver the Warrants to purchase Common Shares to be issued and
sold to the Representatives under the terms of Warrant Agreement (as
hereinafter defined) in accordance with Section 5(r) of this Agreement
(the "Representatives Warrants").
(f) This Agreement, the Warrant Agreement and the Representatives
Warrants have been duly authorized, executed and delivered by the
Company and constitute its legal, valid and binding obligations,
enforceable against the Company in accordance with their respective
terms, except as rights to indemnity and contribution hereunder or
thereunder may be limited by federal or state securities laws or
principles of public policy. This Agreement, the Warrant Agreement
and the Representatives Warrants conform to the description thereof in
the Prospectus.
(g) The execution, delivery and performance of this Agreement,
the Warrant Agreement and the Representatives Warrants by the Company
does not and will not, with or without the giving of notice or the
lapse of time, or both, (A) conflict with any terms or provisions of
the Certificate of Incorporation or
3
<PAGE>
By-laws of the Company, as amended to the date hereof and the Closing
Date or Option Closing Date, as the case may be; (B) result in a
breach of, constitute a default under, result in the termination or
modification of or result in the creation or imposition of any lien,
security interest, charge or encumbrance upon any of the properties of
the Company pursuant to any indenture, mortgage, deed of trust,
contract, commitment or other agreement or instrument to which the
Company is a party or by which any of its properties or assets are
bound or affected; (C) violate any law, rule, regulation, judgment,
order or decree of any government or governmental agency,
instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any of its properties or businesses or (D) result
in a breach, termination or lapse of the power and authority of the
Company to own or lease and operate its properties and conduct its
business as described in the Prospectus.
(h) The Company has authorized and outstanding capital stock and,
as of the date or dates indicated the Company had the capitalization,
set forth under the caption "Capitalization" in the Prospectus and
will have the as-adjusted capitalization set forth under the caption
"Capitalization" in the Prospectus. On the Effective Date, the
Closing Date and any Option Closing Date, there will be no options or
warrants for the purchase of, other outstanding rights to purchase,
agreements or obligations to issue or agreements or other rights to
convert or exchange any obligation or security into, capital stock of
the Company or securities convertible into or exchangeable for capital
stock of the Company, except as described in the Prospectus with
respect to the outstanding options that have been granted to employees
and directors to purchase 1,419,290 Common Shares (the "Employee
Options"), the outstanding warrants to purchase 170,000 Common Shares
(the "Warrants"), the Representatives Warrants and the Over-allotment
Option (as hereinafter defined).
(i) The authorized capital stock of the Company, including,
without limitation, the outstanding Common Shares and the Shares being
issued on the Closing Date and Option Closing Date (if any and to the
extent applicable), conforms to the descriptions thereof in the
Prospectus, and such descriptions conform to the descriptions thereof
set forth in the instruments defining the same. The information in
the Prospectus insofar as it relates to the Employee Options, the
Representatives Warrants and the Warrants, in each case as of the
Effective Date, the Closing Date and any Option Closing Date, is true,
correct and complete.
(j) The outstanding Common Shares have been duly authorized and
are validly issued, fully paid and non-assessable. The Employees
Options and the Warrants have been duly authorized and validly issued
and are legal, valid and binding obligations enforceable against the
Company in accordance with their terms. The Warrant Agreement and the
Representatives Warrants, as of the Closing Date, will have been duly
authorized and validly issued and, when executed and delivered by the
Company, will be legal, valid and binding obligations enforceable
against the Company in accordance with their terms. The Common Shares
issuable pursuant to the Employee Options, the Representatives
Warrants and the Warrants, when issued in accordance with the
respective terms thereof, will be duly authorized, validly issued,
fully paid and non-assessable. None of such outstanding Common
Shares,
4
<PAGE>
Employee Options, or Warrants were, and none of the Representatives
Warrants or such issuable Common Shares will be, issued in violation
of any preemptive rights of any security holder of the Company. The
Company has reserved a sufficient number of Common Shares for issuance
pursuant to the Employee Options, the Representatives Warrants and the
Warrants. The holders of the outstanding Common Shares are not, and
will not be, subject to personal liability solely by reason of being
such holders, and the holders of the Common Shares issuable pursuant
to the Employee Options, the Representatives Warrants and the Warrants
will not be subject to personal liability solely by reason of being
such holders. The offers and sales of the outstanding Common Shares,
the Employee Options and the Warrants were, and the issuance of the
Common Shares pursuant to the Employee Options, the Representatives
Warrants and the Warrants will be, made in conformity with applicable
registration requirements or exemptions therefrom under federal and
applicable state securities laws.
(k) The issuance and sale of the Shares by the Company have been
duly authorized and, when the Shares have been duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be
validly issued, fully paid and non-assessable, and the holders thereof
will not be subject to personal liability solely by reason of being
such holders. None of the Shares will be issued in violation of any
preemptive rights of any stockholder of the Company. The certificates
representing the Shares are in proper legal form under, and conform to
the requirements of the Delaware General Corporation Law, as amended
(the "GCL"). Neither the filing of the Registration Statement nor the
offering or sale of the Shares as contemplated by this Agreement gives
any security holder of the Company any rights, other than those which
have been waived, for or relating to the registration of any Common
Shares or other security of the Company.
(l) No consent, approval, authorization, order, registration,
license or permit of any court, government, governmental agency,
instrumentality or other regulatory body or official is required for
the valid authorization, issuance, sale and delivery by the Company of
any of the Shares, or for the execution, delivery or performance by
the Company of this Agreement, except such as may be required for the
registration of the Shares under the Act, the Regulations and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
which consent, approval and authorization have been obtained, and for
compliance with the applicable state securities or Blue Sky laws, or
the By-laws, rules and other pronouncements of the National
Association of Securities Dealers, Inc. (the "NASD"). Upon the
effectiveness of the Registration Statement, the Common Shares will be
registered pursuant to Section 12(g) of the Exchange Act, and will be
included on the American Stock Exchange (the "AMEX"). The Company has
taken no action designed, or likely, to have the effect of terminating
the registration of the Common Shares under Section 12(g) of the
Exchange Act or the inclusion of the Common Shares on the AMEX, nor
has the Company received any notification that the SEC or the AMEX is
contemplating terminating such registration or inclusion.
(m) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of or references to contracts,
agreements or other documents,
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are accurate in all material respects and present or summarize fairly,
the information required to be disclosed under the Act and the
Regulations, and there are no contracts, agreements or other documents
required to be described or referred to in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement
under the Act or the Regulations that have not been so described,
referred to or filed, as required.
(n) The financial statements (including the notes thereto) filed
as part of any Preliminary Prospectus, the Prospectus and the
Registration Statement present fairly the financial position of the
Company, as of the respective dates thereof, and the results of
operations and cash flows of the Company, for the periods indicated
therein, all in conformity with generally accepted accounting
principles consistently applied. The supporting schedules included in
the Registration Statement fairly state the information required to be
stated therein in relation to the basic financial statements taken as
a whole. The financial information included in the Prospectus under
the captions "Prospectus Summary" and "Selected Financial Data"
presents fairly the information shown therein and has been compiled on
a basis consistent with that of the audited financial statements
included in the Registration Statement.
(o) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise
stated therein, there has not been (A) any material adverse change
(including, whether or not insured against, any material loss or
damage to any assets), or development involving a prospective material
adverse change, in the general affairs, properties, assets,
management, condition (financial or otherwise), results of operations,
stockholders' equity, business or prospects of the Company, (B) any
transaction entered into by the Company that is material to the
Company, (C) any dividend or distribution of any kind declared, paid
or made by the Company on its capital stock, (D) any liabilities or
obligations, direct or indirect, incurred by the Company that are
material to the Company, or (E) any material change in the short-term
debt or long-term debt of the Company. The Company does not have any
contingent liabilities or obligations that are material and that are
not disclosed in the Prospectus.
(p) The Company has not distributed and, prior to the later to
occur of the Closing Date, the Option Closing Date or the completion
of the distribution of the Shares, will not distribute any offering
material in connection with the offering or sale of the Shares other
than the Registration Statement, each Preliminary Prospectus and the
Prospectus, in any such case only as permitted by the Act and the
Regulations.
(q) The Company has filed with the appropriate federal, state and
local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns that are required to be filed,
or has duly obtained extensions of time for the filing thereof and has
paid all taxes shown on such returns and all assessments received by
it to the extent that the same have become due. The Company has not
executed or filed with any taxing authority, foreign or domestic, any
agreement extending the period for assessment or collection of any
income taxes, is not a party to any pending action or proceeding by
any foreign or domestic governmental
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agencies for the assessment or collection of taxes, and no claims for
assessment or collection of taxes have been asserted against the
Company that might materially adversely affect the general affairs,
properties, assets, condition (financial or otherwise), results of
operations, stockholders' equity, business or prospects of the
Company.
(r) Ernst & Young LLP, which is certifying the financial
statements included in the Prospectus and forming a part of the
Registration Statement, is a firm of independent public accountants as
required by the Act and the Regulations.
(s) The Company is not in violation of, or in default under, any
of the terms or provisions, of (A) its Certificate of Incorporation or
Bylaws, each as amended to the date hereof, the Closing Date or the
Option Closing Date, as the case may be, (B) any indenture, mortgage,
deed of trust, contract, loan or credit agreement, commitment or other
agreement or instrument to which the Company is a party or by which it
or any of its properties are bound or affected, (C) any law, rule,
regulation, judgment, order or decree of any government or
governmental agency, instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of its properties or
businesses or (D) any license, permit, certification, registration,
approval, consent or franchise referred to in subsections (b) or (c)
of this Section 1.
(t) There are no claims, actions, suits, proceedings,
arbitrations investigations, or inquiries pending before, or
threatened or, to the Company's knowledge, contemplated by, any
governmental agency, instrumentality, court or tribunal, domestic or
foreign, or before any private arbitrational tribunal, relating to or
affecting the Company or its properties or businesses that might
affect the issuance or validity of any of the Shares or the validity
of any of the outstanding Common Shares, or that, if determined
adversely to the Company, would, in any case or in the aggregate,
result in any material adverse change in the general affairs,
properties, assets, condition (financial or otherwise), results of
operations, stockholders' equity, business or prospects, of the
Company; nor is there any reasonable basis for any such claim, action,
suit, proceeding, arbitration, investigation or inquiry. There are no
outstanding orders, judgments or decrees of any court, governmental
agency, instrumentality or other tribunal enjoining the Company from,
or requiring the Company to take or refrain from taking any action, or
to which the Company, or any of its properties, assets or businesses
is bound or subject.
(u) The Company owns, or possesses adequate rights to use all
patents, patent applications, trademarks, trademark registrations,
applications for trademark registration, trade names, service marks,
licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
technology, information, systems, design methodologies and devices or
procedures developed or derived from the Company's businesses), trade
secrets, confidential information, processes and formulations
necessary for, used in or proposed to be used in the conduct of its
business as described in the Prospectus (collectively, the
"Intellectual Property") that, if not so owned or possessed, would
materially adversely affect the general affairs, properties, condition
(financial or
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otherwise), results of operations, stockholders' equity, business or
prospects of the Company. The Company has not infringed, is not
infringing or has not received any notice of conflict with the
asserted rights of others with respect to the Intellectual Property,
and no others have infringed upon or are in conflict with the
Intellectual Property.
(v) The Company has obtained all permits, licenses and other
authorizations that are required, to the extent required, under all
environmental laws, including but not limited to the Federal Water
Pollution Control Act (33 U.S.C. (S)1251 et seq.), Resource
Conservation & Recovery Act (42 U.S.C. (S)6901 et seq.), Safe Drinking
Water Act (21 U.S.C. (S)349, 42 U.S.C. (S)(S)201, 300f), Toxic
Substances Control Act (15 U.S.C. (S)2601 et seq.), Clean Air Act (42
U.S.C. (S) 7401 et seq.), Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. (S)9601 et seq.), other
appropriate laws of jurisdictions in which the Company's products have
been used or located and any other laws relating to emissions,
discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including, without limitation, ambient
air, surface water, ground water or land), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes under any
regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder
(collectively, the "Environmental Laws"). The Company is in
compliance with all terms and conditions of any required permits,
licenses and authorizations, and is in compliance with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables contained in the
Environmental Laws, except where the failure to so comply would not
have a material adverse effect on the Company.
(w) There are no present or, to the Company's knowledge, past
events, conditions, circumstances, activities, practices, incidents,
actions or plans relating to the business as presently being conducted
by the Company that interfere with or prevent compliance with or
continued compliance with the Environmental Laws, or which would be
reasonably likely to give rise to any material legal liability
(whether statutory or common law) or otherwise would be reasonably
likely to form the basis of any claim, action, demand, suit,
proceeding, hearing, notice of violation, study, investigation,
remediation, or clean up based on or related to the generation,
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release
into the workplace, community or environment of any pollutant,
contaminant, chemical or industrial, toxic, or hazardous substance or
waste.
(x) The Company has good and marketable title to all personal
property (tangible and intangible) described in the Prospectus as
being owned by it, free and clear of all liens, security interests,
charges or encumbrances, except such as are described in the
Prospectus. The Company has adequately insured the personal property
of the Company against loss or damage by fire or other casualty and
maintains, in adequate amounts, insurance against such other risks as
management
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of the Company deems appropriate. The Company does not own any real
property, and all real property used or leased by the Company, as
described in the Prospectus (the "Premises"), is held by the Company
under a valid, subsisting and enforceable lease. The Premises, and
all operations conducted thereon, are now and, since the Company began
to use such Premises, always have been and, to the Company's
knowledge, prior to when the Company began to use such Premises,
always had been, in compliance with the Environmental Laws. There is
no, and the Company has not received notice of any, claim, demand,
investigation, regulatory action, suit or other action instituted or
threatened against any of them or the Premises relating to any of the
Environmental Laws. The Company has not received any notice of
material violation, citation, complaint, order, directive, request for
information or response thereto, notice letter, demand letter or
compliance schedule to or from any governmental or regulatory agency
arising out of or in connection with hazardous substances (as defined
by applicable Environmental Laws) on, about, beneath, arising from or
generated at the Premises.
