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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 21, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DATUM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-2512237
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9975 TOLEDO WAY,
IRVINE, CALIFORNIA 92618-1819
(714) 380-8880
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
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LOUIS B. HORWITZ
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATUM INC.
9975 TOLEDO WAY, IRVINE, CALIFORNIA 92618-1819
(714) 380-8880
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
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LAWRENCE B. COHN, ESQ. BROOKS STOUGH, ESQ.
MICHAEL H. MULROY, ESQ. CARLA S. NEWELL, ESQ.
RYAN E. DAVIS, ESQ. MARK P. LONG, ESQ.
STRADLING, YOCCA, CARLSON & RAUTH, WILLIAM A. HOLMES, ESQ.
A PROFESSIONAL CORPORATION GUNDERSON DETTMER STOUGH
660 NEWPORT CENTER DRIVE, SUITE 1600 VILLENEUVE FRANKLIN & HACHIGIAN, LLP
NEWPORT BEACH, CALIFORNIA 92660 155 CONSTITUTION DRIVE
PHONE: (714) 725-4000 MENLO PARK, CALIFORNIA 94025
FAX: (714) 725-4100 PHONE: (415) 321-2400
FAX: (415) 321-2800
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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: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH AMOUNT PROPOSED PROPOSED AMOUNT OF
CLASS OF SECURITIES TO BE MAXIMUM MAXIMUM REGISTRATION
TO BE REGISTERED REGISTERED(1) OFFERING PRICE AGGREGATE FEE
PER SHARE(2) OFFERING
PRICE(1)(2)
- ---------------------------------------------------------------------------------------------------
Common Stock ($.25 par value)...... 1,955,000 $19.125 $37,389,375 $11,330.11
shares
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(1) Includes 255,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 21, 1997
PROSPECTUS
1,700,000 SHARES
[DATUM INC. LOGO]
COMMON STOCK
Of the 1,700,000 shares of Common Stock offered hereby, 1,000,000 shares
are being sold by Datum Inc. ("Datum" or the "Company") and 700,000 shares are
being sold by the Selling Stockholders. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
See "Principal and Selling Stockholders."
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "DATM." On , 1997, the last reported sale price of the
Common Stock was $ per share. See "Price Range of Common Stock."
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," COMMENCING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- -------------------------------------------------------------------------------------------------
Per Share................ $ $ $ $
- -------------------------------------------------------------------------------------------------
Total(3)................. $ $ $ $
=================================================================================================
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company and a Selling Stockholder have granted to the Underwriters a
30-day option to purchase up to an aggregate of 255,000 additional shares of
Common Stock, solely to cover over-allotments, if any. If all such shares
are purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to the Selling Stockholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be made
available for delivery on or about , 1997, at the office of the
agent of Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
OPPENHEIMER & CO., INC.
VAN KASPER & COMPANY
, 1997
<PAGE> 3
[Schematic drawing of a fully integrated
telecommunications network with wireless and
wireline segments, showing Company's time
synchronization devices at wireless base station,
wireless network switches, GPS satellites, etc.]
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 NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE ACT. SEE
"UNDERWRITING."
The Company intends to furnish to its stockholders annual reports
containing audited financial statements and quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year of the Company.
2
<PAGE> 4
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve risks and uncertainties. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus. 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 noted
herein, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment options. See "Underwriting."
THE COMPANY
Datum designs, manufactures and markets a wide variety of high-performance
time and frequency products used to synchronize the flow of information in
telecommunications networks and in numerous other applications. Utilizing its
more than 28 years of experience with time and frequency standards, Datum
supplies products that can provide accurate time to within a fraction of one
second over 100,000 years. Datum serves the markets for high-precision time and
frequency devices in the telecommunications industry which is rapidly expanding
as a result of the conversion from analog to digital systems and the expansion
of cellular and PCS networks. The Company invented the rubidium oscillator in
1971 and believes it currently supplies more than 80% of the high-precision,
rubidium atomic clocks used in cellular and PCS network base stations. Datum is
a major supplier of extremely precise cesium standards and GPS receivers that
generate or capture time and frequency information for use in wireline
telecommunications infrastructures.
In addition to providing time and frequency products for telecommunications
applications, Datum is a growing supplier of timing products used to ensure the
integrity of information transmitted through enterprise computing networks.
Datum also manufactures time and frequency devices for satellites, including GPS
satellites which utilize the Company's cesium clocks to provide highly accurate
timing and navigation information throughout the world. Finally, the Company
provides time and frequency products and systems for a wide range of scientific
and industrial test and measurement applications, including missile guidance,
geographic mapping and electric utility operations.
Customers for the Company's telecommunications products include Lucent
Technologies, Inc. ("Lucent"), Motorola Corporation ("Motorola"), Hyundai
Electronics Industries Co., MCI Communications, Inc., Symmetricom, Inc., AT&T
Wireless Services, Inc. and telephone companies in Mexico, Australia, South
Korea and Spain. Customers for the Company's other products include various U.S.
government agencies and contractors, LM Ericsson Telephone Co., Hughes
Information Systems, Inc., Boeing North American, Inc., TRW, Inc., Lockheed
Martin Corporation and Northrop Grumman Corp.
The Company applies its core understanding of time and frequency technology
and its experience in manufacturing highly stable and accurate clocking devices
to provide a wide range of products for telecommunications, enterprise computing
and a variety of other commercial applications. The Company's strategy is to
enhance its position as a leading, worldwide supplier of a broad range of time
and frequency products utilizing its core competencies in the technology of
rubidium and cesium atomic clocks and GPS satellite signal processing. Key
aspects of this strategy include: (i) targeting high-growth sectors of the
telecommunications markets, (ii) offering a broad range of uniquely tailored
products, (iii) maintaining technological leadership in rubidium and cesium
atomic clock technology and GPS satellite signal processing, (iv) expanding
relationships with leading OEMs, (v) increasing international sales and (vi)
pursuing strategic acquisitions and alliances.
The Company was incorporated in California in 1959 and reincorporated in
Delaware in 1987. Unless the context otherwise requires, the terms "Datum" and
the "Company" refer to Datum Inc. and its wholly-owned subsidiaries. The Company
maintains its executive offices at 9975 Toledo Way, Irvine, California
92618-1819, and its telephone number is (714) 380-8880.
3
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THE OFFERING
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Common Stock Offered by the Company.......... 1,000,000 shares
Common Stock Offered by the Selling
Stockholders............................... 700,000 shares
Common Stock to be Outstanding After the
Offering................................... 5,225,749 shares(1)
Use of Proceeds.............................. General corporate purposes, including working
capital
Nasdaq National Market Symbol................ DATM
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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YEAR ENDED DECEMBER 31,
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1996 1995(2) 1994 1993 1992
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STATEMENT OF OPERATIONS DATA:
Net sales............................... $ 91,854 $ 67,257 $ 30,897 $ 24,593 $ 27,340
Operating income (loss)................. 5,593 1,864 1,772 298 (962)
Loss on discontinued operations......... 1,750
Net income (loss)....................... $ 1,974 $ 60 $ 936 $ 72 $ (2,207)
Net income (loss) per share............. $ .46 $ .02 $ .34 $ .03 $ (.89)
Weighted average number of shares
outstanding.......................... 4,253,019 3,954,307 2,732,812 2,558,356 2,488,829
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<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
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BALANCE SHEET DATA:
Working capital................................................ $26,029 $
Total assets................................................... 68,688
Total long-term debt........................................... 17,318
Total stockholders' equity..................................... 34,623
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(1) Excludes (i) 574,474 shares subject to options outstanding as of December
31, 1996 under the Company's 1984 Stock Option Plan and 1994 Stock Incentive
Plan at a weighted average exercise price of $7.45 per share and (ii) 75,000
shares issuable upon exercise of a warrant with an exercise price of $11.50
per share held by The Prudential Insurance Company of America (subject to
adjustment in certain events).
(2) In March 1995, the Company acquired Efratom Time and Frequency Products,
Inc. and Efratom Elektronik GmbH. As a result of the acquisition, the
Company experienced an increase in all categories of sales and expenses.
(3) Adjusted to reflect the sale of the shares of Common Stock offered by the
Company hereby and the application of the net proceeds therefrom at an
assumed public offering price of $ per share and the exercise by
the Prudential Insurance Company of America of a warrant for 100,000 shares
of common stock at $11.50 per share. See "Use of Proceeds" and
"Capitalization."
4
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RISK FACTORS
The following Risk Factors should be considered carefully, in addition to
the other information in this Prospectus, before purchasing shares of the Common
Stock offered hereby:
RISKS ASSOCIATED WITH THE COMPANY'S DEPENDENCE ON SMALL NUMBER OF CUSTOMERS.
A small number of customers account for a substantial portion of the
Company's net sales, and the Company expects that a limited number of customers
will continue to represent a substantial portion of the Company's net sales for
the foreseeable future. The Company's largest customer, Lucent, accounted for
approximately 36% and 30% of net sales for the years ended December 31, 1996 and
1995, respectively. Further, the Company's five largest customers, including
Lucent, accounted for approximately 53% and 46% of net sales during the same
periods. See "Business -- Customers."
Risk of Delay or Loss of Orders; Negotiating Leverage. The Company
believes that its major customers continually evaluate whether to purchase time
and frequency products from alternate or additional sources. Accordingly, there
can be no assurance that a major customer will not reduce, delay or eliminate
its purchases from the Company. Any such reduction, delay or loss of orders
could have a material adverse effect on the Company's business, results of
operations and financial condition. Major customers also have significant
leverage and may attempt to change the terms, including pricing, upon which the
Company and such customers do business, which could materially adversely affect
the Company's business, results of operations and financial condition. Under the
terms of the Company's supply agreement with Lucent, the Company has agreed to
price reductions at specified times, most recently on January 1, 1997. In
addition, many of the Company's customers, including Lucent, are original
equipment manufacturers ("OEMs") for telecommunications service providers. As
OEMs are pressured to reduce prices by service providers, the Company may be
required to contractually commit to price reductions for its products before it
knows how, or if, cost reductions can be obtained. If the Company is unable to
achieve such cost reductions, the Company's gross margins could decline and such
decline could have a material adverse effect on the Company's business,
financial condition and results of operations. Also, several of the Company's
larger customers, including Lucent and Motorola, require the Company to continue
investing in statistical quality control programs to measure, maintain, and
improve quality standards. The costs related to such programs may adversely
affect the Company's ability to deliver product within cost expectations, in
turn affecting the Company's business, financial condition and results of
operations.
Discrepancies Between Forecasted Orders and Actual Shipments. While the
Company receives periodic order forecasts from its major customers, certain of
these customers have no obligation to purchase the forecasted amounts. As a
result of fluctuating market demand for major customers' equipment and such
customers' attempts to minimize inventory, the Company has experienced and
expects to continue experiencing rescheduling of shipments, creating
discrepancies between forecasted orders and actual shipments. Such discrepancies
have in the past resulted in significant increases in inventory and necessitated
significant reductions in the Company's production staff. Specifically, Lucent
operates its factories under a "just-in-time" system of inventory control to
operate with a minimum of in-plant inventory. As a result, Lucent may from time
to time require many of its vendors, including the Company, to delay delivery of
product. The Company's contract with Lucent requires the Company to maintain
significant work-in-progress and finished goods inventory to meet forecasted
orders. To the extent Lucent or any of the Company's major customers do not
purchase forecasted amounts, the Company could have excess levels of inventory
and production staff. Such an excess of inventory or employees will increase the
Company's expenses and the amount of the Company's resources invested in working
capital, will reduce the Company's cash flow and may increase the risk of
product obsolescence, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the manufacturing process of many of the Company's products requires significant
post-manufacture aging time. As a result, it is difficult for the Company to
increase production of many of its products on short notice.
5
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The inability of the Company to satisfy customer orders could have a material
adverse effect on the Company's relationships and future business with its
customers. See "-- Potential Fluctuations in Quarterly Operating Results" and
"-- Volatility of Stock Price."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.
The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results from quarter to quarter. As a
result, the Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful, and that such comparisons cannot be
relied upon as indicators of future performance. In addition, there can be no
assurance that the Company will maintain its current profitability in the
future. A significant component of such quarterly fluctuations results from
rescheduling of orders by the Company's major customers, in some cases due in
part to the customers' attempts to minimize inventories. Other factors that
could cause the Company's sales and operating results to vary significantly from
period to period include: contractual price reductions on products sold to
certain major customers; the time, availability and sale of new products;
changes in the mix of products having differing gross margins; variations in
manufacturing capacities, efficiencies and costs; the availability and cost of
components; warranty expenses; and variations in product development and other
operating expenses. In addition, the Company has experienced seasonality
resulting in increased sales in its fourth quarter which the Company believes is
due to increased year-end spending by its OEM customers and a higher level of
sales activity in connection with year-end sales quotas. Accordingly, sales and
net income for the first quarter of 1997 may be flat to slightly down from the
fourth quarter of 1996. In addition, the sales cycles for many of the Company's
products are often lengthy and unpredictable, and can range up to 36 months.
Further, there can be no assurance that the Company will be successful in
closing large transactions on a timely basis or at all. Accordingly, the timing
of these transactions could cause additional variability in the Company's
quarterly operating results. The Company's quarterly results of operations are
also influenced by competitive factors, including pricing and availability of
the Company's and competing time and frequency products. A large portion of the
Company's expenses are fixed and difficult to reduce in a short period of time.
If net sales do not meet the Company's expectations, the Company's fixed
expenses would exacerbate the effect of such net sales shortfall on net income.