(y) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or
specific authorization, (B) transactions are recorded as necessary in
order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain
accountability for assets, (C) access to assets is permitted only in
accordance with management's general or specific authorization and (D)
the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) No unregistered securities of the Company have been sold by
the Company or on behalf of the Company by any person or persons
controlling, controlled by or under common control with the Company
within the three years prior to the date hereof, except as disclosed
in the Registration Statement.
(aa) Each contract or other instrument (however characterized or
described) to which the Company is a party or by which any of the
properties or business of it is bound or affected and to which
reference has been made in the Prospectus or which has been filed as
an exhibit to the Registration Statement has been duly and validly
executed by the Company, and by the other parties thereto. Except as
described in the Prospectus, each such contract or other instrument is
in full force and effect and is enforceable against the parties
thereto in accordance with its terms, and neither the Company, nor any
other party is in default thereunder and no event has occurred that,
with the lapse of time or the giving of notice, or both, would
constitute a default thereunder.
(bb) Except for the Company's 401(k), disability, health and life
insurance plans, the Company has not had any employee benefit plan,
profit sharing plan, employee pension benefit plan or employee welfare
benefit plan or deferred compensation arrangements (collectively,
"Plans") that are subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended, or the rules and regulations
thereunder ("ERISA"). All Plans that are subject to ERISA are, and
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have been at all times since their establishment, in compliance with
ERISA and, to the extent required by the Internal Revenue Code of
1986, as amended (the "Code"), in compliance with the Code. The
Company has not had any employee pension benefit plan that is subject
to Part 3 of Subtitle B of Title 1 of ERISA or any defined benefit
plan or multiemployer plan. The Company has not maintained retiree
life and retiree health insurance plans that are employee welfare
benefit plans providing for continuing benefit or coverage for any
employee or any beneficiary of any employee after such employee's
termination for employment, except as required by Section 4980B of the
Code. No fiduciary or other party in interest with respect to any of
the Plans has caused any of such Plans to engage in a "prohibited
action" as defined in Section 406 of ERISA. As used in this
subsection, the terms "defined benefit plan," "employee benefit plan,"
"employee pension benefit plan," "employee welfare benefit plan,"
"fiduciary" and "multiemployer plan" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
(cc) No labor dispute exists with the employees of the Company
and no such labor dispute is imminent. There is no existing or, to
the Company's knowledge, imminent labor disturbance by the employees
of any of the Company's principal suppliers, contractors or customers
(including, without limitation, any distributors or end-users of its
products).
(dd) The Company has not incurred any liability for any finder's
fees or similar payments in connection with the transactions
contemplated herein.
(ee) Except as described in the Prospectus, the Company is not a
party to, and is not bound by, any agreement pursuant to which any
material royalties, honoraria or fees are payable by the Company to
any person by reason of the ownership or use of any Intellectual
Property.
(ff) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Regulations.
(gg) The Company is familiar with the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future
to continue to conduct, its affairs in such a manner to ensure that it
will not become an "investment company" within the meaning of the 1940
Act and such rules and regulations.
(hh) Neither the Company nor any director, officer, agent,
employee or other person associated with or acting on behalf of the
Company has, directly or indirectly, (A) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful
expenses relating to any political activity, (B) made any unlawful
payment to foreign or domestic governments or governmental officials
or employees or to foreign or domestic political parties or campaigns
from corporate funds, (C) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended or (D) made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment.
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Any certificate signed by any officer of the Company in such capacity and
delivered to the Representatives or to counsel for the Underwriters
pursuant to this Agreement shall be deemed a representation and warranty by
the Company to the several Underwriters as to the matters covered thereby.
2. PURCHASE AND SALE OF OFFERED SHARES. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company shall sell the
Offered shares to the several Underwriters at the Offering Price less the
underwriting discount shown on the cover page of the Prospectus (the
"Underwriting Discount"), and the Underwriters, severally and not jointly, shall
purchase from the Company, on a firm commitment basis, at the Offering Price
less the Underwriting Discount, the respective Offered Shares set forth opposite
their names on Schedule I hereto. In making this Agreement, each Underwriter is
contracting severally, and not jointly, and, except as provided in Sections 4
and 11 hereof, the agreement of each Underwriter is to purchase only that number
of Offered shares specified with respect to that Underwriter in Schedule I
hereto. The Underwriters shall offer the Offered Shares to the public as set
forth in the Prospectus.
3. PAYMENT AND DELIVERY. Payment for the Offered Shares shall be made to
the Company by certified or official bank check payable to the order of the
Company in Philadelphia Clearing House funds (next day funds), at the offices of
Latham & Watkins, 633 West Fifth Street, Los Angeles, California 90071, or at
such other location as shall be agreed upon by the Company and the
Representatives, or in immediately available funds wired to such account or
accounts as the Company may specify (with all costs and expenses incurred by the
Underwriters in connection with such settlement in immediately available funds
(including, but not limited to, interest or cost of funds expenses) to be born
by the Company), against delivery of the Offered Shares to the Representatives
at the offices of PMG, Suite 390, Fidelity Court, 259 Radnor-Chester Road,
Radnor, Pennsylvania 19087, for the respective accounts of the Underwriters.
Such payments and delivery will be made at 10:00 A.M., Philadelphia time, on the
fifth business day after the date of this Agreement or at such other time and
date not later than five business days thereafter as the Representatives and the
Company shall agree upon. Such time and date are referred to herein as the
"Closing Date." The certificates representing the Offered Shares to be sold and
delivered will be in such denominations and registered in such names as the
Representatives request not less than two full business days prior to the
Closing Date, and will be made available to the Representatives for inspection,
checking and packaging at the office of the Company's Transfer Agent, not less
than one full business day prior to the Closing Date.
4. OPTION TO PURCHASE OPTIONAL SHARES.
(a) For the purposes of covering any over-allotments in connection
with the distribution and sale of the Offered Shares as contemplated by the
Prospectus, subject to the terms and conditions herein set forth, the
several Underwriters are hereby granted an option by the Company to
purchase all or any part of the Optional Shares from the Company (the
"Over-allotment Option"). The purchase price per share to be paid for the
Optional Shares shall be the Offering Price less the Underwriting Discount.
The Over-allotment Option granted hereby may be exercised by the
Representatives on behalf of the several Underwriters as to all or any part
of the Optional Shares at any time and from time to time within 30 business
days after the Effective Date. No Underwriter shall be under any
obligation to purchase any Optional Shares prior to an exercise of the
Over-allotment Option.
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(b) The Over-allotment Option granted hereby may be exercised by the
Representatives on behalf of the several Underwriters by giving notice to
the Company by a letter sent by registered or certified mail, postage
prepaid, telex, telegraph, telegram or facsimile (such notice to be
effective when sent), addressed as provided in Section 13 hereof, setting
forth the number of Optional Shares to be purchased, the date and time for
delivery of and payment for the Optional Shares and stating that the
Optional Shares referred to therein are to be used for the purpose of
covering over-allotments in connection with the distribution and sale of
the Offered Shares. If such notice is given prior to the Closing Date, the
date set forth therein for such delivery and payment shall not be earlier
than either five full business days thereafter or the Closing Date,
whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment shall be a
date selected by the Representatives that is not later than five full
business days after the exercise of the Over-allotment Option. The date
and time set forth in such a notice is referred to herein as an "Option
Closing Date," and a closing held pursuant to such a notice is referred to
herein as an "Option Closing." The number of Optional Shares to be sold to
each Underwriter pursuant to each exercise of the Over-allotment Option
shall be the number that bears the same ratio to the aggregate number of
Optional Shares being purchased through such Over-allotment Option exercise
as the number of Offered Shares opposite the name of such Underwriter in
Schedule I hereto bears to the total number of all Offered Shares; subject,
however, to such adjustment as the Representatives may approve to eliminate
fractional shares and subject to the provisions for the allocation of
Optional Shares purchased for the purpose of covering over-allotments set
forth in Section 9 of the Agreement Among Underwriters. Upon each exercise
of the Over-allotment Option, the Company shall become obligated and sell
to the Representatives for the respective accounts of the Underwriters, and
on the basis of the representations, warranties, covenants and agreements
herein contained, but subject to the terms and conditions herein set forth,
and the several Underwriters shall become severally, but not jointly,
obligated to purchase from the Company, the number of Optional Shares
specified in each notice of exercise of the Over-allotment Option.
(c) Payment for the Optional Shares shall be made to the Company by
certified or official bank check payable to the order of the Company in
Philadelphia Clearing House funds (next day funds), at the office of Latham
& Watkins, 633 West Fifth Street, Los Angeles, California 90071, or such
other location as shall be agreed upon by the Company and the
Representatives, or in immediately available funds wired to such account as
the Company may specify (with all costs and expenses incurred by the
Underwriters in connection with such settlement in immediately available
funds (including, but not limited to, interest or cost of funds expenses)
to be borne by the Company), against delivery of the Optional Shares to the
Representatives at the offices of PMG, Suite 390, Fidelity Court, 259
Radnor-Chester Road, Radnor, Pennsylvania 19087, for the respective
accounts of the Underwriters. The certificates representing the Optional
Shares to be issued and delivered will be in such denominations and
registered in such names as the Representatives request not less than two
full business days prior to the Option Closing Date, and will be made
available to the Representatives for inspection, checking and packaging at
the office of the Company's Transfer Agent not less than one full business
day prior to the Option Closing Date.
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5. CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY. The Company
covenants and agrees with the several Underwriters as follows:
(a) If Rule 430A of the Regulations is employed, the Company will
timely file the Prospectus pursuant to and in compliance with Rule 424(b)
of the Regulations and will advise the Representatives of the time and
manner of such filing.
(b) The Company will not at any time, whether before or after the
Registration Statement shall have become effective, during such period as,
in the opinion of counsel for the Underwriters, the Prospectus is required
by law to be delivered in connection with sales by the Underwriters or a
dealer, file or publish any amendment or supplement to the Registration
Statement or Prospectus of which the Representatives have not been
previously advised and furnished a copy, or which is not in compliance with
the Regulations, or, during the period before the distribution of the
Offered Shares and the Optional Shares is completed, file or publish any
amendment or supplement to the Registration Statement or Prospectus to
which the Representatives reasonably object in writing.
(c) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time and date that this Agreement is
executed and delivered by the parties hereto, to become effective and will
advise the Representatives immediately, and confirm such advice in writing,
(i) when the Registration Statement, or any post-effective amendment to the
Registration Statement, is filed with the SEC, (ii) of the receipt of any
comments from the SEC, (iii) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes effective,
or when any supplement to the Prospectus or any amended Prospectus has been
filed, (iv) of any request of the SEC for amendment or supplementation of
the Registration Statement or Prospectus or for additional information, (v)
during the period when the Prospectus is required to be delivered under the
Act and Regulations, of the happening of any event which in the Company's
judgment makes any material statement in the Registration Statement or the
Prospectus untrue or which requires any changes to be made in the
Registration Statement or Prospectus in order to make any material
statements therein not misleading and (vi) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement
or of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, the suspension of the qualification of any of
the Shares for offering or sale in any jurisdiction in which the
Underwriters intend to make such offers or sales, or of the initiation or
threatening of any proceedings for any such purposes. The Company will use
its best efforts to prevent the issuance of any such stop order or of any
order preventing or suspending such use and, if any such order is issued,
to obtain as soon as possible the lifting thereof.
(d) The Company has delivered to the Representatives, without charge,
and will continue to deliver from time to time until the Effective Date, as
many copies of each Preliminary Prospectus as the Representatives may
reasonably request. The Company will deliver to the Representatives,
without charge, as soon as possible after the Effective Date, and
thereafter from time to time during the period when delivery of the
Prospectus is required under the Act, such number of copies of the
Prospectus (as supplemented or amended, if the Company makes any
supplements or amendments to the Prospectus) as the Representatives may
reasonably request. The Company hereby consents to the use of such copies
of each Preliminary Prospectus and the Prospectus for purposes permitted by
the Act,
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the Regulations and the securities or Blue Sky laws of the jurisdictions in
which the Shares are offered or sold by the several Underwriters and by all
dealers to whom Shares may be offered or sold, both in connection with the
offering and sale of the Shares and for such period of time thereafter as
the Prospectus is required by the Act to be delivered in connection with
sales by any Underwriter or dealer. The Company has furnished or will
furnish to the Representatives two signed copies of the Registration
Statement as originally filed and of all amendments thereto, whether filed
before or after the Effective Date, two copies of all exhibits filed
therewith and two signed copies of all consents and certificates of
experts, and will deliver to the Representatives such number of conformed
copies of the Registration Statement, including financial statements and
exhibits, and all amendments thereto, as the Representatives may reasonably
request.
(e) The Company will comply with the Act, the Regulations, the
Exchange Act and the rules and regulations thereunder so as to permit the
continuance of offers and sales of, and dealings in, the Shares for as long
as may be necessary to complete the distribution of the Shares as
contemplated hereby.
(f) The Company will furnish such information as may be required and
otherwise cooperate in the registration or qualification of the Shares, or
exemption therefrom, for offering and sale by the several Underwriters and
by dealers under the securities or Blue Sky laws of such jurisdictions in
which the Representatives determine to offer the Shares, after consultation
with the Company, and will file such consents to service of process or
other documents necessary or appropriate in order to effect such
registration or qualification; provided, however, that no such
qualification shall be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to taxation or qualification
as a foreign corporation doing business in such jurisdiction where it is
not now so qualified or to take any action which would subject it to
service of process in suits, other than those arising out of the offering
or sale of the Shares, in any jurisdiction where it is not now so subject.
The Company will, from time to time, prepare and file such statements and
reports as are or may be required to continue such qualification in effect
for so long a period as is required under the laws of such jurisdiction for
such offering and sale.
(g) Subject to subsection (b) of this Section 5, in case of any event,
at any time within the period during which, in the opinion of counsel for
the Underwriters, a prospectus is required to be delivered under the Act
and Regulations, as a result of which event any Preliminary Prospectus or
the Prospectus, as then amended or supplemented, would contain, in the
judgment of the Company or in the opinion of counsel for the Underwriters,
an untrue statement of a material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, if it is
necessary at any time to amend any Preliminary Prospectus or the Prospectus
to comply with the Act and Regulations or any applicable securities or Blue
Sky laws, the Company promptly will prepare and file with the SEC, and any
applicable state securities commission, an amendment or supplement that
will correct such statement or omission or an amendment that will effect
such compliance and will furnish to the Representatives such number of
copies of such amendment or amendments or supplement or supplements to such
Preliminary Prospectus or the Prospectus (in form and substance
satisfactory to the Representatives and counsel for Underwriters) as the
Representatives may reasonably request. For purposes of this subsection,
the Company will furnish such information to the
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Representatives, the Underwriters' counsel and counsel for the Company as
shall be necessary to enable such persons to consult with the Company with
respect to the need to amend or supplement any Preliminary Prospectus or
the Prospectus, and shall furnish to the Representatives and the
Underwriters' counsel such further information as each may from time to
time reasonably request. If the Company and the Representatives agree that
any Preliminary Prospectus or the Prospectus should be amended or
supplemented, the Company, if requested by the Representatives, will, if
and to the extent required by law, promptly issue a press release
announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(h) The Company will make generally available to its security holders
as soon as practicable and in any event not later than 45 days after the
end of the period covered thereby, an earnings statement of the Company
(which need not be audited unless required by the Act, the Regulations, the
Exchange Act or the rules or regulations thereunder) that shall comply with
Section 11(a) of the Act and cover a period of at least 12 consecutive
months beginning not later than the first day of the Company's fiscal
quarter next following the Effective Date.
(i) For a period of five years from the Effective Date, the Company
will deliver to the Representatives: (A) a copy of each report or
document, including, without limitation, reports on Forms 8-K, 10-C, 10-K
and 10-Q (or such similar forms as may be designated by the SEC),
registration statements and any exhibits thereto, filed with or furnished
to the SEC or any securities exchange or the NASD, on the date each such
report or document is so filed or furnished, (B) as soon as practicable,
copies of any reports or communications (financial or other) of the Company
mailed to its security holders and (C) every material press release in
respect of the Company or its affairs that was released or prepared by the
Company.
(j) For a period of three years from the Effective Date, the Company
will deliver to the Representatives, subject to execution of an appropriate
confidentiality agreement, such additional information concerning the
business and financial condition of the Company and its subsidiaries as the
Representatives may from time to time reasonably request in writing,and
which can be prepared or obtained by the Company without unreasonable
effort or expense.
(k) During the course of the distribution of the Shares, the Company
has not taken, nor will it take, directly or indirectly, any action
designed to or that might, in the future, reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common
Shares.
(l) The Company will cause each person listed on Schedule II hereto to
execute a legally binding and enforceable agreement (a "lockup agreement")
to, for a period of 120 days from the Effective Date, not sell, offer to
sell, contract to sell, grant any option for the sale of or otherwise
transfer or dispose of any Common Shares (except for the sale of the Shares
as contemplated by this Agreement), any options to purchase Common Shares
or any securities convertible into or exchangeable for Common Shares
(excluding the issuance of Common Shares pursuant to the Employee Options)
without the prior written consent of PMG, which lockup agreement shall be
in form and substance satisfactory to the
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Representatives and the Underwriters' counsel, and deliver such lockup
agreement to the Representatives prior to the Effective Date. Appropriate
stop transfer instructions will be issued by the Company to the transfer
agent for the securities affected by the lockup agreements.
(m) The Company will not sell, issue, contract to sell, offer to sell
or otherwise dispose of any Common Shares, options to purchase Common
Shares or any other security convertible into or exchangeable for Common
Shares, from the date of the Effective Date through the period ending 120
days after the Effective Date, without the prior written consent of PMG,
except for the sale of the Shares as contemplated by this Agreement, the
granting of options, and the issuance of Common Shares upon their exercise,
under the Company's stock option plans described in the Prospectus, the
issuance of Common Shares pursuant to the Employee Options and the Warrants
and the issuance of the Representatives Warrants.
(n) The Company will use all reasonable efforts to maintain the
inclusion of the Common Shares on the AMEX.
(o) The Company shall, at its sole cost and expense, supply and
deliver to the Representatives and the Underwriters' counsel (in the form
they require), within a reasonable period after the Closing Date, six
transaction binders, each of which shall include the Registration
Statement, as amended or supplemented, all exhibits to the Registration
Statement, each Preliminary Prospectus, the Prospectus, the Preliminary
Blue Sky Memorandum and any supplement thereto and all underwriting and
other closing documents.
(p) Upon the Representatives' request, individually and not as the
Representatives of the several Underwriters, the Company shall make
available its stock transfer records for examination by the Representatives
at the offices of the Company's transfer agent for a period of 12 months
after the Effective Date.
(q) The Company will use the net proceeds from the sale of the Shares
to be sold by it hereunder substantially in accordance with the description
thereof set forth in the Prospectus and shall file such reports with the
SEC with respect to the sale of such Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the
Act.
(r) On the Closing Date, the Company shall sell to the
Representatives, at a purchase price of $0.001 per share, Representatives
Warrants to purchase 200,000 Common Shares. Such Representatives Warrants
shall be issued pursuant to the terms of the Warrant Agreement and shall
have an exercise price per share equal to 120 percent of the Offering
Price, shall be exercisable during the period beginning on the first
anniversary of the Effective Date and ending on the fifth anniversary of
the Effective Date, shall contain customary anti-dilution and registration
rights provisions and shall otherwise be in a form that is acceptable to
the Representatives and their counsel.
6. PAYMENT OF EXPENSES.
(a) Whether or not the transactions contemplated by this Agreement are
consummated and regardless of the reason this Agreement is terminated, the
Company will
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pay or cause to be paid, and bear or cause to be borne, all costs and
expenses incident to the performance of the obligations of the Company
under this Agreement, including: (i) the fees and expenses of the
accountants and counsel for the Company incurred in the preparation of the
Registration Statement and any post-effective amendments thereto (including
financial statements and exhibits), each Preliminary Prospectus and the
Prospectus and any amendments or supplements thereto; (ii) printing and
mailing expenses associated with the Registration Statement and any post-
effective amendments thereto, each Preliminary Prospectus, the Prospectus
(including any supplement thereto), this Agreement, the Agreement Among
Underwriters, the Underwriters' Questionnaire, the Power of Attorney, the
Selected Dealer Agreement and related documents and the Preliminary Blue
Sky Memorandum and any supplement thereto; (iii) the costs (other than fees
and expenses of the Underwriters' counsel except in connection with Blue
Sky filings or exemptions as provided herein) incident to the
authentication, issuance, delivery and transfer of the Shares to the
Underwriters; (iv) all taxes, if any, on the issuance, delivery and
transfer of the Shares to be sold by the Company; (v) the fees, expenses
and all other costs of qualifying the Shares for the sale under the
securities or Blue Sky laws of those jurisdictions in which the Shares are
to be offered or sold including the reasonable fees and disbursements of
Underwriters' counsel and such local counsel as may have been reasonably
required and retained for such purpose; (vi) the fees, expenses and other
costs of, or incident to, securing any review or approvals by or from the
NASD exclusive of fees of the Underwriters' counsel; (vii) the filing fees
of the SEC; (viii) the cost of furnishing to the Underwriters copies of the
Registration Statement, each Preliminary Prospectus and the Prospectus
(including any supplement or amendment thereto) as herein provided; (ix)
the Company's travel expenses in connection with meetings with the
brokerage community and institutional investors and expenses associated
with hosting such meetings, including meeting rooms, meals, facilities and
ground transportation expenses; (x) the costs and expenses associated with
settlement in same day funds (including, but not limited to, interest or
cost of funds expenses), if desired by the Company; (xi) the fees for
inclusion of the Shares on the AMEX; (xii) the cost of printing and
engraving certificates for the Shares; (xiii) the cost and charges of any
transfer agent; and (xiv) all other costs and expenses reasonably incident
to the performance of its obligations hereunder that are not otherwise
specifically provided for in this Section 6, provided that, except as
specifically set forth in subsection (c) of this Section 6, the
Underwriters shall be responsible for their out-of-pocket expenses,
including their lodging and travel expenses associated with meetings with
the brokerage community and institutional investors, and the fees and
expenses of their counsel for other than Blue Sky work.
(b) The Company shall pay as due any registration, qualification and
filing fees and any accountable out-of-pocket disbursements in connection
with such registration, qualification or filing in the jurisdictions in
which the Representatives determine, after consultation with the Company,
to offer or sell the Shares.
(c) In order to reimburse the Representatives for those costs and
expenses customarily incurred during the registration process, in the event
the issuance and sale of the Offered Shares to the several Underwriters is
not consummated as contemplated by this Agreement, the Company shall
reimburse the Representatives for all of their out-of-pocket expenses
incurred in connection with the offering of the Offered Shares (including
but not limited to the fees and disbursements of its counsel), in an amount
not to exceed $75,000.
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7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligation of each
Underwriter to purchase and pay for the Offered Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any Optional
Shares as to which its right to purchase under Section 4 has been exercised on
an Option Closing Date, is subject at the date hereof, the Closing Date and any
Option Closing Date to the continuing accuracy of the representations and
warranties of the Company set forth herein, to the performance by the Company of
its covenants, agreements and obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., Philadelphia time, on the date of this Agreement, or at
such later time or on such later date as the Representatives may agree to
in writing; if required by the Regulations, the Prospectus shall have been
filed with the SEC pursuant to Rule 424(b) of the Regulations within the
applicable time period prescribed for such filing by the Regulations and in
accordance with subsection (a) of Section 5 hereof; on or prior to the
Closing Date or any Option Closing Date, as the case may be, no stop order
or other order preventing or suspending the effectiveness of the
Registration Statement or the sale of any of the Shares shall have been
issued under the act or any state securities law and no proceedings for
that purpose shall have been initiated or shall be pending or, to the
Representatives' knowledge or the knowledge of the Company, shall be
contemplated by the SEC or any authority in any jurisdiction designated by
the Representatives pursuant to subsection (f) of Section 5 hereof and any
request on the part of the SEC for additional information shall have been
complied with to the reasonable satisfaction of counsel for the
Underwriters.
(b) All corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement, the Warrant Agreement,
the Representatives Warrants and the Shares and the form of the
Registration Statement, each Preliminary Prospectus and the Prospectus, and
all other legal matters relating to this Agreement and the transactions
contemplated hereby, shall be satisfactory in all respects to counsel to
the Underwriters; the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters; and the Representatives shall have received from
the Underwriters' counsel, Stradling, Yocca, Carlson & Rauth, a favorable
opinion, dated as of the Closing Date and any Option Closing Date, as the
case may be, and addressed to the Representatives individually and as the
Representatives of the several Underwriters with respect to the due
authorization, execution and delivery of this Agreement, that the issuance
and sale of the Shares have been duly authorized by the Company, that when
the Shares have been duly delivered against payment therefor as
contemplated by this Agreement, they will be validly issued, fully paid and
non-assessable and that the Registration Statement has become effective
under the Act.
(c) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of any of the Shares.
(d) The Representatives shall have received copies of the lockup
agreements described in subsection (l) of Section 5 signed by those persons
set forth on Schedule II hereto.
(e) The Representatives shall have received at or prior to the Closing
Date from the Underwriters' counsel a memorandum or summary, in form and
substance satisfactory
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<PAGE>
to the Representatives, with respect to the qualification for offering and
sale by the Underwriters of the Shares under the securities or Blue Sky
laws of such jurisdictions designated by the Representatives pursuant to
subsection (f) of Section 5 hereof.
(f) On the Closing Date and any Option Closing Date, there shall have
been delivered to the Representatives a signed opinion of Latham & Watkins,
counsel for the Company ("Company Counsel"), dated as of each such date and
addressed to the Representatives individually and as the Representatives of
the several Underwriters to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Delaware,
with all necessary corporate power and corporate authority to own or
lease and operate its properties and to conduct its business as
described in the Prospectus and to execute, deliver and perform this
Agreement. The Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which it
owns or leases properties, or conducts any business, so as to require
such qualification, except where the failure so to qualify or be in
good standing would not have a material adverse effect on the general
affairs, properties, condition (financial or otherwise), results of
operations, stockholders' equity or business of the Company.
(ii) To Company Counsel's knowledge, the Company does not own any
stock or other equity interest in or control, directly or indirectly,
any corporation, partnership or other entity other than Datametrics,
Limited, which has no assets and conducts no business.
(iii) The Company has all necessary corporate power and
corporate authority to execute and deliver the Warrant Agreement and
the Representatives Warrants.
(iv) This Agreement and the Warrant Agreement have been duly
authorized, executed and delivered by the Company and each constitutes
its legal, valid and binding agreement, enforceable against the
Company in accordance with its terms, except as rights to indemnity
and contribution each may be limited by federal or state securities
laws or principles of public policy.