Furthermore, announcements by the Company or its competitors regarding new
products and technologies could cause customers to defer purchases of the
Company's products. Order deferrals by the Company's customers, delays in the
Company's introduction of new products and longer than anticipated sales cycles
for the Company's products have in the past adversely affected the Company's
quarterly results of operations. Due to all of the foregoing factors, as well as
other unanticipated factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts or investors. In such event, the price of the Company's Common Stock
may be materially adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEPENDENCE ON WIRELESS TELECOMMUNICATIONS MARKETS.
The Company derives a substantial portion of its net sales from the sale of
cesium standards, rubidium oscillators and related systems for wireless
communications networks, and the future success of the Company depends to a
considerable extent upon the continued growth and increased availability of
cellular and other wireless communications services in the United States and
internationally. There can be no assurance that either subscriber use or the
implementation of wireless communications services will continue to grow, or
that such factors will create demand for the Company's products. The Company
believes that continued growth in the use of wireless communications services
depends on significant reductions in infrastructure capital equipment cost per
subscriber and corresponding reductions in wireless service pricing. While the
Federal Communications Commission ("FCC") has recently adopted regulations
requiring local phone companies to reduce the rates charged to cellular carriers
for connection to their wireline networks, it is anticipated that wireless
service rates will remain higher than rates charged for traditional wireline
service, which may reduce
6
<PAGE> 8
the demand for wireless services and the Company's products. The growth in the
implementation of wireless communications services is also dependent upon both
developed countries allowing continued deployment of new networks and developing
countries deploying wireless communications networks as opposed to, or in
addition to, constructing wireline infrastructures. See "-- Risks Associated
with Government Regulations."
Several of the Company's major customers, including Lucent, are suppliers
to the emerging PCS market. The initial deployment of PCS networks has only
recently begun, and there can be no assurance that the PCS market will grow at
the anticipated rate or at all. The Company believes that many of the Company's
customers for PCS network timing equipment are uncertain as to the rate of new
sales in their markets. As a result of uncertainties in this market, the Company
anticipates that customer orders, if any, will be unpredictable in size and
frequency. Furthermore, even if the PCS market does experience future growth,
there can be no assurance that the Company's products will be widely utilized in
PCS networks. In addition, some of the Company's major customers are developing
wireless networks utilizing CDMA technology. In the event that such technology
does not gain widespread acceptance or the PCS market is dominated by a
competing technology, the Company's customers may have reduced demand for the
Company's products, which would materially adversely affect the Company's
business, financial condition and results of operations. See
"Business -- Markets."
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT DEVELOPMENT.
The telecommunications and enterprise computing markets, as well as the
other markets for the Company's products, are characterized by rapidly changing
technology, evolving industry standards and new product introductions and
enhancements. Sales of the Company's time and frequency products depend in part
on the continuing development and deployment of emerging telecommunications
services and on such services requiring precise time and frequency control.
There can be no assurance that new developments in telecommunications technology
or the introduction of new communications protocols will not reduce the demand
for precise timing products in the Company's markets. The Company is dependent
to a significant extent upon its ability to enhance its existing products and to
develop and introduce innovative new products on a timely basis that gain market
acceptance. In addition, the Company is aware of other research and product
development being undertaken by other companies and by academic institutions to
further evolve smaller, lighter and less costly atomic clocks. For example, in
1995, Westinghouse Electric Corp. announced a research and development program
for a miniature atomic clock which it claimed would be smaller and lighter than
the Company's comparable products, at a lower cost. There can be no assurance
that such product, or any other time and frequency product incorporating new
technology, if and when available, will not be commercially successful and
materially adversely affect the Company's results of operations.
The Company's products compete with alternative technologies being
introduced in the time and frequency markets. For example, the Company's
rubidium oscillators compete primarily with less stable, lower-cost
alternatives, such as GPS-disciplined quartz oscillators offered by other
suppliers as well as by the Company. In the event that third parties were able
to develop more stable quartz oscillators, competitive with the Company's
rubidium oscillators, the Company's business and results of operations could be
materially adversely affected. Hewlett-Packard Company ("Hewlett-Packard") has
developed and currently markets a software enhanced quartz oscillator with
performance characteristics between a traditional quartz oscillator and the
Company's rubidium oscillator, at a similar price. In the event that
Hewlett-Packard improves the performance of its product or decreases its price,
the Company's business, financial condition and results of operations could be
materially adversely affected.
Although the Company maintains an active development program to improve its
product offerings, there can be no assurance such efforts will be successful,
that its new products will be developed on a timely basis and will achieve
customer acceptance or that its customers' products will achieve market
acceptance. Failure to develop, or introduce on a timely basis, new products or
product enhancements that achieve market acceptance could materially adversely
affect the Company's business, operating
7
<PAGE> 9
results and financial condition. There can be no assurance that the Company will
be successful in selecting, developing, manufacturing and marketing new products
or enhancing its existing products on a timely or cost-effective basis. See
"Business -- Product Research and Development."
COMPETITION.
Intense competition exists among manufacturers of time and frequency
products, and the Company believes that competition in the Company's markets
from both new and existing competitors will increase in the future. The Company
competes principally in several specialized market segments against a limited
number of companies, some of which are more established, enjoy higher name
recognition and possess far greater financial, technological and marketing
resources than the Company. The Company currently competes principally on the
basis of the performance and quality of its products, including reliability, as
well as on price and timely manufacture and delivery.
In the cellular and PCS markets, the Company competes primarily with
Hewlett-Packard and various other quartz oscillator manufacturers. In the
wireline market, the Company competes primarily with Symmetricom, Inc.,
Hewlett-Packard and Oscilloquartz SA. In the enterprise computing market, the
Company competes primarily with Tech-Sym Corp., Odetics, Inc. and True-Time,
Inc. In the cesium standards market, the Company competes primarily with
Hewlett-Packard and Frequency Electronics, Inc. In the rubidium oscillators
market, the Company competes primarily with Frequency Electronics, Inc. In
addition, certain companies, such as EG&G, Inc., that currently manufacture
products exclusively for use in military applications, could enter commercial
markets, and compete directly with the Company. There can be no assurance that
the Company will be able to compete successfully in the future against existing
or new competitors, that new technologies will not reduce the demand for its
products or that it will be able to adapt successfully to changes in the markets
served by its products. In addition, there can be no assurance that competitive
pressures will not cause the Company to reduce prices, which would negatively
affect gross margins. See "Business -- Competition".
DEPENDENCE ON KEY PERSONNEL; ANTICIPATED RETIREMENT OF CHIEF EXECUTIVE OFFICER.
The Company's success depends upon the continued services of its key
management personnel. The Company's key personnel, including technical
personnel, would be difficult to replace and are not parties to employment or
noncompetition agreements. The Company's growth and future success will depend
in large part upon its ability to attract and retain additional highly qualified
engineering, sales and marketing personnel. In certain of the Company's
locations, the Company has experienced difficulty in attracting and retaining
highly qualified technical personnel. The loss of technical personnel who become
known and trusted by customers of the Company can have an adverse impact on the
Company's relationships with such customers. Delay in adding appropriately
trained personnel can lead to program delays, higher product costs, and customer
dissatisfaction.
It is anticipated that Louis B. Horwitz, the Company's President and Chief
Executive Officer, and Chairman of the Company's Board of Directors, will retire
in the near future. While the Company is currently conducting a search for a new
President and Chief Executive Officer, there can be no assurance that the
Company will be able to retain a suitable successor in a timely manner. See
"Management."
8
<PAGE> 10
MANAGEMENT OF GROWTH.
The Company has experienced a period of significant growth and has recently
expanded the scope of its operations and the number of employees in many of its
functional areas. The Company's ability to manage any future growth and compete
effectively will require it to enhance its operational, financial and management
systems, and to expand its facilities and manufacturing capacity. For example,
as a result of increases in orders beyond its customers' previously forecasted
amounts, the Company is currently experiencing difficulty manufacturing and
testing certain products quickly enough to fill orders and is currently behind
on certain of its delivery schedules. To meet current and anticipated demand,
the Company must increase the rate at which it manufactures these products and
there can be no assurance that the Company will be able to successfully increase
its manufacturing rate in a timely manner. Although the Company is not aware of
any order reductions as a result of these delays, such delays, if they continue
or recur, increase the risk that customers will reduce or cancel orders and seek
to meet all or a portion of their needs from the Company's competitors. Rapid
and substantial manufacturing expansion could strain the Company's quality
control, delivery and customer support systems if the capability of such systems
is not improved and expanded. The Company will be required to increase staffing
and other expenses as well as its expenditures on capital equipment and
leasehold improvements in order to meet increased demands of its customers and
to enter new markets. In particular, the Company must carefully manage
production and inventory levels to meet increasing product demand, fluctuating
customer orders and new product introductions. Inaccuracies in demand forecasts
can quickly result in either insufficient or excessive inventories and
disproportionate overhead expenses. The failure of the Company to manage
effectively any future growth could have a material adverse effect on the
Company's business, operating results and financial condition.
CONSUMMATION AND INTEGRATION OF FUTURE ACQUISITIONS.
The Company plans to continue growing through strategic acquisitions of
complementary products, technologies and businesses. Successful implementation
of this strategy will be dependent upon the Company's ability to identify and
acquire suitable acquisition candidates and manage and integrate the operations
of such acquisitions. Competition for acquisition candidates is intensifying
within the telecommunications industry and may result in the inflation of
purchase prices which exceed the Company's financial capability or could
otherwise inhibit its acquisition program or adversely affect the Company's
business, financial condition and operating results. In addition, the
consummation of any such acquisitions would be subject to the consent of the
Company's lenders. There can be no assurance that the Company will be able to
identify and acquire suitable additional candidates. Furthermore, even if
additional acquisitions are consummated, there can be no assurance that the
Company will be successful in managing and integrating such acquisitions. In
addition, growth through acquisitions will place additional demands on the
Company's management and resources.
RISKS OF DOING BUSINESS IN INTERNATIONAL MARKETS.
In 1996, 1995 and 1994, international revenues accounted for approximately
22%, 19% and 24%, respectively, of the Company's net sales. The Company expects
that international revenues will continue to account for a significant
percentage of the Company's net sales for the foreseeable future.
Factors Affecting International Markets. As a result of conducting business
internationally, the Company is subject to various risks, which include: a
greater difficulty of administering its business globally; compliance with
multiple and potentially conflicting regulatory requirements such as export
requirements, tariffs and other barriers; differences in intellectual property
protections; health and safety requirements; difficulties in staffing and
managing foreign operations; longer accounts receivable cycles; currency
fluctuations; restrictions against the repatriation of earnings; export control
restrictions; overlapping or differing tax structures; political and economic
instability and general trade restrictions. There can be no assurance that any
of the foregoing factors will not have a material adverse effect on the
Company's business, results of operations and financial condition. There also
can
9
<PAGE> 11
be no assurance that foreign markets for the Company's products will not develop
more slowly than currently anticipated. Foreign countries may decide not to
construct wireless or wireline communications systems, place moratoriums on
building base stations or terminate or delay construction of such systems for a
variety of reasons, including environmental issues, economic downturns, the
availability of favorable pricing for other communications services or the
availability and cost of related equipment. Any such action by foreign countries
would reduce the market for the Company's products, which would materially
adversely affect the Company's business, results of operations and financial
condition. See "Business -- Marketing, Distribution and International Sales."
Risks Associated with Currency Fluctuations. The Company's foreign sales
are generally invoiced in U.S. dollars and, accordingly, the Company does not
currently engage in foreign currency hedging transactions. However, as the
Company continues to expand its international operations, the Company may be
paid in foreign currencies and exposure to losses in foreign currency
transactions may increase. The Company may choose to limit such exposure by the
purchase of forward foreign exchange contracts or through similar hedging
strategies. There can be no assurance that any currency hedging strategy would
be successful in avoiding exchange-related losses. In addition, if the relative
value of the U.S. dollar in comparison to the currency of the Company's foreign
customers should increase, the resulting effective price increase of the
Company's products to such foreign customers could result in decreased sales
which could have a material adverse impact on the Company's business, results of
operations and financial condition.
NEED FOR ADDITIONAL CAPITAL.
The Company requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable and for capital
expenditures. The Company believes that the net proceeds from this offering,
together with existing cash balances, funds expected to be generated from
operations and available credit facilities will be adequate to fund its
operations for at least the next 12 months. There can be no assurance, however,
that the Company will not require additional debt or equity financing during
such period or thereafter. Further, there can be no assurance that additional
financing, if required, will be available to the Company on acceptable terms, if
at all. If adequate funds are not available, the Company may be required to
delay, scale back or eliminate its research and development or manufacturing
programs or obtain funds through arrangements with partners or others that may
require the Company to relinquish rights to certain of its technologies or
potential products or other assets. Accordingly, the inability to obtain or
difficulty in obtaining such financing could have a material adverse effect on
the Company's business, results of operations and financial condition.
LACK OF SIGNIFICANT PATENT PROTECTION; INFRINGEMENT RISKS.
Although the Company has patent protection on certain aspects of its
technology, it relies primarily on trade secrets, copyrights and contractual
provisions to protect its proprietary rights. There can be no assurance that
these protections will be adequate to protect its proprietary rights, that
others will not independently develop or otherwise acquire equivalent or
superior technology or that the Company can maintain such technology as trade
secrets. There also can be no assurance that any patents the Company possesses
will not be invalidated, circumvented or challenged. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as the laws of the United States. The failure of the Company to
protect its intellectual property rights could have a material adverse effect on
the Company's business, operating results and financial condition.
There can be no assurance that patent or other intellectual property
infringement claims will not be asserted against the Company in the future.