(v) The execution, delivery and performance of this Agreement,
the Warrant Agreement and the Representatives Warrants by the Company
does not and will not, with or without the giving of notice or the
lapse of time, or both, (A) conflict with any terms or provisions of
the Company's Certificate of Incorporation or By-laws, as amended to
the date hereof and the Closing Date or the Option Closing Date, as
the case may be; (B) result in a breach of, constitute a default
under, result in the termination or modification of or result in the
creation or imposition of any lien, security interest, charge or
encumbrance upon any of the properties of the Company pursuant to any
indenture, mortgage, deed of trust, contract, commitment or other
agreement or instrument known to Company Counsel to which the Company
is a party or by which any of its properties or assets are bound or
affected, (C) violate any law, rule or regulation, or any judgment,
order or
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<PAGE>
decree known to Company Counsel of any government or governmental
agency, instrumentally or court, domestic or foreign, having
jurisdiction over the Company or any of properties or assets or (D)
result in a breach, termination or lapse of the corporate power or
authority of the Company to own or lease and operate its properties
and conduct its business as described in the Prospectus.
(vi) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the captions
"Capitalization" and "Description of Capital Stock." As of the date
or dates indicated, the Company had the capitalization, and will have
the as-adjusted capitalization, set forth in the Prospectus under the
caption "Capitalization." To the knowledge of Company Counsel, on the
Effective Date, there were, and on the Closing Date and any Option
Closing Date, there will be, no options or warrants for the purchase
of, other outstanding rights to purchase, agreements or obligations
to issue or agreements or their other to convert or exchange any
obligation or security into capital stock of the Company or securities
convertible into or exchangeable for capital stock of the Company,
except as described in the Prospectus with respect to the Employee
Options, the Over-allotment Option, the Representatives Warrants and
the Warrants.
(vii) The authorized capital stock of the Company, including
without limitation, the outstanding Common Shares and the Shares being
issued on the Closing Date and any Option Closing Date, conforms, in
all material respects, with the descriptions thereof in the
Prospectus, and such descriptions conform with the descriptions
thereof set forth in the instruments defining the same. The
information in the Prospectus insofar as it relates to the Employee
Options, the Representatives Warrants and the Warrants, in each case
as of the Effective Date, the Closing Date and any Option Closing
Date, is true, correct and complete, in all material respects.
(viii) The Common Shares outstanding immediately prior to the
Closing Date or the Option Closing Date, as the case may be, have been
duly authorized and are validly issued, fully paid and non-assessable.
The Employee Options and the Warrants have been duly authorized and
validly issued and are legal, valid and binding obligations,
enforceable against the Company in accordance with their respective
terms. The Representatives Warrants, as of the Closing Date, will
have been duly authorized and validly issued and, when executed and
delivered by the Company, will be legal, valid and binding obligations
enforceable against the Company in accordance with their terms. The
Common Shares issuable pursuant to the Employee Options, the
Representatives Warrants and the Warrants, when issued in accordance
with the respective terms thereof, will be duly authorized and validly
issued, fully paid and non-assessable. The Company has reserved a
sufficient number of Common Shares for issuance pursuant to the
Employee Options, the Representatives Warrants and the Warrants. None
of such outstanding Common Shares, the Employee Options, the
Representatives Warrants or the Warrants were issued in violation of
any preemptive rights of any security holder of the Company created by
the Certificate of Incorporation or By-laws of the Company that have
not been waived, and, to the knowledge of Company Counsel, there are
no contractual preemptive rights that have not been waived that exist
with respect to the outstanding Common Shares. None of such issuable
Common Shares will be issued in violation
20
<PAGE>
of any existing preemptive rights of any security holder of the
Company created by the Certificate of Incorporation or By-laws of the
Company that have not been waived that exist with respect to the
Common Shares, and, to the knowledge of Company Counsel, there are no
contractual preemptive rights that have not been waived that exist
with respect to the Common Shares. The holders of the outstanding
Common Shares are not, and will not be, subject to personal liability
solely by reason of being such holders, and the holders of the Common
Shares issuable pursuant to the Employee Options, the Representatives
Warrants and the Warrants will not be subject to personal liability
solely by reason of being such holders. The offers and sales of the
outstanding Common Shares, and the issuance of the Employee Options,
the Representatives Warrants and the Warrants, were made in conformity
with applicable registration requirements or exemptions therefrom
under federal and applicable state securities laws.
(ix) The issuance and sale of the Shares by the Company have been
duly authorized and, when the Shares have been duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be
validly issued, fully paid and nonassessable. None of the Shares will
be issued in violation of any preemptive rights of any stockholder of
the Company pursuant to the Certificate of Incorporation or By-laws,
as amended to the date hereof and the Closing Date, of the Company
and, to the knowledge of Company Counsel, there are no contractual
preemptive rights that have not been waived that exist with respect to
the Shares. The certificates representing the Shares are in proper
legal form under, and conform in all respects to the requirements of,
the GCL. To the knowledge of Company Counsel, neither the filing of
the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives any security holder of the
Company any rights, other than those which have been waived, for or
relating to the registration of any security of the Company.
(x) No consent, approval, authorization, order, registration,
license or permit of any court, government, governmental agency,
instrumentality or other regulatory body or official is required for
the valid authorization, issuance, sale and delivery by the Company of
any of the Shares or for the execution, delivery or performance by the
Company of this Agreement, except such as may be required for the
registration of the Shares under the Act, the Regulations or the
Exchange Act, or for compliance with the applicable state securities
or Blue Sky laws, or by the By-laws, rules and other pronouncements of
the NASD. Upon the effectiveness of the Registration Statement, the
Common Shares will be registered pursuant to Section 12(g) of the
Exchange Act, and will be included on the AMEX.
(xi) The Company is not in violation of, or in default under, any
of the terms or provisions, of (A) its Certificate of Incorporation or
By-laws, each as amended to the date hereof, the Closing Date or the
Option Closing Date, as the case may be, (B) any indenture, mortgage,
deed of trust, material contract, commitment or other agreement or
instrument known to Company Counsel to which the Company is a party or
by which it or any of its properties are bound or affected, (C) to the
knowledge of Company Counsel, any law, rule, regulation, judgment,
order to or decree of any government or governmental agency,
instrumentality or court, domestic
21
<PAGE>
or foreign, having jurisdiction over the Company or any of its
properties or businesses, or (D) any license, permit, certification,
registration, approval, consent or franchise, known to Company
Counsel, referred to in subsections (b) or (c) of Section 1 of this
Agreement.
(xii) The descriptions contained in the Registration Statement
and Prospectus of statutes or regulations, legal and governmental
proceedings and of contracts and other documents are accurate in all
material respects and fairly present in all material respects the
information required to be shown. To the knowledge of Company
Counsel, there are no contracts, agreements or other documents
required to be described or referred to in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement
under the Act or the Regulations that have not been so described,
referred to or filed as required.
(xiii) To the knowledge of Company Counsel, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries
pending before, or overtly threatened or contemplated by, any
governmental agency, instrumentality, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, to which the
Company is a party or is threatened to be made a party that can be
reasonably expected, or, if determined adversely to the Company,
would, in any individual case or in the aggregate, result in any
material adverse change in the general affairs, properties, condition
(financial or otherwise), results of operations, stockholders' equity
or business of the Company. To the knowledge of Company Counsel,
there are no outstanding orders, judgments or decrees of any court,
governmental agency, instrumentality or other tribunal enjoining the
Company from, or requiring the Company to take or refrain from taking
any action, or to which the Company, or any of its properties, assets
or businesses is bound or subject.
(xiv) The Company owns, or possesses adequate rights to use, all
Intellectual Property that, if not so owned or possessed, would
materially adversely affect the general affairs, properties, condition
(financial or otherwise), results of operations, stockholders' equity,
businesses or prospects of the Company.
(xv) To the knowledge of Company Counsel the Company does not own
any real property. All real property used or leased by the Company,
as described in the Prospectus, is held by the Company under a valid,
subsisting and enforceable lease.
(xvi) The Company is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended, nor, by receipt of the
proceeds from the sale by it of the Shares pursuant to this Agreement,
will the Company become or be deemed to be an "investment company"
under such act.
(xvii) The Registration Statement has become effective under the
Act, as of the Effective Date, and, to the Company Counsel's
knowledge, the SEC has not issued any stop order suspending the
effectiveness of the Registration Statement nor has the SEC instituted
or threatened to institute proceedings with respect to any such
22
<PAGE>
order. Any and all filings required by be made by Rule 424 and Rule
430A under the Act have been made.
(xviii) The Registration Statement and the Prospectus, as of the
Effective Date, and each amendment or supplement thereto as of its
effective or issue date (other than the financial statements and
related schedules therein and other than the financial data and
calculations therein based on such financial statements and schedules,
as to which Company Counsel need not express an opinion) comply as to
form in all material respects with the applicable requirements of the
Act and Regulations.
(xix) Company Counsel has participated in the preparation of the
Registration Statement and the Prospectus, including reviews and
discussions of the contents thereof, and, in the course of such
reviews and discussions, no facts came to its attention that would
cause it to have reason to believe that (A) the Registration Statement
or any post-effective amendment thereto, on the date it became
effective and on the Closing Date or the Option Closing Date, as the
case may be, contained any untrue statement of a material fact or
omitted any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading
or that (B) the Prospectus on the Effective Date, on the date it was
filed pursuant to Rule 424(b) under the Act and on the Closing Date or
Option Closing Date, as the case may be, contained any untrue
statement of material fact or omitted any material fact necessary to
make the statements therein, in light of the circumstances under which
made, not misleading (except, in each case, for the financial
statements and related schedules therein and the financial data and
calculations therein based on such financial statements and schedules,
as to which Company Counsel need not express an opinion).
The foregoing opinion may be limited to the laws of the United States,
the laws of the State of California and the GCL, and Company Counsel may
rely as to certain legal matters on other counsel to the Company provided
that in each case, Company Counsel shall state that they believe that they
and the Underwriters are justified in relying on such other counsel and
shall deliver signed copies of any such opinion to the Representatives and
as to questions of fact upon the representations of the Company set forth
in this Agreement and upon certificates of officers of the Company and of
governmental officials, all of which certificates must be reasonable and
satisfactory in form and scope to counsel for the Underwriters provided
that in each case, Company Counsel shall deliver signed copies of any such
certificate to the Representatives.
(g) At the Closing Date and any Option Closing Date: (A) the
Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto shall contain all
statements that are required to be stated therein in accordance with the
Act and the Regulations and shall conform, in all material respects, to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor any post-effective amendment thereto nor the Prospectus and
any amendments or supplements thereto shall contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) since the
respective dates
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as of which information is given in the Registration Statement and any
post-effective amendment thereto and the Prospectus and any amendments or
supplements thereto, except as otherwise stated therein, there shall have
been no material adverse change in the properties, condition (financial or
otherwise), results of operations, stockholders' equity, business or
management of the Company, from that set forth therein, whether or not
arising in the ordinary course of business, other than as referred to in
the Registration Statement or Prospectus, (C) since the respective dates as
of which information is given in the Registration Statement and any post-
effective amendment thereto and the Prospectus or any amendment or
supplement thereto, there shall have been no transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business and as set forth in the Registration Statement or Prospectus that
has not been, but would be required to be, set forth in the Registration
Statement or Prospectus; (D) no action, suit or proceeding at law or in
equity shall be pending or, to the knowledge of the Company, threatened
against the Company that would be required to be set forth in Prospectus,
other than as set forth therein, and no proceedings shall be pending or, to
the knowledge of the Company, threatened against the Company before or by
any federal, state or other commission, board or administrative agency
wherein an unfavorable decision, ruling or finding would materially
adversely affect the properties, condition (financial or otherwise),
results of operations, stockholders' equity or business of the Company,
other than as set forth in the Prospectus. The Representatives shall have
received at the Closing Date and any Option Closing Date certificates of
each of the Chief Executive Officer and the Chief Financial Officer of the
Company dated as of the date of the Closing Date or Option Closing Date, as
the case may be, and addressed to the Representatives, individually and as
the Representatives of the several Underwriters, to the effect, that the
conditions set forth in this subsection have been satisfied and as to the
accuracy and performance, as of the Closing Date or the Option Closing
Date, as the case may be, of the agreements, representations and warranties
of the Company set forth herein.
(h) At the time this Agreement is executed and at the Closing Date and
any Option Closing Date, the Representatives shall have received a letter
addressed to the Representatives, individually and as the Representatives
of the several Underwriters, and in form and substance satisfactory to the
Representatives in all respects (including the nonmaterial nature of the
changes or decreases, if any, referred to in clause (iii) below) from Ernst
& Young LLP dated as of the date of this Agreement, the Closing Date or
Option Closing Date, as the case may be:
(i) confirming that they are independent public accountants
within the meaning of the Act and the Regulations and stating that the
section of the Registration Statement under the caption "Experts" is
correct insofar as it relates to them;
(ii) stating that, in their opinion, the financial statements of
the Company audited by them and included in the Registration Statement
comply in form in all material respects with the applicable accounting
requirements of the Act and the Regulations;
(iii) stating that, on the basis of specified procedures, which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the
latest available unaudited interim financial statements), a reading of
the minutes of the meetings of the stockholders and the
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Board of Directors of the Company and audit and compensation
committees of such Board, if any, and inquiries to certain officers
and other employees of the Company who are responsible for financial
and accounting matters and other specified procedures and inquiries,
nothing has come to their attention that would cause them to believe
that (A) the unaudited financial statements and related schedules of
the Company included in the Registration Statement, if any, (I) do not
comply in form in all material respects with the applicable accounting
requirements of the Act and the Regulations or (II) were not fairly
presented in conformity with generally accepted accounting principles
on a basis substantially consistent with that of the audited financial
statements and related schedules included in the Registration
Statement or (B)(I) at a specified date, not more than five business
days prior to the date of such letter there was any change in the
capital stock or short-term or long-term debt of the Company, or any
decrease (increase) in net current assets, total assets or
stockholders' equity as compared with the amounts shown in the
__________, 1995 balance sheet of the Company included in the
Registration Statement, other than as set forth in or contemplated by
the Registration Statement and Prospectus, and (II) during the period
from __________, 1995 to a specified date not more than five business
days prior to the date of such letter, there has been any decrease
(increase), as compared with the corresponding period in the preceding
year, in revenues, operating income or income before income taxes or
in total or per share amounts of net income of the Company or, if
there was any such change or decrease (increase), setting forth the
amount of such change or decrease (increase); and
(iv) stating that they have compared specific dollar amounts,
numbers of shares and other information (including pro forma
information) pertaining to the Company set forth in the Registration
Statement and Prospectus that have been specified by the
Representatives prior to the date of this Agreement, to the extent
that such amounts, numbers, percentages and information may be derived
from the general accounting or other records of the Company with the
result obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute
an audit in accordance with generally accepted auditing standards) set
forth in the letter, and found them to be in agreement.
(i) The Company shall have executed and delivered a Warrant Agreement
in a form satisfactory to the Representatives (the "Warrant Agreement") and
here shall have been tendered to the Representatives certificates
representing all of the Representatives Warrants described in subsection
(r) of Section 5, to be purchased by the Representatives on the Closing
Date.
(j) At the Closing Date and any Option Closing Date, the
Representatives shall have been furnished such additional documents and
certificates as they shall reasonably request.
(k) No action shall have been taken by the NASD the effect of which is
to make it improper, at any time prior to the Closing Date or any Option
Closing Date, for members of the NASD to execute transactions as principal
or as agent in the Shares or to trade or deal in the Shares, and no
proceedings for the purpose of taking such action shall have been
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<PAGE>
instituted or shall be pending or, to the Company's or the Representatives'
knowledge, shall be contemplated by the NASD.
If any conditions to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or any Option Closing Date, as the
case may be, shall not have been fulfilled, the Representatives may on behalf of
the several Underwriters terminate this Agreement or, if they so elect, waive
any such conditions which have not been fulfilled or extend the time for their
fulfillment.
8. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless each Underwriter,
and each person, if any, who controls each Underwriter within the meaning
of the Act or the Exchange Act, against any and all loss, liability, claim,
damage and expense whatsoever, including, but not limited to, any and all
expense whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever or
in connection with any investigation or inquiry of, or action or proceeding
that may be brought against, the respective indemnified parties, arising
out of or based upon any untrue statements or alleged untrue statements of
a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any application or other document (in this
Section 8 collectively called "application") executed by the Company and
based upon written information furnished by or on behalf of the Company
filed in any jurisdiction in order to qualify all or any part of the Shares
under the securities laws thereof or filed with the SEC or the NASD, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing indemnity (i) shall not apply in respect of any
statement or omission made in reliance upon and in conformity with written
information furnished to the Company or any Underwriter through the
Representatives expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement
thereof, or in any application or in any communication to the SEC, as the
case may be, and (ii) with respect to any Preliminary Prospectus, shall not
inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages, liabilities or expenses purchase the Shares
that are the subject thereof (or to the benefit of any person controlling
such Underwriter) if at or prior to the written confirmation of the sale of
such Shares a copy of an amended Preliminary Prospectus or the Prospectus
(or the Prospectus as amended or supplemented) was not sent or delivered to
such person and the untrue statement or omission of a material fact
contained in such Preliminary Prospectus was corrected in the amended
Preliminary Prospectus or Prospectus (or the Prospectus as amended or
supplemented). It is understood that the statements appearing in any
Preliminary Prospectus, the Prospectus or the Registration Statement (A)
on the inside front cover page with respect to stabilization, (B) in the
table in the section entitled "Underwriting," and the second paragraph
following such table with respect to the amount of the dealers' concession
and allowance and reallowance discount and (C) in the section entitled
"Legal Matters" with respect to the identity of counsel for the
Underwriters constitute the only information furnished in writing by or on
behalf of any Underwriter for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement. This indemnity agreement will be
in addition to any liability the Company may otherwise have.
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<PAGE>
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, each of the directors of the Company, each of
the officers of the Company who shall have signed the Registration
Statement and each other person, if any, who controls the Company within
the meaning of the Act or the Exchange Act to the same extent as the
foregoing indemnities from the Company to the several Underwriters, but
only with respect to any loss, liability, claim, damage or expense
resulting from (i) statements or omissions, or alleged statements or
omissions, if any, made in any Preliminary Prospectus, Registration
Statement or Prospectus or any amendment or supplement thereof or any
application in reliance upon, and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
with respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement
or Prospectus or any amendment or supplement thereof or any application, as
the case may be, (ii) the failure of any Underwriter at or prior to the
written confirmation of the sale of Shares to send or deliver a copy of an
amended Preliminary Prospectus or the Prospectus (or the Prospectus as
amended or supplemented) to the person asserting any such losses, claims,
damages, liabilities or expenses who purchased the Shares that are the
subject thereof and the untrue statement or omission of a material fact
contained in such Preliminary Prospectus was corrected in the amended
Preliminary Prospectus or Prospectus (or the Prospectus as amended or
supplemented) or (iii) the failure to qualify the offering or sale of the
Shares by the several Underwriters under the state securities or Blue Sky
laws or any jurisdiction referred to in Section 5(f) hereof which failure
to qualify is the result of the failure to file the pertinent materials in
any such jurisdiction. This indemnity agreement will be in addition to any
liability such Underwriter may otherwise have.
(c) If any action, inquiry, investigation or proceeding is brought
against any person in respect of which indemnity may be sought pursuant to
any of the two preceding paragraphs, such person (hereinafter called the
"indemnified party") shall, promptly after formal notification of, or
receipt of service of process for, such action, inquiry, investigation or
proceeding, notify in writing the party or parties against whom
indemnification is to be sought (hereinafter called the "indemnifying
party") of the institution of such action, inquiry, investigation or
proceeding and the indemnifying party, upon the request of the indemnified
party, shall assume the defense of such action, inquiry, investigation or
proceeding, including the employment of counsel (reasonably satisfactory to
such indemnified party) and payment of expenses. No indemnification
provided for in this Section 8 shall be available to any indemnified party
who shall fail to give such notice if the indemnifying party does not have
knowledge of such action, inquiry, investigation or proceeding and shall
have been materially prejudiced by the failure to give such notice, but the
omission so to notify the indemnifying party shall not relieve the
indemnifying party otherwise than under this Section 8. Such indemnified
party or controlling person shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless the employment of such
counsel shall have been authorized in writing by the indemnifying party in
connection with the defense of such action or the indemnifying party shall
not have employed counsel to have charge of the defense of such action,
inquiry, investigation or proceeding or such indemnified party or parties
shall have been advised by counsel that there is a conflict of interest
that would prevent counsel to the indemnifying party from representing both
parties, in any of which events the reasonable fees and expenses of such
counsel shall be borne by the indemnifying party. It is understood that
the indemnifying party shall not, in connection with any proceeding or
related proceedings
27
<PAGE>
in the same jurisdiction, be liable for the fees and expenses of more than
one separate counsel (in addition to one local counsel in each jurisdiction
in which any proceeding may be brought) for all indemnified parties. In
the case of any such separate counsel for the Underwriters, such firm shall
be designated in writing by the Representative. Expenses covered by the
indemnification in this subsection (c) of this Section 8 shall be paid by
the indemnifying party as they are incurred by the indemnified party.
Anything in this subsection to the contrary notwithstanding, the
indemnifying party shall not be liable for any settlement of any such claim
effected without its written consent. The indemnifying party shall
promptly notify the indemnified party of the commencement of any
litigation, inquiry, investigation or proceeding against the indemnifying
party or any of its officers or directors in connection with the issue and
sale of any of the Shares or in connection with such Preliminary
Prospectus, Registration Statement or Prospectus or any amendment thereto
or supplement thereof or any such application.
(d) If the indemnification provided for in this Section 8 is
unavailable to or is insufficient to hold harmless an indemnified party
under subsections (a) or (b) of this Section 8 in respect of any losses,
liabilities, claims, damages or expenses (or actions, inquiries,
investigations or proceedings in respect thereof) referred to therein
except either by reason of the provisions set forth in subsections (a) or
(b) or the failure to give notice as required in subsection (c) (provided
that the indemnifying party does not have knowledge of the action, inquiry,
investigation or proceeding and has been materially prejudiced by the
failure to give such notice), then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, liabilities, claims, damages or expenses (or actions, inquiries,
investigations or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and the Underwriters
on the other in connection with the statements or omissions which resulted
in such losses, liabilities, claims or reasonable expenses (or actions,
inquiries, investigations or proceedings in respect thereof), as well as
any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative faults shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this section (d) of this Section 8
were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any method or allocation that
does not take account of the equitable considerations referred to
28
<PAGE>
above in this subsection (d) of this Section 8. The amount paid or payable
by an indemnified party as a result of the losses, liabilities, claims,
damages or reasonable expenses (or actions, inquiries, investigations or
proceedings in respect thereof) referred to above in this subsection (d) of
this Section 8 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d) of this Section 8, (i) the provisions of
the Agreement Among Underwriters shall govern contribution among
Underwriters, (ii) no Underwriter (except as provided in the Agreement
Among Underwriters) shall be required to contribute any amount in excess of
the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (iii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligation in this
subsection (d) of this Section 8 to contribute are several in proportion to
their respective underwriting obligations and not joint.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date; and such
representations, warranties and agreements of the Underwriters and the Company,
including without limitation the indemnity and contribution agreements contained
in Section 8 hereof and the agreements contained in Sections 6, 9, 10 and 13
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person,
and shall survive delivery of the Shares and termination of this Agreement,
whether before or after the Closing Date or any Option Closing Date.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective immediately as to Sections
6, 8, 9, 10 and 13 and, as to all other provisions, (i) if at the time of
execution and delivery of this Agreement the Registration Statement has not
become effective, at 11:00 A.M., Philadelphia time, on the first business
day following the Effective Date, or (ii) if at the time of execution and
delivery of this Agreement the Registration Statement has been declared
effective, at 11:00 A.M., Philadelphia time, on the date of execution of
this Agreement; but this Agreement shall nevertheless become effective at
such earlier time after the Registration Statement becomes effective as the
Representatives may determine by notice to the Company or by release of any
of the Shares for sale to the public. For the purposes of this Section 10,
the Shares shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon
the release by the Representatives of telegrams (i) advising the
Underwriters that the shares are released for public offering or (ii)
offering the Shares for sale to securities dealers, whichever may occur
first. The Representatives may prevent the provisions of this Agreement
(other than those contained in Sections 6, 8, 9, 10 and 13) hereof from
becoming effective without liability of any party to any other party,
except as noted below, by giving the notice indicated in subsection (c) of
this Section 10 before the time the other provisions of this Agreement
become effective.
(b) The Representatives shall have the right to terminate this
Agreement at any time prior to the Closing Date as provided in Sections 7
and 11 hereof or if any of the
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<PAGE>
following have occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of
the Company, or the earnings, business affairs, management or business
prospects of the Company, whether or not arising in the ordinary course of
business; (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic, political or
financial market conditions if such outbreak, calamity, crisis or change
would, in the Representatives' reasonable judgment, have a material adverse
effect on the Company, the financial markets of the United States or the
offering or delivery of the Shares; (iii) suspension of trading generally
in securities on the New York Stock Exchange, the AMEX or the over-the-
counter market or limitation on prices (other than limitations on hours or
numbers of days of trading) for securities or the promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in the Representatives' reasonable opinion
materially and adversely affects trading on either such Exchange or the
over-the-counter market; (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which in the Representatives'
reasonable opinion materially and adversely affects or will materially and
adversely affect the business or operations of the Company; (v) declaration
of a banking moratorium by either federal or state authorities; (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in the Representatives'
reasonable opinion has a material adverse effect on the securities markets
in the United States; (vii) declaration of a moratorium in foreign exchange
trading by major international banks or other institutions or (viii)
trading in any securities of the Company shall have been suspended or
halted by the NASD or the SEC.
(c) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 10, the Representatives shall notify the Company thereof promptly
by telephone, telex, telegraph or facsimile, confirmed by letter.
11. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Offered Shares or Optional Shares hereunder, and if
the Offered Shares or Optional Shares with respect to which such default
relates do not exceed the aggregate of 10 percent of the number of Offered
Shares or Optional Shares, as the case may be, that all Underwriters have
agreed to purchase hereunder, then such Offered Shares or Optional Shares
to which the default relates shall be purchased severally by the non-
defaulting Underwriters in proportion to their respective commitments
hereunder.
(b) If such default relates to more than 10 percent of the Offered
Shares or Optional Shares, as the case may be, the Representatives may in
its discretion arrange for another party or parties (including a non-
defaulting Underwriter) to purchase such Offered Shares or Optional Shares
to which such default relates, on the terms contained herein. In the event
that the Representatives do not arrange for the purchase of the offered
Shares or Optional Shares to which a default relates as provided in this
Section 11, this Agreement may be terminated by the Representatives or by
the Company without liability on the part of the
30
<PAGE>
several Underwriters (except as provided in Section 8 hereof) or the
Company (except as provided in Sections 6 and 8 hereof), but nothing herein
shall relieve a defaulting Underwriter of its liability, if any, to the
other several Underwriters and to the Company for damages occasioned by its
default hereunder.