Although patent and intellectual property disputes may be settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms or at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing and
10
<PAGE> 12
selling certain of its products, which would have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, should the Company decide to, or be forced to, litigate such claims,
such litigation could be expensive and time consuming, could divert management's
attention from other matters or could otherwise have a material adverse effect
on the Company's business, operating results and financial condition, regardless
of the outcome of the litigation. See "Business -- Intellectual Property
Rights."
DEPENDENCE ON COMPONENT AVAILABILITY AND KEY SUPPLIERS.
The Company currently procures various components from single-sources due
to unique component designs as well as certain quality and performance
requirements. If single-sourced components were to become unavailable or were to
become unavailable on terms satisfactory to the Company, the Company would be
required to purchase comparable components from other sources. If for any reason
the Company could not obtain comparable replacement components from other
sources in a timely manner, the Company's business, results of operations and
financial condition could be adversely affected. In addition, many of the
Company's suppliers require long lead-times to deliver requested quantities of
components. If the Company were unable to obtain sufficient quantities of
components used in the manufacture of its time or frequency products, resulting
delays or reductions in product shipments could occur and could have a material
adverse effect on the Company's business, results of operations and financial
condition. Due to rapid changes in semiconductor and other technology, on
occasion one or more of the electronic components used in the Company's products
have become unavailable, resulting in unanticipated redesign and related delays
in shipments. There can be no assurance that the Company will not experience
similar delays in the future, the occurrence of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Manufacturing."
RISKS ASSOCIATED WITH GOVERNMENT REGULATIONS.
The Company's business is subject to various U.S. federal and state laws,
regulations, agency actions, court decisions as well as international laws and
regulations.
Environmental Regulations. The Company is subject to a variety of local,
state, federal and international government regulations relating to the storage,
discharge, handling, emission, generation, manufacture and disposal of toxic or
other hazardous substances used to manufacture the Company's products. The
failure to comply with current or future regulations could result in the
imposition of substantial fines on the Company, suspension of production,
alteration of its manufacturing processes or cessation of operations. Corrective
action could require the Company to undertake expensive remediation efforts or
to incur substantial other expenses. Any failure by the Company to control the
use, disposal, removal or storage of, or to adequately restrict the discharge
of, or assist in the cleanup of, hazardous or toxic substances, could subject
the Company to significant liabilities, including joint and several liability
under certain statutes. The imposition of such liabilities could materially
adversely affect the Company's business, results of operations and financial
condition. In addition, the installation of base stations by wireless service
providers or the expansion of wireline networks may be delayed or restricted by
various environmental regulations, land use restrictions and zoning ordinances.
Any such delay or restriction could have a material adverse effect on the
Company's business, results of operations and financial condition.
In late 1996, the Company received notice from the owner of premises in
Austin, Texas that had previously been occupied by Austron, Inc., the Company's
wireline operation, prior to the Company's acquisition of Austron in 1988. The
property owner claims, among other things, that the soil at the site contains
the same contaminants as were previously remediated by Austron in connection
with its vacating the site in 1983. The Company is in the early stages of
evaluating the situation. Although there can be no assurance that the property
owner's claims or any related governmental action will not have a material
adverse effect on the Company's business, financial condition and results of
operations the Company believes that it will not have any such effect. See
"Business -- Legal Proceedings."
11
<PAGE> 13
Government Regulation of Communications Industry. Wireless transmissions
and emissions, and certain equipment used in connection therewith, are regulated
in the United States and internationally. The enactment by federal, state, local
or foreign governments of new laws or regulations or a change in the
interpretation of existing regulations could adversely affect the market for the
Company's products. There can be no assurance that the current trend toward
deregulation and regulatory developments favorable to the promotion of new and
expanded wireless and wireline services will continue or that other future
regulatory changes will have a positive impact on the Company. The increasing
demand for wireless communications has exerted pressure on regulatory bodies
worldwide to adopt new standards for such products, generally following
extensive investigation and deliberation over competing technologies. The delays
inherent in this governmental approval process have in the past caused, and may
in the future cause, the cancellation, postponement or rescheduling of the
installation of communications systems by the Company's customers. These delays
could have a material adverse effect on the Company's business, results of
operations and financial condition.
U.S. GOVERNMENT BUSINESS.
The Company's business with the U.S. government, both direct and indirect
through other government contractors, accounted for approximately 15%, 22% and
32% of net sales for 1996, 1995 and 1994, respectively. This business is subject
to various risks, including unpredictable reductions in funds available for the
Company's projects and contract termination at the convenience of the
government. A significant portion of the Company's U.S. government business is
also subject to reduction or termination due to government policy changes, such
as reductions in military defense spending. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
VOLATILITY OF STOCK PRICE.
The trading price of the Company's Common Stock has been, and in the future
could be, subject to wide fluctuations in response to variations in quarterly
operating results of the Company and its customers and competitors, the gain or
loss of significant contracts, changes in management, announcements of
technological innovations or new product developments by the Company or its
competitors, changes in analysts' estimates of the Company's financial
performance, changes in telecommunications industry standards, legislative or
regulatory changes, general industry trends, worldwide economic and financial
conditions and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations, which have particularly
affected the market price for many high technology companies and which have
often been unrelated to the operating performance of these companies. These
broad market fluctuations and other factors may adversely affect the market
price of the Company's Common Stock. See "Price Range of Common Stock."
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS.
The Company's Restated Certificate of Incorporation, as amended (the
"Restated Certificate") provides for a Board of Directors with staggered terms,
which may discourage or prevent certain types of transactions involving an
actual or potential change in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
then current market prices. In addition, pursuant to the Restated Certificate,
the Board of Directors is authorized to approve the issuance of shares of
currently undesignated Preferred Stock, to determine the price, powers,
preferences and rights and the qualifications, limitations or restrictions
granted to or imposed on any unissued series of that Preferred Stock, and to fix
the number of shares constituting any such series and the designation of such
series, without any vote or future action by the stockholders. The Preferred
Stock could be issued with voting, liquidation, dividend and other rights
superior to the rights of the Common Stock. Certain provisions of Delaware law
applicable to the Company could have the effect of delaying, deferring or
preventing a change in control of the Company. It is possible that the staggered
board, undesignated Preferred Stock and the Delaware law
12
<PAGE> 14
may have the effect of delaying, deferring or preventing a change in control of
the Company, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of the Common Stock. Further, the terms of the Stockholder's Agreement
between the Company and Efratom Holding, Inc., a wholly-owned subsidiary of Ball
Corporation, impose certain limitations on Efratom Holding, Inc.'s and its
affiliates purchase of additional shares of the Company and their participation
in a solicitation of proxies in opposition to the Board of Directors of the
Company.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS.
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in this Prospectus,
including, without limitation, the statements under "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding: the Company's ability to
design, develop, manufacture and market products; the ability of the Company's
products to maintain commercial acceptance; the Company's ability to achieve new
product commercialization; the anticipated growth of its target markets; its
ability to maintain profitability; and other matters are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable at this time, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are set forth in these "Risk Factors," as
well as elsewhere in this Prospectus. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby, assuming a public offering price of $
per share, after deducting underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately ($ if the
over-allotment option is exercised in full). The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders. The Company
intends to use the proceeds of the offering for general corporate purposes,
including working capital. In addition, the Company may use a portion of such
proceeds for acquisitions of complementary products, technologies or businesses,
although there are currently no commitments or agreements with respect to any
material acquisition. Any such acquisition would require approval of the
Company's lenders.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market ("NNM")
under the symbol "DATM." The following table sets forth for the periods
indicated the range of high ask and low bid prices for the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
1st Quarter.......................................................... $12 1/8 $ 8 1/2
2nd Quarter.......................................................... 16 1/4 10 1/4
3rd Quarter.......................................................... 19 1/8 10 3/8
4th Quarter.......................................................... 12 7/8 8 1/4
YEAR ENDED DECEMBER 31, 1996
1st Quarter.......................................................... 11 3/8 8 3/8
2nd Quarter.......................................................... 15 3/4 8 7/8
3rd Quarter.......................................................... 12 1/8 7 1/4
4th Quarter.......................................................... 17 5/8 10 3/8
YEAR ENDING DECEMBER 31, 1997
1st Quarter (through February 20, 1997).............................. 24 1/2 15
</TABLE>
On February , 1997, the last reported closing price of the Common Stock
on the NNM was $ per share. As of February 18, 1997, the Company had
416 holders of record of Common Stock.
DIVIDEND POLICY
It is the policy of the Company to retain earnings to finance the future
growth and development of its business. Therefore, the Company does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
In addition, the Company's existing credit arrangements restrict the Company
from paying cash dividends.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, and as adjusted to reflect the sale of 1,000,000 shares of
Common Stock offered by the Company hereby and the exercise of a warrant to
purchase 100,000 shares of Common Stock by one of the Selling Stockholders,
assuming a public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company, and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Current portion of long-term debt...................................... $ 41 $
======= =======
Long-term debt, excluding current portion.............................. $17,318 $
------- -------
Stockholders' equity:
Preferred Stock, 1,000,000 shares authorized, no shares issued or
outstanding...................................................... -- --
Common Stock, 10,000,000 shares authorized, 4,091,291 shares
issued and outstanding(1)(2); 5,191,291 shares issued and
outstanding as adjusted(1)(3).................................... 1,023
Additional paid-in capital........................................ 25,845
-------
Retained earnings................................................. 7,956
-------
Cumulative translation adjustment................................. (201)
------- -------
Total stockholders' equity........................................ 34,623
------- -------
Total capitalization......................................... $51,941 $
======= =======
</TABLE>
- ---------------
(1) Excludes 574,474 shares subject to options outstanding as of December 31,
1996 under the Company's 1984 Stock Option Plan and 1994 Stock Incentive
Plan at a weighted average exercise price of $7.45 per share.
(2) Excludes 175,000 shares issuable upon exercise of a warrant with an exercise
price of $11.50 per share held by The Prudential Insurance Company of
America (the "Prudential Warrant").
(3) Excludes 75,000 shares issuable upon exercise of the balance of the
Prudential Warrant (subject to adjustment).
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data has been derived from
the financial statements of the Company audited by Price Waterhouse LLP,
independent accountants. The consolidated balance sheet at December 31, 1996 and
1995 and the related consolidated statements of operations and of cash flows for
the three years ended December 31, 1996 and notes thereto appear elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995(1) 1994 1993 1992
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 91,854 $ 67,257 $ 30,897 $ 24,593 $ 27,340
Costs and expenses:
Cost of goods sold...................... 56,285 40,010 17,491 14,663 17,704
Selling................................. 12,182 9,836 5,206 4,461 4,561
Product development..................... 7,667 7,087 2,494 1,877 1,819
General and administrative(2)........... 10,127 8,460 3,934 3,294 4,218
--------- --------- --------- --------- ---------
Operating income (loss)................. 5,593 1,864 1,772 298 (962)
--------- --------- --------- --------- ---------
Loss on discontinued
operations........................... 1,750
Interest expense........................ 2,255 1,667 241 209 294
Interest income......................... (7) (17) (15) (7) (4)
--------- --------- --------- --------- ---------
Income (loss) before income taxes......... 3,345 214 1,546 96 (3,002)
Income tax provision (benefit)............ 1,371 154 610 24 (795)
--------- --------- --------- --------- ---------
Net income (loss)......................... $ 1,974 $ 60 $ 936 $ 72 $ (2,207)
========= ========= ========= ========= =========
Net income (loss) per share............... $ .46 $ .02 $ .34 $ .03 $ (.89)
========= ========= ========= ========= =========
Weighted average number of shares
outstanding............................. 4,253,019 3,954,307 2,732,812 2,558,356 2,488,829
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................... $ 26,029 $ 12,310 $ 8,684 $ 7,299 $ 6,261
Total assets............................ 68,688 66,137 24,578 23,185 23,877
Long-term debt.......................... 17,318 7,938 50 70 307
Stockholders' equity.................... 34,623 31,313 16,883 15,639 15,325
</TABLE>
- ---------------
(1) In March 1995, the Company acquired Efratom Time and Frequency Products,
Inc. and Efratom Elektronik GmbH. As a result of the acquisition, the
Company experienced an increase in all categories of sales and expenses.
(2) Includes $1.5 million and $1.1 million for 1996 and 1995, respectively, of
amortized goodwill and increased depreciation resulting from the step-up of
the assets purchased in the March 1995 acquisition of Efratom.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. Except for
the historical information contained herein, the discussion in this Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.
OVERVIEW
Datum designs, manufactures and markets a wide variety of high-performance
time and frequency products used to synchronize the flow of information in
telecommunications networks. The Company is also a leading supplier of precise
timing products for enterprise computing networks and a wide variety of space,
scientific and industrial test and measurement applications.
The Company was formed in 1959 and has grown its operations through
acquisitions and internal product development. In 1983, the Company acquired its
cesium standards operation and, in the process, commenced its evolution from a
company primarily supplying timing equipment for military applications to a
manufacturer of a broad range of time and frequency products for
telecommunications and other applications. In 1986, the Company acquired the
business that is now enterprise computing and in 1988, it acquired its current
wireline business. In March 1995, the Company acquired Efratom Time and
Frequency Products, Inc. and Efratom Elektronik GmbH (collectively "Efratom"),
the inventor and leading manufacturer of rubidium oscillators used in cellular
and PCS networks. As a result of its acquisition of Efratom, the Company now
manufactures each class of time and frequency products in wide-spread commercial
use: cesium standards, rubidium oscillators, quartz oscillators and GPS timing
receivers.