(c) If the Offered Shares or Optional Shares to which the default
relates are to be purchased by the non-defaulting Underwriters, or are to
be purchased by another party or parties as aforesaid, the Representatives
or the Company shall have the right to postpone the Closing Date or any
Option Closing Date, as the case may be, for a reasonable period but not in
any event exceeding seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus
or in any other documents and arrangements, and the Company agrees to file
promptly any amendment to the Registration Statement or supplement to the
Prospectus which in the opinion of counsel for the Underwriters may thereby
be made necessary. The terms "Underwriters" and "Underwriter" as used in
this Agreement shall include any party substituted under this Section 11
with like effects as if it had originally been a party to this Agreement
with respect to such Offered Shares or Optional Shares.
12. INFORMATION FURNISHED BY UNDERWRITERS. The statements appearing in
any Preliminary Prospectus, the Prospectus or the Registration Statement (a) on
the inside front cover page with respect to stabilization, (b) in the table in
the section entitled "Underwriting," and the second paragraph following such
table with respect to the amount of the dealers' concession and allowance and
reallowance discount and (c) in the section entitled "Legal Matters" with
respect to the identity of counsel for the Underwriters constitute the only
information furnished in writing by or on behalf of any Underwriter for
inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement referred to in subsection (b) of Section 1 hereof and subsections (a)
and (b) of Section 8 hereof.
13. NOTICES. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to any Underwriter,
shall be mailed, delivered, telexed, telegrammed, telegraphed or telecopied and
confirmed to such Underwriter, c/o Pennsylvania Merchant Group Ltd., Suite 390,
Fidelity Court, 259 Radnor-Chester Road, Radnor, Pennsylvania 19087, Attention:
Richard A. Hansen, President, with a copy to Stradling, Yocca, Carlson & Rauth,
660 Newport Center Drive, Newport Beach, California 92660, Attention: Nick E.
Yocca, Esquire; if sent to the Company shall be mailed, delivered, telexed,
telegrammed, telegraphed or telecopied and confirmed to Datametrics Corporation,
21135 Erwin Street, Woodland Hills, California 91367, Attention: Sidney E.
Wing, Chief Executive Officer, with a copy to Latham & Watkins, 701 "B" Street,
Suite 2100, San Diego, California 92101, Attention: Thomas A. Edwards, Esquire.
14. PARTIES. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the several Underwriters, the Company, and the
controlling persons, directors and officers referred to in Section 8 hereof, and
their respective successors, assigns, heirs and legal representatives, and no
other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provision herein contained. The term "successors" and "assigns" shall not
include any purchaser of the Shares merely because of such purchase.
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<PAGE>
15. DEFINITION OF BUSINESS DAY. For purposes of this Agreement, "business
day" means any day on which the New York Stock Exchange, Inc. is open for
trading.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.
17. CONSTRUCTION. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and performed entirely within such Commonwealth.
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<PAGE>
If the foregoing correctly sets forth the understanding among the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement by and
among the Underwriters and the Company.
Very truly yours,
DATAMETRICS CORPORATION
By: _______________________________
Name: Sidney E. Wing
Title: Chief Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
PENNSYLVANIA MERCHANT GROUP LTD. CRUTTENDEN ROTH INCORPORATED
By: ____________________________ By: _______________________________
Name: Name:
Title: Title:
Acting severally on behalf of itself Acting severally on behalf of itself
and the several Underwriters named in and the several Underwriters named in
Schedule I hereto Schedule I hereto
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<PAGE>
SCHEDULE I
UNDERWRITERS
NUMBER OF OFFERED SHARES
UNDERWRITER TO BE PURCHASED
----------- ---------------
<PAGE>
SCHEDULE II
PERSONS SUBJECT TO LOCKUP AGREEMENTS
Garland S. White
Sidney E. Wing
John J. Van Buren
Gerald A. Horwitz
Carl C. Stella
Harry P. Alteri
Roger R. DeBruno
Jim W. Foti
Ronald N. Iverson
James D. Sturgeon, Jr.
Kenneth S. Polak
Dann V. Angeloff
Richard A. Foster
Burton L. Kaplan
Richard W. Muchmore
Kenneth K. Zeiger
<PAGE>
EXHIBIT 4.1
WARRANT AGREEMENT
This WARRANT AGREEMENT ("Agreement") dated as of May __, 1995, is among
Datametrics Corporation, a Delaware corporation (the "Company"), Pennsylvania
Merchant Group Ltd ("PMG") and Cruttenden Roth Incorporated ("Cruttenden")
(Cruttenden and PMG are each sometimes referred to herein as a "Representative"
and are collectively referred to herein as, the "Representatives").
The Company proposes to issue warrants to the Representatives (the
"Warrants") to purchase, at a price of $.001 per Warrant, up to an aggregate of
200,000 shares (hereinafter, and as the number thereof may be adjusted hereto,
the "Warrant Shares"), of the Company's Common Stock, $.01 par value per share
(the "Common Stock"), each Warrant initially entitling the holder thereof to
purchase one share of Common Stock.
WHEREAS, the Representatives have agreed pursuant to the Underwriting
Agreement dated May __, 1995, (the "Underwriting Agreement") to act as the
representatives of the several underwriters in connection with the proposed
public offering by the Company of up to 2,300,000 shares in the aggregate of
Common Stock, including 300,000 of such shares covered by an over-allotment
option (the "Public Offering").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein and in the Underwriting Agreement set forth and for other good and
valuable consideration, the parties hereto agree as follows:
1. Issuance of Warrants; Form of Warrant. The Company will issue and
deliver to each Representative, Warrants to purchase 100,000 Warrant Shares on
the Closing Date referred to in the Underwriting Agreement in consideration for,
and as part of the Representatives' compensation in connection with, the
Representatives acting as the representatives of the several underwriters for
the Public Offering pursuant to the Underwriting Agreement. The text of the
Warrants and of the form of election to purchase shares shall be substantially
as set forth in Exhibit A attached hereto. The Warrants shall be executed on
behalf of the Company by the manual or facsimile signature of the present or any
future Chairman of the Board, President or Vice President of the Company, under
its corporate seal, affixed or in facsimile, attested by the manual or facsimile
signature of the Secretary or an Assistant Secretary of the Company.
Warrants bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold such
offices on the date of this Agreement. Warrants shall be dated as of the date of
execution thereof by the Company either upon initial issuance or upon division,
exchange, substitution or transfer.
2. Registration. The Warrants shall be numbered and shall be registered
on the books of the Company (the "Warrant Register") as they are issued. The
Company shall be entitled to treat the registered holder of any Warrant on the
Warrant Register (the "Holder") as the owner in fact therefor for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other person, and shall not be liable for any
registration
<PAGE>
or transfer of Warrants which are registered or are to be registered in the name
of a fiduciary or the nominee of a fiduciary unless made with the actual
knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith. Warrants to purchase
100,000 shares each shall be registered initially in the name of "Cruttenden
Roth Incorporated" and "Pennsylvania Merchant Group Ltd" in the denominations
set forth on Schedule I hereto, or in such other denominations as Cruttenden and
PMG may request in writing to the Company.
3. Exchange of Warrant Certificates. Subject to any restriction upon
transfer set forth in this Agreement, each Warrant certificate may be exchanged
for another certificate or certificates entitling the Holder thereof to purchase
a like aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitled such Holder to purchase. Any Holder desiring to
exchange a Warrant certificate or certificates shall make such request in
writing delivered to the Company, and shall surrender, properly endorsed, the
certificate or certificates to be so exchanged. Thereupon, the Company shall
execute and deliver to the person entitled thereto a new Warrant certificate or
certificates, as the case may be, as so requested.
4. Transfer of Warrants. Until May __, 1996, the Warrants will not be
transferable except to directors, bona fide officers or partners of, or
successors to, the Representatives who agree in writing to be bound by the terms
hereof, and after May __, 1996, the Warrants will not be transferable except to
the foregoing persons and employees of the Representatives who agree in writing
to be bound by the terms hereof. The Warrants shall be transferable only on the
Warrant Register upon delivery thereof duly endorsed by the Holder or by his
duly authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal representatives,
duly authenticated evidence of their authority shall be produced, and may be
required to be deposited with the Company in its discretion. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto. The Warrants may be exchanged at the option of the
Holder thereof, for another Warrant or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares upon surrender to the Company or its
duly authorized agent.
5. Term of Warrants; Exercise of Warrants.
5.1 Each Warrant entitles the registered owner thereof to purchase one
share of Common Stock at any time from 10:00 a.m., Philadelphia time, on
__________, 1996 (the "Initiation Date") until 6:00 p.m., Philadelphia time, on
__________, 2000 (the "Expiration Date") at a purchase price of $____, subject
to adjustment (the "Warrant Price").
5.2 The Warrant Price and the number of Warrant Shares issuable upon
exercise of Warrants are subject to adjustment upon the occurrence of certain
events, pursuant to the provisions of Section 11 of this Agreement. Subject to
the provisions of this Agreement, each Holder of Warrants shall have the right,
which may be exercised as expressed in such Warrants, to purchase from the
Company (and the Company shall issue and sell to such Holder of Warrants) the
number of fully paid and nonassessable Warrant Shares specified in such
Warrants, upon surrender to the Company, or its duly authorized agent, of such
Warrants, with the form of election to
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purchase on the reverse thereof duly filled in and signed, and upon payment to
the Company of the Warrant Price, as adjusted in accordance with the provisions
of Section 11 of this Agreement, for the number of Warrant Shares in respect of
which such Warrants are then exercised. Payment of such Warrant Price shall be
made in cash or by certified or official bank check, or a combination thereof.
No adjustment shall be made for any dividends on any Warrant Shares of stock
issuable upon exercise of a Warrant.
5.3 Upon such surrender of Warrants, and payment of the Warrant Price
as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Holder of such Warrants
and in such name or names as such registered Holder may designate, a certificate
or certificates for the number of full Warrant Shares so purchased upon the
exercise of such Warrants, together with cash, as provided in Section 12 of this
Agreement, in respect of any fraction of a share otherwise issuable upon such
surrender and, if the number of Warrants represented by a Warrant Certificate
shall not be exercised in full, a new Warrant Certificate, executed by the
Company for the balance of the number of whole Warrant Shares represented by the
Warrant Certificate.
5.4 If permitted by applicable law, such certificate or certificates
shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of record of such shares as of
the date of the surrender of such Warrants and payment of the Warrant Price as
aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the registered Holders thereof, either as an
entirety or from time to time for only part of the shares specified therein and,
in the event that any Warrant is exercised in respect of less than all of the
Warrant Shares specified therein at any time prior to the Expiration Date, a new
Warrant or Warrants will be issued for the remaining number of Warrant Shares
specified in the Warrant so surrendered.
6. Compliance with Government Regulations. The Company covenants that if
any shares of Common Stock required to be reserved for purposes of exercise or
conversion of Warrants require, under any Federal or state law or applicable
governing rule or regulation of any national securities exchange, registration
with or approval of any governmental authority, or listing on any such national
securities exchange before such shares may be issued upon exercise, the Company
will in good faith and as expeditiously as possible endeavor to cause such
shares to be duly registered, approved or listed on the relevant national
securities exchange, as the case may be; provided, however, that (except to the
extent legally permissible with respect to Warrants of which the Representatives
are the Holders) in no event shall such shares of Common Stock be issued, and
the Company is hereby authorized to suspend the exercise of all Warrants, for
the period during which such registration, approval or listing is required but
not in effect.
7. Payment of Taxes. The Company will pay all documentary stamp taxes, if
any, attributable to the initial issuance of Warrant Shares upon the exercise of
Warrants; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue or delivery of any Warrants or certificate for Warrant Shares in a name
other than that of the registered Holder of such Warrants.
8. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company may in its discretion issue
and deliver in exchange and substitution for and upon cancellation of the
mutilated Warrant, or in lieu of and substitution for the Warrant
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lost, stolen or destroyed, a new Warrant of like tenor and representing an
equivalent right or interest; but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of such Warrant
and, if requested, indemnity or bond also reasonably satisfactory to the
Company. An applicant for such substitute Warrants shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
9. Reservation of Warrant Shares. There have been reserved out of the
authorized and unissued shares of Common Stock, a number of shares sufficient to
provide for the exercise of the rights of purchase represented by the Warrants,
and the transfer agent for the Common Stock ("Transfer Agent") and every
subsequent Transfer Agent for any shares of the Company's capital stock issuable
upon the exercise of any of the rights of purchase aforesaid are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be required for
such purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Company will supply such Transfer Agent with
duly executed stock certificates for such purposes and will itself provide or
otherwise make available any cash which may be issuable as provided in Section
12 of this Agreement. The Company will furnish to such Transfer Agent a copy of
all notices of adjustments, and certificates related thereto, transmitted to
each Holder pursuant to Section 11.2 of this Agreement. All Warrants
surrendered in the exercise of the rights thereby evidenced shall be cancelled.
10. Obtaining Stock Exchange Listings. The Company will from time to time
take all action which may be necessary so that the Warrant Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed on the
principal securities exchanges and markets within the United States of America,
if any, on which other shares of Common Stock are then listed.