The Company serves the markets for high-precision time and frequency
devices in the telecommunications industry which is rapidly expanding as a
result of the conversion of analog to digital systems. The Company believes it
currently supplies more than 80% of the rubidium atomic clocks used in cellular
and PCS network base stations. The Company also provides extremely stable cesium
standards and GPS receivers that generate and capture timing and frequency
products for use in wireline telecommunications networks. In addition to
providing time and frequency standards for telecommunications applications, the
Company is a growing supplier of timing products used to ensure the integrity of
information transmitted through enterprise computing networks. The Company also
manufactures frequency sources for satellites, including GPS satellites that
utilize the Company's cesium clocks to provide highly accurate timing and
navigation information throughout the world. Finally, the Company provides time
and frequency products and systems for a wide range of scientific and industrial
test and measurement applications, including missile guidance, geographic
mapping and electric utility operations.
A small number of customers account for a substantial portion of the
Company's net sales and the Company expects that a limited number of customers
will continue to represent a substantial portion of the Company's net sales for
the foreseeable future. The Company's largest customer, Lucent, accounted for
approximately 36% and 30% of net sales for the fiscal years ended December 31,
1996 and 1995. Further, the Company's five largest customers, including Lucent,
accounted for approximately 53% and 46% of net sales during the same periods.
For a more detailed discussion of the risks associated with the Company's
concentrated customer base, see "Risk Factors -- Risks Associated with the
Company's Dependence on Small Number of Customers."
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
and expense items expressed as a percentage of the Company's net sales. These
percentages are derived from the Company's financial statements included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses
Cost of goods sold................................. 61.3% 59.5% 56.6%
Selling............................................ 13.3% 14.6% 16.8%
Product development................................ 8.3% 10.5% 8.1%
General and administrative......................... 11.0% 12.6% 12.7%
Interest, net...................................... 2.5% 2.5% 0.8%
----- ----- -----
Income before income taxes.............................. 3.6% 0.3% 5.0%
Income tax provision.................................... 1.5% 0.2% 2.0%
----- ----- -----
Net income.............................................. 2.1% 0.1% 3.0%
===== ===== =====
</TABLE>
Years Ended December 31, 1996 and December 31, 1995
Introductory Note. Results of operations of the Company in 1995 include
only 41 weeks of operations of Efratom which was acquired in March 1995. Due to
the acquisition, the Company experienced significant increases (in absolute
terms) in net sales, cost of goods sold, selling expense, product development
expense, and general and administrative expense, in the year ended December 31,
1996 from the year ended December 31, 1995.
Net Sales. The Company's net sales are derived primarily from the sale of
time and frequency products for use in telecommunications networks, enterprise
computing networks, satellites and in a variety of other test and measurement
applications. The Company's net sales increased 36.6% from $67.3 million in 1995
to $91.9 million in 1996. This increase was primarily the result of the
acquisition of Efratom and increased sales into each of the Company's principal
markets. In particular, net sales were positively impacted as a result of
increased sales of rubidium oscillators into the cellular and PCS wireless
telecommunications markets. The Company's sales in the wireline network market
also showed significant growth, largely due to increased international sales.
Direct and indirect sales to the United States government decreased 6.5%
from $14.8 million in 1995 to $13.9 million in 1996, constituting approximately
22% and 15% of net sales, respectively. Government-related contracts and
subcontracts are subject to standard provisions for termination at the
convenience of the government. In such event, however, the Company is generally
entitled to reimbursement of costs incurred on the basis of work completed plus
other amounts specified in each individual contract. The Company anticipates
that its risks of contract termination for convenience will decrease as it
continues to concentrate its selling efforts in other sectors of the economy.
See "Risk Factors -- U.S. Government Business."
Gross Margins. Gross margins are derived from net sales and cost of goods
sold, which consists primarily of raw materials, labor, overhead and warranty
costs. Gross margins were 40.5% and 38.7% in 1995 and 1996, respectively. The
decrease in gross margins in 1996 was primarily the result of Lucent accounting
for an increased percentage of the Company's net sales and price reductions on
certain products purchased by Lucent pursuant to the terms of its supply
agreement with the Company. The decrease was partially offset by increased
margins on certain of the Company's other product lines. Gross margins can be
adversely affected by a number of factors, including pricing pressure from the
Company's customers and the difficulty of reducing fixed expenses in connection
with the reschedul-
18
<PAGE> 20
ing of customer orders. See "Risk Factors -- Risks Associated with the Company's
Dependence on a Small Number of Customers," and "-- Potential Fluctuations in
Quarterly Operating Results."
Selling Expense. Selling expense consists primarily of sales commissions
paid to the Company's third-party representatives and distributors and salaries
and other expenses for its sales and marketing personnel. Selling expense as a
percentage of net sales was 14.6% and 13.3% in 1995 and 1996, respectively. The
decrease in selling expense as a percentage of net sales between 1995 and 1996
resulted from increased sales to Lucent and other OEM customers which involve
substantially lower commission rates. Selling expense increased by 23.9% from
$9.8 million in 1995 to $12.2 million in 1996, primarily as a result of
increased net sales and the creation of the Company's international sales
division in 1996.
Product Development. Product development expense consists primarily of
salary, applied overhead, materials and third-party design services. Product
development expense increased 8.2% from $7.1 million in 1995 to $7.7 million in
1996, and decreased as percentage of net sales from 10.5% in 1995 to 8.3% in
1996. The dollar increase resulted from the commencement of development programs
in 1996 to improve certain products through new chip designs and software
development. The Company believes that these and other product development
projects will result in increased expenses as a percentage of net sales in 1997.
Failure to develop, or introduce on a timely basis, new products or product
enhancements that achieve market acceptance could materially adversely affect
the Company's business, financial condition and results of operations. See "Risk
Factors -- Rapid Technological Change; New Product Development."
General and Administrative. General and administrative expense consists
primarily of salaries and other expenses for management, finance, accounting and
human resources, as well as amortization of goodwill and depreciation charges.
General and administrative expense increased by 19.7% from $8.5 million in 1995
to $10.1 million in 1996, and decreased as a percentage of net sales from 12.6%
in 1995 to 11.0% in 1996. Includes $1.5 million and $1.1 million for 1996 and
1995, respectively, of amortized goodwill and increased depreciation resulting
from the step-up of the assets purchased in the March 1995 acquisition of
Efratom. In addition, 1995 general and administrative expense was adversely
affected by employee relocation, termination costs and moving expenses relating
to the Company's 1995 consolidation of its timing and GPS receiver product
lines.
Interest, Net. Interest expense increased 35.3% from $1.7 million in 1995
to $2.2 million in 1996, primarily as a result of a full year of interest in
1996 versus a partial year of interest in 1995 associated with indebtedness
incurred in connection with the acquisition of Efratom in March 1995.
Years Ended December 31, 1995 and December 31, 1994
Introductory Note. As a result of its March 1995 acquisition of Efratom,
the Company experienced significant increases (in absolute terms) in net sales,
cost of goods sold, selling expense, product development expense and general and
administrative expense in the year ended December 31, 1995 from the year ended
December 31, 1994.
Net Sales. Net sales increased by 118% from $30.1 million in 1994 to $67.3
million in 1995, primarily as a result of the Company's acquisition of Efratom.
Not including the acquisition-related increase, net sales increased by $1.0
million. Direct and indirect sales to the United States government increased by
47.5% from $10.0 million in 1994 to $14.8 million in 1995, primarily as a result
of the acquisition.
Gross Margins. Gross margins were 43.4% and 40.5% in 1994 and 1995,
respectively. Gross margins were adversely affected in 1995 as a result of
inventory valuation adjustments and, to a lesser extent, by the addition of
wireless telecommunication products in connection with the acquisition of
Efratom.
Selling Expense. Selling expense as a percentage of net sales was 16.8%
and 14.6% in 1994 and 1995, respectively. The decrease was primarily the result
of the acquisition of Efratom and the related increase in sales to large OEMs,
which sales have lower commission-related expenses.
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<PAGE> 21
Product Development. Product development expense as a percentage of net
sales was 8.1% and 10.5% in 1994 and 1995, respectively, resulting from
Efratom's higher research and development costs, as a percentage of net sales.
General and Administrative. General and administrative expense as a
percentage of net sales was 12.7% and 12.6% in 1994 and 1995, respectively. The
decrease was primarily the result of net sales growing faster than general and
administrative expenses.
Interest, Net. Interest expense increased from $241 thousand in 1994 to
$1.7 million in 1995, as a result of increased indebtedness incurred in
connection with the acquisition of Efratom in 1995.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly financial information for
each quarter since the acquisition of Efratom. The information has been prepared
by the Company on a basis consistent with the Company's audited consolidated
financial statements appearing elsewhere in this Prospectus and includes all
necessary adjustments, consisting only of normal recurring adjustments, that
management considers necessary for a fair presentation of the unaudited
quarterly results when read in conjunction with the audited consolidated
financial statements of the Company and the notes thereto appearing elsewhere in
this Prospectus. These operating results are not necessarily indicative of
results that may be expected for any subsequent periods.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30,
1996 1996 1996 1996 1995 1995 1995
-------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $ 27,497 $ 24,507 $ 20,248 $ 19,602 $ 21,965 $ 18,607 $ 16,853
-------- -------- -------- -------- -------- -------- --------
Costs and expenses
Cost of goods sold............. 17,103 15,203 12,268 11,711 13,962 11,215 9,283
Selling........................ 3,592 2,944 2,946 2,700 3,008 2,709 2,523
Product development............ 1,857 1,895 1,882 2,033 1,894 1,963 2,288
General and administrative..... 2,664 2,843 2,319 2,301 3,243 2,010 1,995
Interest, net.................. 600 523 576 549 534 473 517
-------- -------- -------- -------- -------- -------- --------
25,816 23,408 19,991 19,294 22,641 18,370 16,606
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes.......................... 1,681 1,099 257 308 (676) 237 247
======== ======== ======== ======== ======== ======== ========
Net income (loss)................ $ 992 $ 649 $ 151 $ 182 $ (465) $ 140 $ 145
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share...... $ 0.23 $ 0.15 $ 0.04 $ 0.04 $ (0.12) $ 0.03 $ 0.03
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Cost of goods sold............. 62.2 62.0 60.6 59.7 63.6 60.3 55.1
Selling........................ 13.1 12.0 14.5 13.8 13.7 14.6 15.0
Product development............ 6.8 7.7 9.3 10.4 8.6 10.5 13.6
General and administrative..... 9.7 11.6 11.5 11.7 14.8 10.8 11.8
Interest, net.................. 2.1 2.1 2.8 2.8 2.4 2.5 3.0
----- ----- ----- ----- ----- ----- -----
93.9 95.5 98.7 98.4 103.1 98.7 98.5
===== ===== ===== ===== ===== ===== =====
Income (loss) before income
taxes.......................... 6.1 4.5 1.3 1.6 (3.1) 1.3 1.5
===== ===== ===== ===== ===== ===== =====
Net income (loss)................ 3.6% 2.6% 0.7% 0.9% (2.1)% 0.8% 0.9%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Net Sales. Net sales grew substantially over the seven-quarter period,
with significant quarter-to-quarter fluctuations. In the third and fourth
quarters of 1996, Lucent, the Company's largest customer,
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<PAGE> 22
substantially increased its orders due to the expanded deployment of cellular
and PCS systems. Recently, the Company has experienced seasonality resulting in
increased sales in its fourth quarter which the Company believes is due to
increased year-end spending by its OEM customers and a higher level of sales
activity in connection with year-end sales quotas. Accordingly, the Company
expects that its sales and net income for the first quarter of 1997 may be flat
to slightly down from the fourth quarter of 1996.
Gross Margins. Gross margins have declined slightly over the seven-quarter
period. Gross margins have declined as a result of increased sales to Lucent
which have lower margins due to contractual commitments. In addition, gross
margins decreased in the fourth quarter of 1995 as a result of inventory
writedowns in that quarter related to the consolidation of the Company's timing
and GPS receiver product lines.
General and Administrative. General and administrative expense remained
relatively stable as a percentage of sales over the seven-quarter period, except
for the fourth fiscal quarter of 1995 in which expenses were incurred for the
combination of the timing and GPS receiver product lines. One-time costs
associated with combining these product lines created a loss in this quarter.
The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results from quarter to quarter. As a
result, the Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful, and that such comparisons cannot be
relied upon as indicators of future performance. In addition, there can be no
assurance that the Company will maintain its current profitability in the
future. A significant component of such quarterly fluctuations results from
rescheduling of orders by the Company's major customers, in some cases due in
part to the customers' attempts to minimize inventories. Other factors that
could cause the Company's sales and operating results to vary significantly from
period to period include: contractual price reductions on products sold to
certain major customers; the time, availability and sale of new products;
changes in the mix of products having differing gross margins; variations in
manufacturing capacities, efficiencies and costs; the availability and cost of
components; warranty expenses; and variations in product development and other
operating expenses. In addition, the Company has experienced seasonality
resulting in increased sales in its fourth quarter which the Company believes is
due to increased year-end spending by its OEM customers and a higher level of
sales activity in connection with year-end sales quotas. Accordingly, sales and
net income for the first quarter of 1997 may be flat to slightly down from the
fourth quarter of 1996. In addition, the sales cycles for many of the Company's
products are often lengthy and unpredictable, and can take up to 36 months.
Further, there can be no assurance that the Company will be successful in
closing large transactions on a timely basis or at all. Accordingly, the timing
of these transactions could cause additional variability in the Company's
quarterly operating results. The Company's quarterly results of operations are
also influenced by competitive factors, including pricing and availability of
the Company's and competing time and frequency products. A large portion of the
Company's expenses are fixed and difficult to reduce in a short period of time.
If net sales do not meet the Company's expectations, the Company's fixed
expenses would exacerbate the effect of such net sales shortfall. Furthermore,
announcements by the Company or its competitors regarding new products and
technologies could cause customers to defer purchases of the Company's products.
Order deferrals by the Company's customers, delays in the Company's introduction
of new products and longer than anticipated sales cycles for the Company's
products have in the past materially adversely affected the Company's quarterly
results of operations. Due to the foregoing factors, as well as other
unanticipated factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts or
investors. In such event, the price of the Company's Common Stock would be
materially adversely affected. See "Risk Factors -- Potential Fluctuations in
Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations primarily through a combination of cash
provided from operations, a commercial bank line of credit and long-term debt.
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<PAGE> 23
Cash provided by operations was approximately $6.7 million in 1996,
compared to cash used for operations of approximately $140 thousand in 1995 and
cash provided by operations of approximately $372 thousand in 1994. Cash flows
in 1995 were adversely affected by greater working capital needs in connection
with the acquisition of Efratom. The increase in cash provided by operations in
the year ended December 31, 1996 was primarily the result of increased
profitability and a decrease in inventory values.
Capital expenditures were approximately $2.7 million, $2.9 million and $766
thousand in 1996, 1995 and 1994, respectively. The increase from 1994 to 1995
was primarily the result of the Efratom acquisition.
At December 31, 1996, the Company had working capital of $26.0 million and
a current ratio of 2.9:1, compared to working capital of $12.3 million and a
current ratio of 1.5:1 at December 31, 1995. The increase in working capital is
primarily due to the long-term financing arrangements completed by the Company
on September 27, 1996, in which the Company converted its debt to $18.0 million
of long-term debt instruments provided by The Prudential Insurance Company of
America ("Prudential"). This credit facility consists of: (i) $6.0 million of
Series A senior secured promissory notes to mature September 27, 2000, bearing
interest at the rate of 9.07% on the unpaid principal, payable quarterly, with
the principal re-paid in equal installments of $1.5 million on March 27 and
September 27 of each year, commencing March 27, 1999, and (ii) $12.0 million of
Series B senior secured promissory notes to mature September 27, 2003, bearing
interest at the rate of 10.25% on the unpaid principal, payable quarterly, with
the principal re-paid in equal installments of $2.0 million on March 27 and
September 27 of each year, commencing March 27, 2001. In addition, the Company
issued to Prudential common stock warrants for the purchase of 175 thousand
shares of common stock at an exercise price per share of $11.50.
Under the Company's line of credit with Wells Fargo Bank, the Company has a
two-year revolving line of credit not to exceed the principal amount of $12.0
million bearing interest at the Bank's prime rate or at LIBOR plus 2.75%. The
Wells Fargo credit facility and the Prudential credit facility provide the
Company with an aggregate borrowing capacity of $30 million.
Under both agreements, the Company is required to maintain certain
financial ratios, limit other indebtedness and may not pay dividends. Other
restrictions include limitations on the amounts of leases and capital
expenditures that may be incurred. The Company currently is in compliance with
all such covenants and restrictions.
The Company believes that its existing cash balances, funds expected to be
generated from operations, borrowings under its credit facilities and the
anticipated proceeds of this offering will provide the Company with sufficient
funds to finance its operations for at least the next 12 months. There can be no
assurance, however, that the Company will not require additional debt or equity
financing during such period or thereafter. Further, there can be no assurance
that additional financing, if required, will be available to the Company on
acceptable terms, if at all. See "Risk Factors -- Need for Additional Capital."
22
<PAGE> 24
BUSINESS
GENERAL
Datum designs, manufactures and markets a wide variety of high-performance
time and frequency products used to synchronize the flow of information in
telecommunications networks and in numerous other applications. Utilizing its
more than 28 years of experience with time and frequency standards, Datum
supplies products that can provide accurate time to within a fraction of one
second over 100,000 years. Datum serves the markets for high-precision time and
frequency devices in the telecommunications industry which is rapidly expanding
as a result of the conversion from analog to digital systems and the expansion
of cellular and PCS networks. The Company invented the rubidium oscillator in
1971 and believes it currently supplies more than 80% of the high-precision,
rubidium atomic clocks used in cellular and PCS network base stations in the
United States. Datum is a major supplier of extremely precise cesium standards
and GPS receivers that generate or capture time and frequency information for
use in wireline telecommunications infrastructures.
In addition to providing time and frequency products for telecommunications
applications, Datum is a growing supplier of timing products used to ensure the
integrity of information transmitted through enterprise computing networks.
Datum also manufactures time and frequency devices for satellites, including GPS
satellites which utilize the Company's cesium clocks to provide highly accurate
timing and navigation information throughout the world. Finally, the Company
provides time and frequency products and systems for a wide range of scientific
and industrial test and measurement applications, including missile guidance,
geographic mapping and electric utility operations.
MARKETS
Telecommunications
The telecommunications system is comprised of numerous interconnected
networks employing many different transmission technologies. The traditional
wireline network is itself a series of networks connected through numerous
switches that allow voice, data and video traffic to be transmitted to their
ultimate destinations. Wireless networks, including cellular and PCS, are also
connected to components of the wireline network through switches. In order for
the overall telecommunications system, and the various components within that
system, to operate efficiently, it is critical that each network be synchronized
and operate within extremely narrow frequency tolerances. Accurate and precise
time and frequency devices are necessary at all levels of the telecommunications
system to ensure proper frequency control and to minimize signal degradation.
Wireless -- Cellular. Cellular communication services have become an
integral part of the telecommunications market. According to sources cited by
the Personal Communications Industry Association ("PCIA"), the total number of
cellular subscribers in the United States was approximately 44 million at the
end of 1996, an increase of 31% over the year-end 1995 figure. PCIA reports that
the number of cellular subscribers in the United States will reach 80 million by
the end of the year 2000. In addition to growth in the United States, many
developing countries, such as those in Latin America and Asia, are building
cellular networks. According to the PCIA, current global subscriber growth is
estimated to be 70% per year. The total number of global cellular and PCS
subscribers is projected to reach 362 million by the year 2001, according to
MTA-EMCI. The Department of Commerce estimates that there will be approximately
50,000 cell sites in the U.S. and 100,000 cell sites worldwide by the year 2000.
Cellular telecommunications networks consist of numerous cells located
throughout a service area, each with its own base station connected by wire or
microwave radio to the wireline network through a network switch. Originally,
cellular networks used analog technology and frequency division multiple access
("FDMA") to fit more channels into existing frequency bands. This requires
accurate frequency control at the base station level, which is accomplished
through the use of quartz or higher precision rubidium oscillators. In order to
improve transmission quality, increase network capacity and expand network
coverage, many network operators are converting older networks from analog to
23
<PAGE> 25
digital technology and expanding their digital wireless networks. Currently, the
three leading digital technologies are Time Division Multiple Access ("TDMA"),
Code Division Multiple Access ("CDMA") and Global System for Mobile
Communications ("GSM"). In each of these transmission protocols, calls are
segmented, transmitted over a wider spectrum of bandwidth than otherwise
available under FDMA and reassembled by the applicable receiver within the
network. As a result of the segmentation/reassembling process, signal
degradation from improper synchronization is more likely to result in dropped
calls and loss of data than would occur in analog networks. Dropped calls and
data losses, in turn, require retransmission, thus decreasing network efficiency
and capacity. In order to minimize the problems resultant from improper
synchronization, many cellular operators utilize highly precise timing equipment
located at each base station and its associated network switch.
Wireless -- PCS. The Personal Communications Services market is projected
to experience rapid growth. As reported by PCIA, it is estimated that the number
of PCS subscribers will grow from approximately 349,000 in 1996 to 18.5 million
in the year 2001. To meet this subscriber demand, PCS service providers have
purchased PCS frequency licenses covering markets throughout the United States
for an aggregate purchase price of approximately $20 billion.
PCS was developed, in part, to provide an improved quality of wireless
service and accommodate the increasing volume of transmissions utilizing
wireless networks. PCS systems operate in a manner similar to cellular networks,
but at a much higher frequency. As a result, PCS networks require a greater
number of lower powered "microcells," located more closely together. As in
cellular networks, time and frequency devices are necessary to synchronize the
flow of voice and data transmissions. The base station in each PCS microcell and
each PCS network switch connected to the wireline network require one or more
stable, reliable, timing devices to ensure accurate synchronization.
Wireline. The wireline sector of the telecommunications market has
experienced increased need for high-accuracy timing and frequency equipment
primarily as a result of the upgrading of existing networks from analog to
digital and the installation of new wireline networks. The wireline sector
currently consists of numerous networks and lines, which are connected by
switches that provide a transferring mechanism to route transmissions to their
ultimate destinations. In order to transfer voice, data or video traffic from
one line or network to another, both lines or segments of the network must
operate at the same frequency within a very narrow tolerance. Increased demand
for higher capacity, higher speed and more accurate information flow has
required the transition of wireline networks from analog to digital systems.
Imperfect synchronization in an analog system may result merely in static or
delayed communication. The failure to synchronize the components in digital
networks, however, may result in the loss of information, requiring
re-transmission and thus decreasing network efficiency, and increasing the costs
to the network operator. As a result, digital systems have a greater need for
accurate synchronization which is accomplished through the use of precise timing
devices located throughout the networks.
The wireline sector of the telecommunications market is also growing as
operators expand their networks in order to meet the growing demand for
telecommunications services. In developing countries, new wireline networks are
being installed to provide basic telephony service. In developed countries,
increased demand for new services and government deregulation has encouraged the
development of expanded networks, particularly in the local exchange and long
distance markets. The expansion of wireline networks has led to an increased
need for timing devices to synchronize the flow of information and maximize the
efficiency of the networks.
Enterprise Computing
Enterprise computing networks utilize interconnected computers,
workstations, peripheral devices and application software to provide the
transaction processing and control infrastructure for national and international
organizations. Accurate timing of operations throughout a network is essential
to ensure the integrity of the data flowing through the network. When
information is retrieved from multiple locations and forwarded to a central
point for analysis, accurate interpretation
24
<PAGE> 26
of the data may depend on the ability to properly time sequence both the
generation and receipt of the data.
In order to satisfy these timing requirements, enterprise network operators
utilize timing and frequency devices to ensure network synchronization.
Traditionally, this function has been accomplished using remote public access
time servers as the source of "standard time" and general purpose computers to
acquire and distribute time to the network. This approach, however, relinquishes
control of network timing to remote time servers and local operators. As a
result, inadvertent manipulation of local time servers or their undetected
malfunctioning may result in data distortion or loss with adverse consequences.
To reduce these risks, many enterprise computing networks now utilize GPS
receivers at local computers throughout the network. As each computer in the
network operates under Universal Coordinated Time ("UTC"), as received from the
GPS satellites, the entire network operates on the same timing.
Satellites
The satellite market has experienced recent growth as a result of the
increased use of satellites for commercial purposes. Satellites launched for a
variety of objectives, including communications, navigation, weather forecasting
and astronomy must be able to efficiently transmit data to earth-based
receivers, thus requiring precise frequency control at the satellite. GPS
satellites are designed to transmit extremely precise timing information and use
cesium standards or rubidium oscillators. Other commercial satellite programs
that require less precise timing and frequency equipment utilize quartz
oscillators due to their lower weight and power consumption.
Test and Measurement
The test and measurement market represents a broad range of applications of
cesium standards, rubidium oscillators, quartz oscillators and GPS receivers.
Precise timing equipment is used to ensure the synchronization of multiple data
recorders in large field testing applications. Timing equipment also allows for
the determination of where an event occurred by comparing the precise times at
which the event was recorded at multiple sites. For example, electric utility
companies use precision timing devices to locate underground line breaks, thus
minimizing costly line inspection.
TIME AND FREQUENCY TECHNOLOGY
Three sources of timing and frequency information are generally used in
telecommunications and commercial applications: cesium standards, rubidium
oscillators and quartz oscillators. In addition, GPS receivers capture and
process timing information generated by satellite-based cesium and rubidium
timing devices.
The most stable and accurate timing devices in widespread use are based on
the resonance of cesium atoms. Cesium standards operate by energizing a reserve
of cesium atoms with microwave energy at a precise frequency. At this frequency,
due to the atomic structure of cesium, some of the cesium atoms experience a
change in energy state. These "excited" atoms are directed to a collector
through the use of focusing magnets, resulting in an increased atomic flow.
Since the flow of atoms does not increase unless the cesium atoms are excited at
exactly the correct frequency, the detection of the increased atomic flow by the
collector indicates that the desired frequency has been obtained. The highly
stable frequency is then captured by the standard's electronics package and
generated as a series of user outputs. Cesium clocks are used as international
primary reference standards and are stable to within a fraction of one second
over 100,000 years.
Rubidium oscillators combine sophisticated glassware, light detection
devices and electronics packages to generate a highly stable frequency output.
Rubidium, when energized by a specific radio frequency, will absorb less light.
The oscillator's electronics package generates this specific frequency and the
light detection device ensures, through monitoring the decreased absorption of
light by the rubidium and the use of feedback control loops, that this specific
frequency is maintained. This highly
25
<PAGE> 27
stable frequency is then captured by the electronics package and generated as an
output signal. Rubidium oscillators provide atomic oscillator stability,
somewhat less stable than cesium over long durations, but generally at lower
cost and in smaller packages.