11. Adjustment of Warrant Price and Number of Warrant Shares. The number
and kind of securities purchasable upon the exercise of each Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter defined. For purposes of this
Section 11, "Common Stock" means shares now or hereafter authorized of any class
of common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
11.1 Mechanical Adjustments. The number of Warrant Shares purchasable
upon the exercise of each Warrant and the Warrant Price shall be subject to
adjustment as follows:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock or (iv) issue by reclassification of its shares of Common Stock
other securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the surviving
corporation), the number of Warrant Shares purchasable upon exercise of each
Warrant immediately prior thereto shall be adjusted so that the Holder of each
Warrant shall be entitled to receive the kind and number of Warrant Shares or
other securities of the Company which he would have owned or would have been
entitled to receive after the happening of any of the events described above,
had such Warrants been exercised immediately prior to the happening of such
event or any record date
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with respect thereto. An adjustment made pursuant to this paragraph (a) shall
become effective immediately after the effective date of such event retroactive
to the record date, if any, for such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall distribute to all holders of its shares of
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the surviving corporation)
evidences of its indebtedness or assets (excluding cash dividends or
distributions payable out of consolidated earnings or earned surplus and
dividends or distributions referred to in paragraph (a) above or in the
paragraph immediately following this paragraph) or rights, options or warrants,
or convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock, then in each case the number of Warrant
Shares thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Warrant Shares theretofore purchasable
upon the exercise of each Warrant by a fraction, the numerator of which shall be
the then current market price per share of Common Stock (as defined in paragraph
(c) below) on the date of such distribution, and the denominator of which shall
be the then current market price per share of Common Stock, less the then fair
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights, options or warrants,
or of such convertible or exchangeable securities applicable to one share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution retroactive to the
record date for the determination of stockholders entitled to receive such
distribution.
In the event of a distribution by the Company to all holders of its shares
of Common Stock of stock of a subsidiary or securities convertible into or
exercisable for such stock, then in lieu of an adjustment in the number of
Warrant Shares purchasable upon the exercise of each Warrant, the Holder of each
Warrant, upon the exercise thereof at any time after such distribution, shall be
entitled to receive from the Company, such subsidiary or both, as the Company
shall determine, the stock or other securities to which such Holder would have
been entitled if such Holder had exercised such Warrant immediately prior
thereto, all subject to further adjustment as provided in this Section 11.1;
provided, however, that no adjustment in respect of dividends or interest on
such stock or other securities shall be made during the term of a Warrant or
upon the exercise of a Warrant.
(c) For the purpose of any computation under paragraph (b) of this Section,
the current market price per share of Common Stock at any date shall be the
average of the daily closing prices for 20 consecutive trading days commencing
30 trading days before the date of such computation. The closing price for each
day shall be the last such reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the closing bid and asked
prices regular way for such day, in each case on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading or, if not listed or admitted to trading, the average of the closing
bid and asked prices of the Common Stock in the over-the counter market as
reported by the NASDAQ National Market System or any comparable system or if not
approved for quotation on the NASDAQ National Market System or any comparable
system, the average of the closing bid and asked prices as furnished by two
members of the National Association of Securities Dealers, Inc. selected from
time to time by the Company for that purpose.
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(d) No adjustment in the number of Warrant Shares purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least one percent (1%) in the number of Warrant Shares purchasable upon
the exercise of each Warrant; provided, however, that any adjustments which by
reason of this paragraph (d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
shall be made to the nearest one-thousandth of a share.
(e) Whenever the number of Warrant Shares purchasable upon the exercise of
each Warrant is adjusted, as herein provided, the Warrant Price payable upon
exercise of each Warrant shall be adjusted by multiplying such Warrant Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of Warrant Shares purchasable upon the exercise of each Warrant
immediately prior to such adjustment, and the denominator of which shall be the
number of Warrant Shares purchasable immediately thereafter.
(f) No adjustment in the number of Warrant Shares purchasable upon the
exercise of each Warrant need be made under paragraph (b) if the Company issues
or distributes to each Holder of Warrants the rights, options, warrants, or
convertible or exchangeable securities, or evidences of indebtedness or assets
referred to in those paragraphs which each Holder of Warrants would have been
entitled to receive had the Warrants been exercised prior to the happening of
such event or the record date with respect thereto. No adjustment need be made
for a change in the par value of the Warrant Shares.
(g) In the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, the Holders shall become entitled to purchase
any securities of the Company other than shares of Common Stock, thereafter the
number of such other shares so purchasable upon exercise of each Warrant and the
Warrant Price of such shares shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Warrant Shares contained in paragraphs (a) through (f),
inclusive, above, and the provisions of Sections 5, 11.2 and 11.3, with respect
to the Warrant Shares, shall apply on like terms to such other securities.
(h) Upon the expiration of any rights, options, warrants or conversion or
exchange privileges, if any thereof shall not have been exercised, the Warrant
Price and the number of shares of Common Stock purchasable upon the exercise of
each Warrant shall, upon such expiration, be readjusted and shall thereafter be
such as it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the only shares of
Common Stock so issued were the shares of Common Stock, if any, actually issued
or sold upon the exercise of such rights, options, warrants or conversion or
exchange rights and (ii) such shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise
plus the aggregate consideration, if any, actually received by the Company for
the issuance, sale or grant of all such rights, options, warrants or conversion
or exchange rights whether or not exercised; provided, however, that no such
readjustment shall have the effect of increasing the Warrant Price or decreasing
the number of shares of Common Stock purchasable upon the exercise of each
Warrant by an amount in excess of the amount of the adjustment initially made in
respect to the issuance, sale or grant of such rights, options, warrants or
conversion or exchange rights.
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11.2 Notice of Adjustment. Whenever the number of Warrant Shares,
purchasable upon the exercise of each Warrant or the Warrant Price of such
Warrant Shares is adjusted, as herein provided, the Company shall promptly mail
by first class, postage prepaid, to each Holder notice of such adjustment or
adjustments and a certificate of a firm of independent public accounts selected
by the Board of Directors of the Company (who may be the regular accountants
employed by the Company) setting forth the number of Warrant Shares purchasable
upon the exercise of each Warrant and the Warrant Price of such Warrant Shares
after such adjustment, setting forth a brief statement of the facts requiring
such adjustment and setting forth the computation by which such adjustment was
made. Such certificate shall be conclusive evidence of the correctness of such
adjustment.
11.3 No Adjustment for Dividends. Except as provided in Section 11.1, no
adjustments in respect of any dividends shall be made during the term of a
Warrant or upon the exercise of a Warrant.
11.4 Preservation of Purchase Rights Upon Merger, Consolidation, etc. In
case of any consolidation of the Company with or merger of the Company into
another corporation or in case of any sale, transfer or lease to another
corporation of all or substantially all the property of the Company, the Company
or such successor or purchasing corporation, as the case may be, shall execute
with each Holder an agreement that each Holder shall have the right thereafter
upon payment of the Warrant Price in effect immediately prior to such action to
purchase upon exercise of each Warrant the kind and amount of shares and other
securities, cash and property which he would have owned or would have been
entitled to receive after the happening of such consolidation, merger, sale,
transfer or lease had such Warrant been exercised immediately prior to such
action; provided, however, that no adjustment in respect of dividends, interest
or other income on or from such shares or other securities, cash and property
shall be made during the term of a Warrant or upon the exercise of a Warrant.
Such agreement shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
11. The provisions of this Section 11.4 shall similarly apply to successive
consolidations, mergers, sales transfer or leases.
11.5 Statements on Warrants. Irrespective of any adjustments in the
Warrant Price or the number or kind of shares purchasable upon the exercise of
the Warrants, Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
12. Fractional Interests. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the same time by the same holder, the
number of full Warrant Shares which shall be issuable upon the exercise thereof
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 12, be issuable
on the exercise of any Warrant (or specified portion thereof), the Company shall
pay an amount in cash equal to the closing price for one share of the Common
Stock, as defined in paragraph (c) of Section 11.1, on the trading day
immediately preceding the date the Warrant is presented for exercise, multiplied
by such faction.
13. Registration Under the Securities Act of 1933. The Representatives
each represent and warrant, severally and not jointly, to the Company that they
will not dispose of the Warrants or the Warrant Shares except pursuant to (i) an
effective registration statement under the Securities Act
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of 1933, as amended (the "Act'), including a post-effective amendment to the
Registration Statement, (ii) Rule 144 under the Act (or any similar rule under
the Act relating to the disposition of securities), or (iii) an opinion of
counsel, reasonably satisfactory to counsel of the Company that an exemption
from such registration is available.
14. Certificate to Bear Legends. The Warrant shall be subject to a stop-
transfer order and the certificate or certificates therefore shall bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SAID SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT.
The Warrant Shares or other securities issued upon exercise of the Warrant
shall be subject to a stop-transfer order and the certificate or certificates
evidencing any such Warrant Shares or securities shall bear the following
legend:
THE SHARES [OR OTHER SECURITIES] REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SAID
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
15. Registration Rights.
15.1 Demand Registration Rights. The Company covenants and agrees
with each Representative and any subsequent Holders of the Warrants and/or
Warrants Shares that, on one occasion, within 60 days after receipt of a written
request from either of the Representatives or from Holders of more than 25% in
interest of the aggregate of Warrants and/or Warrant Shares issued pursuant to
this Agreement that either of the Representatives or such Holders of the
Warrants and/or Warrant Shares desires and intends to transfer more than 25% in
interest of the aggregate number of the Warrants and/or Warrant Shares under
such circumstances that a public offering, within the meaning of the Act, will
be involved, the Company shall, on that one occasion, file a registration
statement (and use its best efforts to cause such registration statement to
become effective under the Act at the Company's expense) with respect to the
offering and sale or other disposition of the Warrant Shares (the "Offered
Warrant Shares"); provided, however, that the Company shall have no obligation
to comply with the foregoing provisions of this Section 15.1 if in the opinion
of counsel to the Company reasonably acceptable to the Holder or Holders, from
whom such written requests has been received, registration under the Act is not
required for the transfer of the Offered Warrant Shares in the manner proposed
by such person or persons or that a post-effective amendment to an existing
registration statement would be legally sufficient for such transfer (in which
latter event the Company shall promptly file such post-effective amendment (and
use its best efforts to cause such amendment to become effective under the
Act)). Notwithstanding the foregoing, the Company shall not be obligated to
file a registration statement with respect to the Offered Warrant Shares on more
than one occasion.
The Company may defer the filing of a registration statement for up to
90 days after the request for registration is made if the Board of Directors
determines in good faith that such
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registration or post-effective amendment would adversely affect or otherwise
interfere with a proposed or pending transaction by the Company, including
without limitation a material financing or a corporate reorganization, or during
any period of time in which the Company is in possession of material inside
information concerning the Company or its securities, which information the
Company determines in good faith is not ripe for disclosure.
The Company shall not be required (i) to maintain the effectiveness of the
registration statement beyond the earlier to occur of 90 days after the
effective date of the registration statement or the date on which all of the
Offered Warrant Shares have been sold (the "Termination Date"); provided,
however, that if at the Termination Date the Offered Warrant Shares are covered
by a registration statement which also covers other securities and which is
required to remain in effect beyond the Termination Date, the Company shall
maintain in effect such registration statement as it relates to Offered Warrant
Shares for so long as such registration statement (or any substitute
registration statement) remains or is required to remain in effect for any such
other securities, or (ii) to honor any request to register Warrant Shares
pursuant to this Section 15.1 received later than five (5) years from the
effective date of the Company's Registration Statement on Form S-2 (File No. 33-
_____) (the "Effective Date") or (iii) to cause any registration statement with
respect to the Warrant Shares to become effective prior to the Initiation Date.
All expenses of registration pursuant to this Section 15.1 shall be borne by the
Company.
The Company shall be obligated pursuant to this Section 15.1 to include in
the registration statement Warrant Shares that have not yet been purchased by a
Holder of Warrants so long as such Holder of Warrants submits an undertaking to
the Company that such Holder intends to exercise Warrants representing the
number of Warrant Shares to be included in such registration statement prior to
the consummation of the public offering with respect to such Warrant Shares. In
addition, such Holder of Warrants is permitted to pay the Company the Warrant
Price for such Warrant Shares upon the consummation of the public offering with
respect to such Warrant Shares.
15.2 Piggy-back Registration Rights. The Company covenants and agrees
with the Holders and any subsequent Holders of the Warrants and/or Warrant
Shares that in the event the Company proposes to file a registration statement
under the Act with respect to any class of security (other than in connection
with an exchange offer, a non-cash offer or a registration statement on Form S-8
or other unsuitable registration statement form) which becomes or which the
Company believes will become effective at any time after the Initiation Date
then the Company shall in each case give written notice of such proposed filing
to the Holders of Warrants and Warrant Shares at least 30 days before the
proposed filing date and such notice shall offer to such Holders the opportunity
to include in such registration statement such number of Warrant Shares as they
may request, unless, in the opinion of counsel to the Company reasonably
acceptable to any such holder of Warrants or Warrant Shares who wishes to have
Warrant Shares included in such registration statement, registration under the
Act is not required for the transfer of such Warrants and/or Warrant Shares in
the manner proposed by such Holders. The Company shall not be required to honor
any such request (a) to register any such Warrant Shares if the request is
received later than seven (7) years from the Effective Date, (b) to register any
such Warrant Shares if the Company is not notified in writing of any such
request pursuant to this Section 15.2 within at least 20 days after the Company
has given notice to the Holders of the filing, and (c) to register Warrant
Shares that represent in the aggregate fewer than 25% of the aggregate number of
Warrant Shares. The Company shall permit, or shall cause the managing
underwriter of a proposed offering to permit, the Holders of Warrant Shares
requested to be included in the registration (the "Piggy-back Shares,") to
include such Piggy-
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back Shares in the proposed offering on the same terms and conditions as
applicable to securities of the Company included therein or as applicable to
securities of any person other than the Company and the Holders of Piggy-back
Shares if the securities of any such person are included therein.