Quartz oscillators utilize the unique physical properties of quartz
crystals. Applying a voltage potential across a properly prepared quartz crystal
causes the crystal to vibrate and generate an electric signal with a relatively
stable frequency. Quartz oscillators consist of specially prepared synthetic
quartz crystals and associated electronics to apply the voltage and generate the
frequency signal. Quartz oscillators provide a less stable frequency than
rubidium oscillators, but are available at a substantially lower cost.
Stable and accurate timing and frequency information is also obtained
through the use of GPS receivers, which capture timing information from cesium
standards or rubidium oscillators aboard GPS satellites. GPS receivers are
typically used in systems integrated with quartz or rubidium oscillators that
provide consistent timing output in the event the receiver loses the external
satellite-based signal.
THE DATUM SOLUTION
The Company applies its core understanding of timing and frequency
technology and its experience in delivering highly stable and accurate clocking
devices to provide a wide range of timing and frequency products for
telecommunications, enterprise computing and a variety of other commercial
applications. The Company designs, manufactures and markets cesium standards,
rubidium oscillators, quartz oscillators and GPS receivers in numerous
configurations, depending on the desired application. The Company's products are
the result of substantial research and development performed in the areas of
atomic physics, electronics engineering and software design. Through more than
28 years of experience with time and frequency products, Datum has developed
substantial expertise in each of the critical components of cesium and rubidium
atomic clocks. The Company designs and manufactures its own physics packages,
through which cesium or rubidium is energized as part of the frequency detection
and control process. Datum also designs the electronics packages for its
products, which are necessary to convert the signal generated by the physics
package into highly stable electronic pulses.
The Company has developed the ability to manufacture sophisticated time and
frequency devices in a standard, repeatable manner, allowing for large-scale
production and product reliability. The Company believes it is able to tailor
its products quickly and cost-effectively in response to changing customer needs
across the various markets it serves.
Datum is a leading supplier of time and frequency products for the overall
telecommunications system, for satellite applications, enterprise computing
networks, and for a variety of other test and measurement applications. For
telecommunications markets, Datum provides rubidium and quartz oscillators that
operate as stand-alone frequency sources in cellular and PCS base stations and
network switches or are combined with the Company's GPS receivers to provide
timing information in the event of a loss of signal. In addition, Datum provides
time and frequency cesium standards for network switches within wireline
networks. The Company also supplies cesium standards for GPS satellites which
transmit precise timing information and GPS receivers that receive and process
the satellite timing transmissions throughout wireless and wireline networks.
In addition to telecommunications applications, the Company's timing
products help ensure that enterprise computing networks operate in a
synchronized manner. The Company also provides quartz oscillators for a variety
of satellite programs and test and measurement products used for a variety of
applications, including missile guidance, geographic mapping and electric
utility operations.
26
<PAGE> 28
STRATEGY
The Company's strategy is to enhance its position as a leading, worldwide
supplier of a broad range of precision time synchronization products and
high-stability frequency standards. The Company's goal is to capitalize on its
core competencies in cesium standards, rubidium oscillators, quartz oscillators
and GPS receivers to provide a wide variety of products with a broad range of
applications. The key elements of this strategy are to:
Target High-Growth Telecommunications Markets. The Company focuses its
efforts on selected segments of the telecommunications markets which are
projected to have high growth rates. The Company has identified the
worldwide growth of cellular systems and the deployment of PCS as
significant opportunities for sales of timing and frequency products. The
Company will also continue to serve the increasing needs for timing and
frequency devices in wireline networks resulting from the migration from
analog to digital technology and the build-out of new wireline
infrastructures both domestically and internationally.
Offer Broad Range of Uniquely Tailored Products. The Company intends
to capitalize on its experience in designing and manufacturing timing and
frequency devices for installation in various segments of the
telecommunications system, enterprise computing networks, satellites and in
a variety of other test and measurement applications. The Company believes
that its experience in supplying products for a variety of applications
represents a competitive advantage and enables it to provide uniquely
tailored products for evolving customer needs in a cost-effective manner.
Maintain Technological Leadership. The Company conducts an active
research and development program to remain at the forefront of timing and
frequency technology utilizing atomic clocks and GPS satellite
transmissions. The Company believes that it is a technological leader in
the areas of new product development, current product enhancement, volume
manufacturing and software design.
Expand Relationships with Leading OEMs. The Company intends to
continue to develop relationships with leading OEMs of telecommunications
and other equipment utilizing time and frequency products. The Company
believes that its ability to satisfy a variety of an OEM's timing and
frequency product requirements will help the Company expand relationships
with OEMs.
Increase International Sales. The Company intends to pursue expanding
opportunities in markets outside the United States. The Company currently
has customers in Latin America, Asia and Europe and will continue to seek
sales of timing and frequency products globally. The Company has recently
established an international sales organization and intends to expand its
German operation as a European base for marketing, customer-driven
engineering and after-sale service.
Continue Strategic Acquisitions. The Company intends to continue
pursuing strategic acquisitions and alliances to enhance its market
position through the acquisition of companies or lines of business that
complement its existing business.
PRODUCTS
Datum designs and manufactures a broad line of time and frequency products
for telecommunications systems, enterprise computing networks, satellites and a
variety of other test and measurement applications. Datum's products generate
highly precise timing and frequency information through the manipulation of
cesium or rubidium atoms or quartz crystals, or by capturing cesium or rubidium-
based signals from GPS satellite transmissions.
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<PAGE> 29
REPRESENTATIVE DATUM PRODUCTS
<TABLE>
<S> <C> <C>
PRODUCTS APPLICATIONS PRICE PER UNIT
- -----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS
WIRELESS -- CELLULAR AND PCS
Quartz and Rubidium Clocks Timing and frequency control for $2,000 to $5,000
cellular and PCS basic stations
GPS Disciplined Clocks Timing and frequency control for $3,000 to $6,000
cellular and PCS base stations
WIRELINE
Cesium Beam Primary Reference Master frequency references for $40,000 to $48,000
Sources telecommunications central offices
GPS Primary Reference Receivers Derivation of master frequency $8,000 to $18,000
reference for network timing from
Universal Coordinated Time (UTC)
Timing Signal Generators Generation and distribution of $20,000 to $35,000
synchronization timing for
telecommunications networks
End Office Primary References Combination of Primary Reference $10,000 to $20,000
Receiver and Timing Signal Generator
- -----------------------------------------------------------------------------------------------------
ENTERPRISE COMPUTING
GPS Time Servers Local on-site timing source to ensure $3,000 to $10,000
uniform timing across
widely-distributed data networks
Computer Time Modules Microcomputer plug-in time servers for $1,000 to $4,000
bus-linked data networks
- -----------------------------------------------------------------------------------------------------
SATELLITE
Cesium Clocks Satellite-borne primary frequency $200,000 to $300,000
sources
Quartz Clocks Space qualified frequency sources $15,000 to $75,000
- -----------------------------------------------------------------------------------------------------
TEST AND MEASUREMENT
Atomic Frequency Sources Cesium and rubidium-based sources at $2,000 to $60,000
differing levels of stability and cost
GPS Time/Frequency Receivers UTC-derived frequency and clocking $3,000 to $10,000
reference for broad spectrum of
engineering and commercial
applications
Time Code Instrumentation Generators, translators, tape search $2,000 to $8,000
and video data insertion equipment for
military, industrial and scientific
time logging applications
- -----------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 30
TELECOMMUNICATIONS PRODUCTS
The Company offers a broad range of time and frequency products for the
telecommunications industry.
Wireless -- Cellular and PCS Products
Cellular and PCS networks require both accurate frequency control and
timing information. The Company provides a variety of products to meet these
needs.
Quartz and Rubidium Clocks -- For analog cellular and GSM applications, the
Company provides highly cost-effective quartz oscillator clocking units to
synchronize the transmissions of voice and data traffic at the base-station
level. For customers requiring a more stable timing source, the Company provides
rubidium clocks.
GPS Disciplined Clocks -- For digital TDMA and CDMA applications,
considerably more stable timing sources are required to maintain the base
station's clocking integrity. To meet this need, the Company provides GPS time
and frequency receivers which capture cesium or rubidium-based time signals
produced by GPS satellites. GPS receivers combine the external cesium or
rubidium-based timing signals with internal rubidium or quartz oscillators to
provide consistent timing output in the event the receiver loses the external
signal.
Wireline Products
Wireline telecommunications network synchronization systems involve two
principal components, a primary frequency reference, to provide an accurate
frequency source, and a timing signal generator, to provide control, management
and distribution of the timing signals required for network operations.
Cesium Beam Primary Reference Sources -- Primary Reference Sources ("PRSs")
generate the most stable frequency output in general commercial use. PRSs
provide cesium-based stability at the central offices of wireline networks for
distribution of timing and frequency information to other components within the
networks.
GPS Primary Reference Receivers -- Primary Reference Receivers ("PRRs")
capture and process time and frequency signals from GPS satellites. Integrated
rubidium or quartz oscillators back up the external frequency source to maintain
timing accuracy during periods of loss of signal. Typically, a PRR would be
installed in telecommunications network switches to provide a stable frequency
at the network switch level, thereby allowing transmissions to be efficiently
processed with minimal signal degradation or retransmission requirements.
Timing Signal Generators -- Distribution of network synchronization
information is achieved through timing signals embedded within the flow of
network communications which are referenced to the primary frequency source,
such as the Company's PRS at the central office, or to a PRR at the network
switch level. In the event of the loss of the reference frequency, the Company's
timing signal generators can maintain, for extended time periods, switch and
network synchronization quality by using internal high-stability rubidium and
quartz oscillators as "holdover" clocking sources.
End Office Primary References -- The Company's End Office Primary
References combines a PRR with a timing signal generator in a single
cost-effective unit designed for use where fewer telecommunications lines
require timing inputs.
ENTERPRISE COMPUTING PRODUCTS
The Company's products provide accurate time-stamping of information
flowing through enterprise computing networks.
29
<PAGE> 31
GPS Time Servers -- The Company's time servers, which are installed in
enterprise computing networks, acquire UTC time from GPS satellite
transmissions. Worldwide coverage of GPS provides that all server-equipped sites
operate with time data that is uniform to within a few milliseconds, thereby
allowing time-sensitive information input at one location to be meaningfully
analyzed at any other site in the network. In a typical application of this
technology, the Securities Industry Automation Corporation, which supports
member firms of the New York Stock Exchange, uses the Company's time servers to
accurately time-annotate stock transactions.
Computer Time Modules -- The Company's computer time modules acquire time
from external sources (such as GPS satellites) to perform a variety of timing
functions within the host computer with a high degree of accuracy. The products
are physically packaged as computer plug-in units and chip sets and are
functionally configured to operate under program control as any other
data-bus-linked component of the user's data system. The Company produces
modules for IBM PC compatible computers and computers manufactured by Sun
Microsystems and Digital Equipment Corporation. The Company also produces
modules for VME and VXI bus architectures. The Company markets its computer
modules in both fully configured forms and as board products and chipsets for
use by original equipment manufacturers ("OEMs") and value-added resellers
("VARs"). Computer time modules are also marketed for use in stand-alone
computers and workstations used for test and measurement applications.
SATELLITE PRODUCTS
The Company provides time and frequency products for a variety of
satellites used for communications, navigation, television, and military
applications. These products are designed around the Company's core technology
and are highly durable so as to meet the demanding requirements of space.
Cesium Clocks -- The Company's cesium clocks are installed aboard each of
the twenty-four GPS satellites now operating in space. Because these satellites
have a life expectancy of approximately 7.5 years, it is necessary that
additional units be designed to be available as replenishment. As a result, the
Company has recently been selected as a cesium clock supplier for a series of
satellites, for launch starting approximately in the year 2001.
Quartz Clocks -- The Company also produces and markets a broad line of
lightweight, highly-stable quartz clocks, particularly suited for space
applications. Space qualified versions of these quartz units are aboard
satellites used for inter-planetary study, missile tracking and weather
monitoring and forecasting, as well as communications and other applications.
TEST AND MEASUREMENT PRODUCTS
The Company's timing and frequency technology was initially developed to
create instrumentation for defense and aerospace applications. This technology
continues to be utilized in test and measurement products for a wide range of
scientific and industrial applications, including missile guidance, precise
geographic mapping and electric utility operation.
Atomic Frequency Sources
The Company produces and markets atomic reference frequency sources for a
wide variety of commercial and scientific applications.
Cesium Frequency Standards -- The Company has developed a broad line of
cesium frequency products for numerous applications that require a constant
frequency reference. Electric utilities use the Company's cesium frequency
standards to set the frequency of electric power. Other uses include master
timing stations for telecommunications networks, global navigation, satellite
communications, missile guidance, and precise geographic mapping for off-shore
oil exploration and accurate placement
30
<PAGE> 32
of off-shore oil drilling platforms. The Company also supplies spare and
replacement cesium tubes for a broad segment of the industry.
Rubidium Oscillators -- In addition to their wide-spread use in the
telecommunications industry, the Company's rubidium oscillators have a number of
other specific applications, such as frequency control for television networks,
doppler radar, satellite tracking and guidance and laboratory instrumentation.
The Company's rubidium oscillator line includes military qualified models
designed for high stability and reliability in adverse environments. The
Company's newer models feature lower profiles and are on standard plug-in
circuit cards specifically designed for ease of integration.
GPS Time and Frequency Receivers
The Company's GPS receivers, in addition to their use in telecommunications
markets, are used in a wide variety of other applications. Electric utilities
use the Company's GPS receivers to determine the exact geographical location of
transmission line faults by comparing the times at which the fault is detected
at various stations in the power distribution network, eliminating the need to
visually search along the right-of-way. Other customers utilize the Company's
GPS receivers to distribute highly accurate time to multiple sites in order to
synchronize the recording of simultaneous test data, such as during missile
testing or astronomical observations. In addition to fully configured GPS
receivers, the Company also manufactures board level modules for OEM
applications.
Time Code Instrumentation Products
In addition to the time and frequency standards described above, the
Company manufactures and markets a line of products that process or utilize
basic time and frequency information for various applications. A major portion
of this product line is a family of instruments that derive time from either an
internal or external frequency reference. The time is generated in the form of
digital codes tailored to specific applications, usually to time-annotate data
recording or transmission. To correspond with the time generating equipment
described above, the Company makes devices which "read" the coded time,
transmitting it to computers, displays, or other devices where the recording of
accurate time is required.
PRODUCT RESEARCH AND DEVELOPMENT
The Company believes that its future success depends in large part on its
ability to maintain its technological leadership through enhancements of
existing products and development of new products that meet a wide range of
customer needs. The Company focuses its research and development efforts on
improving the core physics and electronics packages in its time and frequency
products. Specifically, the Company is conducting research and development in
three areas: developing new time and frequency technologies, improving product
manufacturability, and enhancing software functionality.
- Developing New Timing and Frequency Technologies. The Company regularly
investigates new technologies, including the use of other atomic
elements, and new techniques to manipulate currently used elements, to
generate precise frequencies in a cost-effective manner. The Company also
seeks to develop improved wireless and wireline clocking products, new
approaches to enterprise computing and lower cost, higher performing GPS
receivers.
- Improving Product Manufacturability. The Company continually seeks to
reduce its production costs across its range of products through the
increased use of surface-mount technology, product redesign and other
measures to take advantage of lower-cost components.
- Enhancing Software Functionality. The Company maintains an active
software design program focused on integrating application and customer
specific software into its time and frequency products. The Company seeks
to utilize software to more cost-effectively tailor its products for
evolving customer requirements, such as the demand for remote access
network management.
31
<PAGE> 33
Although the Company maintains an active development program to improve its
product offerings, including specific goals of smaller product size and lower
unit cost, there can be no assurance such efforts will be successful, that its
new products will achieve customer acceptance or that its customers' products
will achieve market acceptance. Failure to develop, or introduce on a timely
basis, new products or product enhancements that achieve market acceptance could
adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be successful in
selecting, developing, manufacturing and marketing new products or enhancing its
existing products on a timely or cost-effective basis. See "Risk
Factors -- Rapid Technological Change; New Product Development."
Research and development expenses totalled $7.7 million, $7.1 million and
$2.5 million in 1996, 1995 and 1994, respectively.
CUSTOMERS
The following is a list of the Company's leading customers by market during
the year ended December 31, 1996.
<TABLE>
<CAPTION>
MARKETS CUSTOMERS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Telecommunications........................... AT&T Wireless Service, Inc.
Hyundai Electronics Industries Co.
Lucent Technologies, Inc
MCI Communications, Inc.
Motorola Corporation
Symmetricom, Inc.
Enterprise Computing......................... Harris Corporation
Hughes Information Systems, Inc.
LM Ericsson Telephone Co.
Sandia National Laboratory
Scientific Devices, Inc.
Satellites................................... Boeing North American
Motorola Corporation
Naval Research Labs
TRW, Inc.
Test and Measurement......................... Allied Signal, Inc.
Harris Corporation
Lockheed Martin Corporation
Northrop Grumman Corp.
Raytheon Co.
</TABLE>
A small number of customers account for a substantial portion of the
Company's net sales, and the Company expects that a limited number of customers
will continue to represent a substantial portion of the Company's net sales for
the foreseeable future. The Company's largest customer, Lucent, accounted for
approximately 36% and 30% of net sales for the years ended December 31, 1996 and
1995, respectively. Further, the Company's five largest customers accounted for
approximately 53% and 46% of net sales during the same period. The Company
believes that its major customers continually evaluate whether to purchase time
and frequency products from alternate or additional sources. Accordingly, there
can be no assurance that a major customer will not reduce, delay or eliminate
its purchases from the Company. Any such reduction, delay or loss in orders
could have a material adverse effect on the Company's business and results of
operations. Major customers also have significant leverage and may attempt to
change the terms, including pricing, upon which the Company and such customers
do business, which could materially adversely affect the Company's business,
results of operations and financial condition. See "Risk Factors -- Risks
Associated with the Company's Dependence on Small Number of Customers."
32
<PAGE> 34
MARKETING, DISTRIBUTION AND INTERNATIONAL SALES
The Company's marketing efforts are focused on establishing and developing
long-term relationships with potential customers. Sales cycles for certain of
the Company's products, particularly for its larger telecommunications timing
systems are lengthy, and can range up to 36 months. Sales are typically made
through standard purchase orders which can be subject to cancellation,
postponement or other types of delays. The majority of the Company's sales occur
through independent sales representatives and distributors that target the
specific markets which they serve. Corporate personnel in the United States and
Germany provide additional direct sales and marketing support for larger
accounts.
Export sales of the Company's products were approximately 22%, 19% and 24%
of net sales for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company expects that international revenues will continue to account for a
significant percentage of the Company's total sales for the foreseeable future.
As a result, the Company is subject to various risks, which include: a greater
difficulty of administering its business globally; compliance with multiple and
potentially conflicting regulatory requirements such as export requirements,
tariffs and other barriers; differences in intellectual property protections;
health and safety requirements; difficulties in staffing and managing foreign
operations; longer accounts receivable cycles; currency fluctuations;
restrictions against the repatriation of earnings; export control restrictions;
overlapping or differing tax structures; political and economic instability and
general trade restrictions. There can be no assurance that any of the foregoing
factors will not have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company's foreign sales are generally invoiced in U.S. dollars and,
accordingly, the Company does not currently engage in foreign currency hedging
transactions. However, as the Company continues to expand its international
operations, the Company may be paid in foreign currencies and exposure to losses
in foreign currency transactions may increase. The Company may choose to limit
such exposure by the purchase of forward foreign exchange contracts or through
similar hedging strategies. There can be no assurance that any currency hedging
strategy would be successful in avoiding exchange-related losses. In addition,
if the relative value of the U.S. dollar in comparison to the currency of the
Company's foreign customers should increase, the resulting effective price
increase of the Company's products to such foreign customers could result in
decreased sales which could have a material adverse impact on the Company's
business, results of operations and financial condition. See "Risk
Factors -- Risks of Doing Business in International Markets."
COMPETITION
Intense competition exists among manufacturers of time and frequency
products, and the Company believes that competition in the Company's markets
from both new and existing competitors will increase in the future. The Company
competes principally in several specialized market segments against a limited
number of companies, some of which are more established, enjoy higher name
recognition and possess far greater financial, technological and marketing
resources than the Company. The Company currently competes principally on the
basis of the performance and quality of its products, including reliability, as
well as on cost and timely manufacture and delivery. While the Company believes
that overall it competes favorably with respect to the foregoing elements, there
can be no assurance that it will continue to be able to do so.
In the cellular and PCS markets, the Company competes primarily with
Hewlett-Packard, and various other quartz oscillator manufacturers.
Hewlett-Packard has recently introduced products with performance
characteristics between quartz and rubidium oscillators with prices similar to
the Company's rubidium oscillators. In the wireline market, the Company competes
primarily with Symmetricom, Inc., Hewlett-Packard and Oscilloquartz SA. In the
enterprise computing market, the Company competes primarily with Tech-Sym Corp.
Odetics, Inc. and True-Time, Inc. In the cesium standards market, the Company
competes primarily with Hewlett-Packard and Frequency Electronics,
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<PAGE> 35
Inc. In the rubidium oscillators market, the Company competes primarily with
Frequency Electronics, Inc. In addition, certain companies, such as EG&G, Inc.
that currently manufacture products exclusively for use in military
applications, could enter commercial markets, and compete directly with the
Company. There can be no assurance that the Company will be able to compete
successfully in the future against existing or new competitors, that new
technologies will not reduce the demand for its products or that it will be able
to adapt successfully to changes in the markets served by its products. In
addition, there can be no assurance that competitive pressures will not cause
the Company to reduce prices, which would negatively affect gross margins and
could have a material adverse effect on the Company's results of operations and
financial condition. See "Risk Factors -- Competition."
BACKLOG
The Company's backlog of orders was approximately $38.8 million on December
31, 1996, compared to approximately $33.5 million a year earlier. The Company
considers as backlog all orders that are expected to be shipped to customers
(other than Lucent) within a 12-month period and scheduled shipments to Lucent
within a 90-day period. As part of the Company's close working relationships
with its major OEM customers, such customers expect the Company to respond
quickly to changes in the volume and delivery schedule of their time and
frequency product requirements and to inventory products at the Company's
facilities for just-in-time delivery to the OEM customers. Therefore, although
contracts with such customers typically specify aggregate volumes of products to
be purchased over an extended time period, such contracts also provide that
scheduled shipment dates of particular volumes are generally released to the
Company only days or a few weeks prior to the required delivery date to the OEM
customer. See "Risk Factors -- Potential Fluctuations in Quarterly Operating
Results." As a result of possible changes in product delivery schedules,
cancellations of orders and potential delays in product shipments and orders
received for products shipped in the same quarter, the Company's backlog at any
particular date may not necessarily be representative of actual sales for any
succeeding period.
GOVERNMENT CONTRACTS
The Company believes that approximately 15% of its sales in 1996 were made
either directly to United States government agencies or indirectly to U.S.
government agencies through subcontracts as compared to approximately 22% in
1995 and 32% in 1994 for these sales. Because several of the Company's customers
are involved in commercial as well as governmental activities, it is difficult
to accurately determine the percentage of its business attributable to the U.S.
government.
Government-related contracts and subcontracts are subject to standard
provisions for termination at the convenience of the government. In such event,
however, the Company is generally entitled to reimbursement of costs incurred on
the basis of work completed plus other amounts specified in each individual
contract. These contracts and subcontracts are either fixed price or cost
reimbursable contracts. Fixed-price contracts provide fixed compensation for
specified work. Under cost reimbursable contracts, the Company agrees to perform
specified work in return for reimbursement of costs (to the extent allowable
under government regulations) and a specified fee. In general, while the risk of
loss is greater under fixed-price contracts than under cost reimbursable
contracts, the potential for profit under such contracts is greater than under
cost reimbursable contracts.
MANUFACTURING
The Company manufactures its products at its plants in Irvine and San Jose,
California, Austin, Texas, Beverly, Massachusetts, and Hofolding, Germany. The
Company's Irvine, Austin and Beverly facilities have received ISO 9001
certification, and the Company is in the process of seeking such certification
for its San Jose facility. The manufacturing process involves the assembly of
numerous individual components by technically oriented production personnel. The
parts and materials used by the Company consist primarily of printed circuit
boards, fabricated housings, relays, and small electric circuit components, such
as integrated circuits, semiconductors, resistors and capacitors. The Com-
34
<PAGE> 36
pany also manufactures the physics packages for its cesium and rubidium
oscillators. The Company manufactures products to fill firm orders and to meet
forecasts received from its major customers. In some cases, as a result of
customer requirements and the long manufacturing process of certain of the
Company's products, the Company maintains up to four weeks of forecasted amounts
in finished goods inventory and up to an additional eight weeks of forecasted
amounts in work-in-process inventory.
The Company currently procures various components from single-sources due
to unique component designs as well as certain quality and performance
requirements. If single-sourced components were to become unavailable or were to
become unavailable on terms satisfactory to the Company, the Company would be
required to purchase comparable components from other sources. If for any reason
the Company could not obtain comparable replacement components from other
sources in a timely manner, the Company's business, results of operations and
financial condition could be adversely affected. In addition, many of the
Company's suppliers require long lead-times to deliver requested quantities of
components. If the Company were unable to obtain sufficient quantities of
components used in the manufacture of its time or frequency products, resulting
delays or reductions in product shipments could occur and could have a material
adverse effect on the Company's business, results of operations and financial
condition. Due to rapid changes in semiconductor and other technology, on
occasion one or more of the electronic components used in the Company's products
have become unavailable, resulting in unanticipated redesign and related delays
in shipments. There can be no assurance that the Company will not experience
similar delays in the future, the occurrence of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Dependence on Component Availability and Key
Suppliers."
INTELLECTUAL PROPERTY RIGHTS
The Company seeks to protect certain key technologies through U.S. and
foreign patents and by maintaining such technologies as trade secrets. The
Company has licenses under various other patents. While the Company believes
that its patents and licenses have value, it does not regard any such patents or
licenses as essential to its business or to the maintenance of its competitive
position. Accordingly, the Company does not have any material patent protection
on its technology. To the extent that it depends on proprietary information it
primarily relies on the protections afforded to trade secrets. There can be no
assurance that others will not independently develop or otherwise acquire
equivalent technology or that the Company can maintain such technology as trade
secrets. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as the laws of the United
States. The failure of the Company to protect its intellectual property rights
could have a material adverse effect on the business, operating results and
financial condition.
There can be no assurance that patent or other intellectual property
infringement claims will not be asserted against the Company in the future.
Although patent and intellectual property disputes may be settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms or at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing and
selling certain of its products, which would have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, should the Company decide to, or be forced to, litigate such claims,
such litigation could be expensive and time consuming, could divert management's
attention from other matters and could have a material adverse effect on the
Company's business, operating results and financial condition, regardless of the
outcome of the litigation. See "Risk Factors -- Lack of Significant Patent
Protection; Infringement Risks."