Notwithstanding the foregoing, if any such managing underwriter shall advise the
Company in writing that it believes that the distribution of all or a portion of
the Piggy-back Shares requested to be included in the registration statement
concurrently with the securities being registered by the Company would
materially adversely affect the distribution of such securities by the Company
for its own account, then the Holders of such Piggy-back Shares shall delay
their offering and sale of Piggy-back Shares (or the portion thereof so
designated by such managing underwriter) for such period, not to exceed 120
days, as the managing underwriter shall request provided that no such delay
shall be required as to Piggy-back Shares if any securities of the Company are
included in such registration statement for the account of any person other than
the Company and the Holders of Piggy-back Shares. In the event of such delay,
the Company shall file such supplements, post-effective amendments or separate
registration statement, and take any such other steps as may be necessary to
permit such Holders to make their proposed offering and sale for a period of 90
days immediately following the end of such period of delay ("Piggy-back
Termination Date"); provided, however, that if at the Piggy-back Termination
Date the Piggy-back Shares are covered by a registration statement which is, or
required to remain, in effect beyond the Piggy-back Termination Date, the
Company shall maintain in effect the registration statement as it relates to the
Piggy-back Shares for so long as such registration statement remains or is
required to remain in effect for any of such other securities. All expenses of
registration pursuant to this Section 15.2 shall be borne by the Company, except
that underwriting commissions and expenses attributable to the Piggy-back Shares
and fees and disbursements of counsel (if any) to the Holders requesting that
such Piggy-back Shares be offered will be borne by such Holders.
The Company shall be obligated pursuant to this Section 15.2 to include in
the Piggy-back Offering, Warrant Shares that have not yet been purchased by a
holder of Warrants so long as such Holder of Warrants submits an undertaking to
the Company that such Holder intends to exercise Warrants representing the
number of Warrant Shares to be included in such Piggy-back Offering prior to the
consummation of such Piggy-back Offering. In addition, such Holder of Warrants
is permitted to pay the Company the Warrant Price for such Warrant Shares upon
the consummation of the Piggy-back Offering.
If the Company decides not to proceed with a Piggy-back Offering, the
Company has no obligation to proceed with the offering of the Piggy-back Shares,
unless the Holders of the Warrants and/or Warrant Shares otherwise comply with
the provisions of Section 15.1 hereof (without regard to the 60 days' written
request required thereby). Notwithstanding any of the foregoing contained in
this Section 15.2, the Company will have no obligation to offer registration
rights to the Piggy-back Shares two (2) years after the Expiration Date.
15.3 In connection with the registration of Warrants Shares in accordance
with Section 15.1 and 15.2 above, the Company agrees to:
(a) Use its best efforts to register or qualify the Warrant
Shares for offer or sale under the state securities or Blue Sky laws
of such states which the Holders of such Warrant Shares shall
designate, until the dates specified in Section 15.1 and 15.2 above in
connection with registration under the Act; provided, however, that in
no event shall the Company be obligated to qualify to do business in
any jurisdiction
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where it is not now so qualified or to take any action which would
subject it to general service of process in any jurisdiction where it
is not now so subject or to register or get a license as a broker or
dealer in securities in any jurisdiction where it is not so registered
or licensed or to register or qualify the Warrant Shares for offer or
sale under the state securities or Blue Sky laws of any state other
than the states in which some or all of the shares offered or sold in
the Public Offering were registered or qualified for offer and sale.
(b)(i) In the event of any post-effective amendment or other
registration with respect to any Warrant Shares pursuant to Section
15.1 or 15.2 above, the Company will indemnify and hold harmless any
Holder whose Warrant Shares are being so registered, and each person,
if any, who controls such Holder within the meaning of the Act,
against any losses, claims, damages or liabilities, joint or several,
to which such Holder or such controlling person may be subject, under
the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained, on the effective date thereof, in any such
registration statement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse each
such Holder and each such controlling person for any legal or other
expenses reasonably incurred by such Holder or such controlling person
in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will
not be liable in such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission
made in any such registration statement, any preliminary prospectus or
final prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished by such
Holder expressly for use in the preparation thereof. The Company will
not be liable to a claimant to the extent of any misstatement
corrected or remedied in any amended prospectus if the Company timely
delivers a copy of such amended prospectus to such indemnified person
and such indemnified person does not timely furnish such amended
prospectus to such claimant. The Company shall not be required to
indemnify any Holder or controlling person for any payment made to any
claimant in settlement of any suit or claim unless such payment is
approved by the Company.
(ii) Each such Holder of Warrants and/or Warrant Shares will
indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed any such registration statement, and
each person, if any, who controls the Company within the meaning of
the Act, against any losses, claims, damages or liabilities to which
the Company, or any such director, officer or controlling person may
become subject under the Act, or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement of any
material fact contained in any such registration statement, any
preliminary prospectus or final prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
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the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was made in any such registration statement, any
preliminary prospectus or final prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written
information furnished by such Holder expressly for use in the
preparation thereof; and will reimburse any legal or other expenses
reasonably incurred by the Company, or any such director, officer or
controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that
the indemnity agreement contained in this subparagraph (ii) shall not
apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by such Holder.
(iii) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to
this clause (b)(iii) of Section 15.3 but is judicially determined (by
the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that this clause (b)(iii) of
Section 15.3 provides for indemnification in such case, all the
parties hereto shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that each Holder whose
Warrant Shares are being registered is responsible pro rata for the
portion represented by the public offering price received by such
Holder from the sale of such Holder's Warrant Shares, and the Company
is responsible for the remaining portion; provided, however, that (i)
no Holder shall be required to contribute any amount in excess of the
public offering price received by such Holder from the sale of such
Holder's Warrant Shares and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. This subsection (b)(iii) shall not
be operative as to any Holder of Warrant Shares to the extent that the
Company has received indemnity under this clause (b)(iii) of Section
15.3.
16. No Rights as Stockholder; Notices to Holders. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring upon
the Holders or their transferee(s) the right to vote or to receive dividends or
to consent to or receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the Company or any other matter,
or any rights whatsoever as stockholders of the Company. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any of
the following events shall occur:
(a) the Company shall declare any dividend payable in any
securities upon its shares of Common Stock or make any distribution
(other than a cash dividend) to the holders of its shares of Common
Stock; or
(b) the Company shall offer to the holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any
right to subscribe to or purchase any thereof; or
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(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer
or lease of all or substantially all of its property, assets, and
business as an entirety) shall be proposed,
then in any one or more of said events the Company shall (i) give notice in
writing of such event to the Holders, as provided in Section 17 hereof and (ii)
if there are more than 100 Holders, cause notice of such event to be published
once in The Wall Street Journal (national edition), such giving of notice and
publication to be completed at least 20 days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, or subscription rights, or
for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail or receive such notice or any defect therein or in the publication
or mailing thereof shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up.
17. Notices. Any notice pursuant to this Agreement to be given or made by
the registered Holder of any Warrant to or on the Company shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed as
follows:
CRUTTENDEN ROTH INCORPORATED and PENNSYLVANIA MERCHANT GROUP LTD
18301 Von Karman, Suite 100 Suite 390, Fidelity Court
Irvine, California 92715 259 Radnor-Chester Road
Attention: Mr. Byron C. Roth Radnor, Pennsylvania 19087
Attention: Mr. Peter S. Rawlings
Notices or demands authorized by this Agreement to be given or made by the
Company to the registered Holder of any Warrant shall be sufficiently given or
made (except as otherwise provided in this Agreement) if sent by first-class
mail, postage prepaid, addressed to such Holder at the address of such Holder as
shown on the Warrant Register.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without giving
effect to principles of conflicts of laws.
19. Opinion of Counsel. Counsel to the Company shall deliver to the
Representatives as of the date hereof an opinion, satisfactory to counsel for
the Representatives, to the effect that: (i) the Company has full corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and the Warrants; (ii) the Warrants and this Agreement have been duly
authorized by all necessary corporate action; (iii) this Agreement has been and
the Warrants, when issued in accordance with the terms of this Agreement, will
have been duly executed and delivered and do, and will, constitute legal, valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, subject to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws and to general
principles of equity which are within the discretion of courts of applicable
jurisdiction and except that rights of indemnity and contribution under Section
15.3 herein may be limited by federal or state securities laws or public policy;
(iv) the Company has reserved out of its authorized and unissued shares of
Common Stock a number of shares sufficient to provide for the exercise of the
rights of purchase represented by the
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Warrants; and (iv) the Warrant Shares, when issued upon exercise of the Warrants
in accordance with the terms of the Warrants and this Agreement, will be validly
issued, fully paid and nonassessable.
20. Supplements and Amendments. The Company and the Representatives may
from time to time supplement or amend this Agreement in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Representatives may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interests of the Holders. This Agreement may also be
supplemented or amended from time to time by a writing executed by or on behalf
of the Company and all of the Holders.
21. Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder. Assignments by
the Holders of their rights hereunder shall be made in accordance with Section 4
hereof.
22. Merger or Consolidation of the Company. So long as Warrants remain
outstanding, the Company will not merge or consolidate with or into, or sell,
transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement executed
and delivered to the Holders, the due and punctual performance and observance of
each and every covenant and condition of this Agreement to be performed and
observed by the Company.
23. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders, any legal or equitable right, remedy or claim under this Agreement, but
this Agreement shall be for the sole and exclusive benefit of the Company and
the Holders of the Warrants and Warrant Shares.
24. Captions. The captions of the sections and subsections of this
Agreement have been inserted for convenience only and shall have no substantive
effect.
25. Counterparts. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
CRUTTENDEN ROTH INCORPORATED
Attest:
___________________________ By:________________________________
Name:
Title:
PENNSYLVANIA MERCHANT GROUP LTD
Attest:
___________________________ By:________________________________
Name:
Title:
DATAMETRICS CORPORATION
Attest:
___________________________ By:________________________________
Name:
Title:
15
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SCHEDULE I
Pennsylvania Merchant Group Ltd............................ 100,000 Warrants
Cruttenden Roth Incorporated............................... 100,000 Warrants
16
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EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SAID SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT.
EXERCISABLE ON OR BEFORE __________, 2000.
No. 100,000 Warrants
Warrant Certificate
DATAMETRICS CORPORATION
This Warrant Certificate certifies that [Cruttenden Roth
Incorporated/Pennsylvania Merchant Group Ltd] or registered assigns, is the
registered holder of Warrants expiring _________, 2000 (the "Warrants") to
purchase Common Stock, $.01 par value per share (the "Common Stock"), of
Datametrics Corporation, a Delaware corporation (the "Company"). Each Warrant
entitles the holder upon exercise to receive from the Company from 10:00 a.m.,
Philadelphia time, on __________, 1996 through and until 6:00 p.m., Philadelphia
time, on _________, 2000, one fully paid and nonassessable share of Common Stock
(a "Warrant Share") at the initial exercise price (the "Exercise Price") of
$______ payable in lawful money of the United States of America upon surrender
of this Warrant Certificate and payment of the Exercise Price at the office of
the Company designated for such purpose, but only subject to the conditions set
fort herein and in the Warrant Agreement referred to on the reverse hereof. The
Exercise Price and number of Warrant Shares issuable upon exercise of the
Warrants are subject to adjustment upon the occurrence of certain events set
forth in the Warrant Agreement.
No Warrant may be exercised after 6:00 p.m., Philadelphia time, on
__________, 2000, and to the extent not exercised by such time such Warrants
shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by
the Company.
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IN WITNESS WHEREOF, DATAMETRICS CORPORATION has caused this Warrant
Certificate to be signed by its Vice President and by its Secretary and has
caused its corporate seal to be affixed hereunto or imprinted hereon.
Dated: __________, 1995
DATAMETRICS CORPORATION
By: ______________________________
Vice President
By: ______________________________
Secretary
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[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring __________, 2000 entitling the holder on
exercise to receive shares of Common Stock, $.01 par value per share, of the
Company (the "Common Stock"), and are issued or to be issued pursuant to a
Warrant Agreement, dated as of __________, 1995 (the "Warrant Agreement"), duly
executed and delivered by the Company, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
The Warrants may be exercised at any time on or before __________,
2000. The holder of Warrants evidenced by this Warrant Certificate may exercise
them by surrendering this Warrant Certificate, with the form of election to
purchase set forth hereon properly completed and executed, together with payment
of the Exercise Price in cash at the office of the Company designated for such
purpose. In the event that upon any exercise of Warrants evidenced hereby the
number of Warrants exercised shall be less than the total number of Warrants
evidenced hereby, there shall be issued to the holder hereof or his assignee a
new Warrant Certificate evidencing the number of Warrants not exercised. No
adjustment shall be made for any dividends on any Common Stock issuable upon
exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
The holders of the Warrants are entitled to certain registration
rights with respect to the Common Stock purchasable upon exercise thereof. Said
registration rights are set forth in full in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered holder thereof in person or by legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
certificate at the office of the Company a new Warrant certificate or Warrant
certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to other transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
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The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
20
<PAGE>
[Form of Election to Purchase]
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ________ shares of Common
Stock and herewith tenders payment for such shares to the order of Datametrics
Corporation, in the amount of $_______ in accordance with the terms hereof. The
undersigned requests that a certificate for such shares be registered in the
name of ____________________, whose address is _________________________________
and that such shares be delivered to ______________________________ whose
address is ____________________________________. If said number of shares is
less than all of the shares of Common Stock purchasable hereunder, the
undersigned requests that a new Warrant certificate representing the remaining
balance of such shares be registered in the name of _______________, whose
address is _________________________, and that such Warrant certificate be
delivered to _____________________, whose address is ___________________________
_______.
Signature:
Date:
Signature Guaranteed:
21
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Exhibit 21
----------
List of Subsidiaries
--------------------
1. Datametrics Limited
<PAGE>
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-2, No. 33-00000), and related Prospectus of
Datametrics Corporation for the registration of 2,000,000 shares of its common
stock and to the incorporation by reference therein of our report dated December
9, 1994, except for the fourth paragraph of Note 6, as to which the date is
December 23, 1994, with respect to the financial statements and schedules of
Datametrics Corporation included or incorporated in its Annual Report (Form 10-
K) for the year ended October 30, 1994, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Woodland Hills, California
May 18, 1995