PROPERTIES
The Company's Irvine, California, manufacturing and executive office
facilities occupy an aggregate of 109,000 square feet in two sites under leases,
each expiring July 31, 2005. The Company also
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<PAGE> 37
operates at a facility located in San Jose, California, consisting of an 21,800
square foot engineering and manufacturing building, under a lease expiring on
February 28, 2001. The Company also operates a facility located in Hofolding,
Germany, consisting of an 8,600 square foot manufacturing facility, under a
lease expiring in June 1999. The Company owns its facility in Beverly,
Massachusetts, comprised of a 32,000 square foot building located on
approximately four acres of land. The Company also owns its facility in Austin,
Texas, comprised of a 50,000 square foot building, of which 9,000 square feet
are leased to an unaffiliated third party, located on approximately nine acres
of land. The Company also leases a small office facility in Front Royal,
Virginia, which serves as its Washington, D.C. area sales office. The Company
believes that its current facilities are adequate for its present level of
operations.
EMPLOYEES
The Company had 665 employees at December 31, 1996. None of the Company
employees are represented by a union. The Company believes its relations with
its employees are good.
LEGAL PROCEEDINGS
In late 1996, the Company received notice from the owner of premises in
Austin, Texas that had previously been occupied by Austron, Inc., the Company's
wireline operation, prior to the Company's acquisition of Austron in 1988. The
property owner claims, among other things, that the soil at the site contains
the same contaminants as were previously remediated by Austron in connection
with its vacating the site in 1983. At the completion of the remediation in
1983, the site was certified as being in compliance with the then applicable
environmental regulations. The Company is in the early stages of evaluating the
situation. Although there can be no assurance that the property owner's claims
or any related governmental action will not have a material adverse effect on
the Company's business, financial condition and results of operations, the
Company does not believe it will have such effect. See "Risk Factors -- Risks
Associated with Government Regulations; Environmental Regulations."
The Company is also a party to ordinary disputes arising in the normal
course of business. The Company does not believe that the outcome of these
matters will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
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<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Executive officers and directors of the Company, and their ages as of
February 15, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- ---- ------------------------------------------
<S> <C> <C>
Louis B. Horwitz......................... 69 Chief Executive Officer, President and
Chairman of the Board of Directors
Heinz Badura............................. 59 Vice President and President, Efratom Time
and Frequency, Inc.
Paul E. Baia............................. 44 Vice President and President, Frequency
and Time Systems, Inc.
Robert F. Ellis.......................... 57 Vice President, Telecommunications Sales
Division
John (Jack) R. Rice...................... 52 Vice President and President, Austron,
Inc.
David C. Robinson........................ 55 Vice President and President,
Bancomm/Timing Division
Raymond L. Waguespack.................... 65 Vice President, International Sales
David A. Young........................... 52 Vice President, Chief Financial Officer,
Secretary and Treasurer
G. Tilton Gardner(1)(2).................. 61 Director
Donovan B. Hicks(2)...................... 59 Director
R. David Hoover.......................... 51 Director
Michael M. Mann(1)....................... 57 Director
Dan L. McGurk(1)(2)...................... 70 Director
Edward A. Money(1)....................... 66 Director
Thomas J. O'Rourke(2).................... 73 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Louis B. Horwitz has been the President and Chairman of the Board of
Directors of the Company since October 1976 and a director of the Company since
May 1975. Prior to joining the Company, Mr. Horwitz was an independent
management consultant and an Executive Vice President of Xerox Data Systems, a
manufacturer of computers. Mr. Horwitz is currently a director of Newport
Corporation, a manufacturer of electro-optical components. It is anticipated
that Mr. Horwitz will retire as Chief Executive Officer and President in the
near future and continue for a period as Chairman of the Board.
Heinz Badura has been Vice President of the Company and President of the
Company's Efratom subsidiary, Efratom Time and Frequency, Inc., since August
1995. From 1973 to 1995, he held a variety of positions at Efratom, most
recently, Vice President.
Paul E. Baia has been Vice President of the Company and President of its
Frequency and Time Systems, Inc. subsidiary since January 1996. From January
1990 to January 1996, he served as General Manager of Frequency and Time
Systems, Inc.
Robert F. Ellis has been Vice President of the Company since November 1988
and has led its Telecommunications Sales Division since May 1995. From November
1988 to May 1995 he served as President of the Company's subsidiary, Austron,
Inc. From 1975 to November 1988, Mr. Ellis served as Senior Vice President of
Austron, Inc.
John (Jack) R. Rice has been Vice President and General Sales Manager of
the Company since April 1994 and has been President of the Company's Austron,
Inc. subsidiary since May 1995. From
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<PAGE> 39
April 1994 to May 1995 he was General Sales Manager of the Company. From 1987 to
1994, he served as Director of North American Sales and of OEM Sales for Emulex
Corporation, a computer hardware manufacturing company.
David C. Robinson has been Vice President of the Company and President of
the Company's Bancomm Division since March 1994. From February 1986 to March
1994, he served as General Manager of the Bancomm Division. Mr. Robinson became
President of Bancomm Corporation in 1984, which he served as Vice President of
Marketing since May 1978.
Raymond L. Waguespack has been Vice President of the Company since 1989,
served as Secretary of the Company from October 1993 to July 1994 and served as
President, International Sales Division since April 1996. He has been President
of the Company's Timing Division from October 1993 to April 1996. From April
1993 to September 1993, he served as International Sales and Marketing Manager
of the Timing Division. From September 1989 to March 1993, Mr. Waguespack served
as President of TCXO Enterprises, formerly Spectrum Technology, Inc., a former
subsidiary of the Company, which manufactured quartz oscillators.
David A. Young has been Vice President, Chief Financial Officer, Secretary
and Treasurer of the Company since July 1994. From January 1993 to July 1994, he
served as Executive Vice President and Chief Executive Officer of Blower-Dempsay
Corporation, a paper and chemical company. From July 1990 to March 1992, he
served as Vice President Finance and Administration, Chief Financial Officer and
Secretary of Alpha Microsystems, a computer company.
G. Tilton Gardner has been a director of the Company since 1976. Mr.
Gardner is currently Executive Vice President of Van Kasper & Company, an
investment banking firm that is acting as a representative of the underwriters
in this offering. From 1965 until 1988, he was associated with Morgan, Olmstead,
Kennedy & Gardner Incorporated, an investment banking firm, serving as Chief
Executive Officer and Chairman of the Board from 1976. In 1988, that company was
combined with Wedbush Securities to form Wedbush Morgan Securities, for which
Mr. Gardner served as Executive Vice President until February 1993.
Donovan B. Hicks has been a director of the Company since March 1995. Mr.
Hicks was Group Vice President of the Ball Aerospace and Communications Group of
Ball Corporation from 1981 to 1996. Mr. Hicks was appointed to the Board of
Directors of the Company in connection with the Company's acquisition of Efratom
Time and Frequency Products, Inc. and Efratom Elektronik GmbH from Efratom
Holding, Inc., a wholly owned subsidiary of Ball Corporation, pursuant to the
terms of the Stockholder's Agreement, dated March 17, 1995, between the Company
and Efratom Holding, Inc. Mr. Hicks is currently the Managing Partner of Cygnus
Enterprise Development LLC.
R. David Hoover has been a director of the Company since March 1995. Mr.
Hoover is currently Executive Vice President and Chief Financial Officer of Ball
Corporation. From 1988 to 1992, he was Vice President and Treasurer of Ball
Corporation. Mr. Hoover is currently a director of American National Bank, a
national banking association. Mr. Hoover was appointed to the Board of Directors
of the Company in connection with the Company's acquisition of Efratom Time and
Frequency Products, Inc. and Efratom Elektronik GmbH from Efratom Holding, Inc.,
a wholly owned subsidiary of Ball Corporation, pursuant to the terms of the
Stockholder's Agreement, dated March 1995, between the Company and Efratom
Holding, Inc.
Michael M. Mann has been a director of the Company since May 1989. He has
been a director and President of the Blue Marble Development Group, Inc., an
international corporate development and consulting group, since its formation in
1988. Mr. Mann is also currently serving as Chairman of the Board of Management
Technology, Inc., a developer of management systems software, and as a director
of Safeguard Health Enterprises, a corporation engaged in providing dental and
vision plans. Mr. Mann also provides consulting services to state and federal
governmental agencies and multi-national corporations and has served as a member
of the Army Science Board. From mid-1987 to 1988,
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<PAGE> 40
Mr. Mann was a senior consultant and director of Aerospace Industries Centre
with Arthur D. Little Inc., an international consulting firm.
Dan L. McGurk has been a director of the Company since May 1977. He has
been a private investor and consultant since 1970. Mr. McGurk is Treasurer and
Chairman of the Board of Southland Title Corporation. Prior to 1970, he was
President of Xerox Data Systems, a manufacturer of computers, and from May 1976
to January 1977 he served as Associate Director of the Office of Management and
Budget, Executive Office of the President of the United States. He is currently
a director of Bowmar Instruments Corporation, a manufacturer of electrical and
electro-mechanical parts, and Newport Corporation, a manufacturer of
electro-optical components.
Edward A. Money has been a director of the Company since May 1980. He has
been President of The Edward A. Money Corporation, a company supplying specialty
automotive parts, since February 1982. He was Vice President-Finance, Treasurer
and Secretary of the Company from February 1977 to February 1982.
Thomas J. O'Rourke has been a director of the Company since May 1979. He is
currently President and Chairman of the Board of O'Rourke Investment Corp., an
investment company. He was a General Partner of Hambrecht and Quist Venture
Partners, a venture capital firm, from January 1985 to April 1988. From 1966 to
1985, he was the President and Chairman of the Board of Tymshare, Inc., a
computer services company.
The Company's executive officers are appointed by the Board of Directors
and serve at the Board's discretion. There are no family relationships among the
directors and executive officers of the Company.
BOARD OF DIRECTORS
The Company's Certificate of Incorporation provides for the Board of
Directors to be divided into three classes, with staggered three-year terms. As
a result, only one class of directors is elected at each annual meeting of
stockholders of the Company, with the other classes continuing for the remainder
of their respective three-year terms. The classification of the Board of
Directors may make it more difficult for the Company's existing stockholders to
replace the Board of Directors as well for another party to obtain control of
the Company by replacing the Board of Directors. See "Description of Capital
Stock -- Delaware Law and Certain Charter Provisions" and "Risk
Factors -- Potential Effect of Anti-Takeover Provisions."
The Board of Directors has an Audit Committee and a Compensation Committee.
The principal duties of the Audit Committee are (1) to recommend to the Board of
Directors the selection of the Company's independent accountants, (2) to discuss
and review with the Company's independent accountants the audit plan, auditor's
report and management letter and the Company's accounting policies and (3) to
review the accounting procedures and internal control procedures recommended by
the Company's independent accountants. The principal duties of the Compensation
Committee are (1) to administer and approve the annual compensation rates of all
officers and key employees of the Company, (2) to administer the incentive
compensation, stock award, stock option and other compensation plans of the
Company and (3) to make recommendations to the Board in connection with such
plans.
Each member of the Board of Directors receives $1,000 per month for service
as a director. In addition, each nonemployee member of the Board of Directors
receives $500 for each meeting of the Board of Directors attended by that
director and $250 for each meeting of a committee of the Board attended, other
than committee meetings held in conjunction with meetings of the Board of
Directors. In addition, under the Company's 1994 Stock Incentive Plan, each
incumbent director who is not an employee of the Company is automatically
granted a non-qualified option to purchase 2,000 shares of the Company's Common
Stock on the first business day of each calendar year. Such options (i) have an
exercise price equal to the fair market value of the Common Stock on the date of
grant, (ii) vest in full
39
<PAGE> 41
one year from the date of grant and (iii) have a ten year term. Mr. Hoover and
Mr. Hicks, who were appointed to the Board of Directors pursuant to the
Stockholder's Agreement between the Company and Efratom Holding, Inc., have
agreed to waive their fees and stock options as directors.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
paid to the Company's Chief Executive Officer and the four other executive
officers who earned salary and bonus for fiscal year 1996 in excess of $100,000
for services rendered to the Company in all capacities during the three fiscal
years ended December 31, 1996, 1995 and 1994 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(2)
- --------------------------------------------- ----- -------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Louis B. Horwitz(1).......................... 1996 247,000 40,000 4,043
President and Chairman 1995 222,000 75,000 -0- 5,006
of the Board 1994 210,848 110,000 25,000 5,005
Heinz Badura................................. 1996 150,000 15,000 3,811
Vice President of Datum Inc. 1995 90,000 50,000 5,000 2,247
and President of Efratom Time 1994 -- -- -- --
& Frequency, Inc.
Robert F. Ellis.............................. 1996 140,000 -0- 3,490
Vice President of Datum Inc. 1995 130,535 20,000 3,750 3,263
1994 117,910 100,000 8,750 2,948
John (Jack) R. Rice.......................... 1996 150,000 5,000 2,792
Vice President of Datum Inc. 1995 151,419 30,000 -0- 2,452
and President of Austron, Inc. 1994 81,979 20,000 15,000 1,477
David A. Young............................... 1996 130,000 5,000 4,017
Vice President of Datum Inc. 1995 120,000 30,000 -0- 3,490
and Chief Financial Officer 1994 48,654 20,000 15,000 423
</TABLE>
- ---------------
(1) Salary amounts for Mr. Horwitz include director's fees of $12,000, $12,000
and $10,667 for the years 1996, 1995 and 1994, respectively.
(2) Amounts shown represent Company contributions under the Company's Savings
and Retirement Plan for the listed executives.
40
<PAGE> 42
OPTION MATTERS
Option Grants. The following table sets forth certain information
concerning grants of options to each of the Company's Named Executive Officers
during the fiscal year ended December 31, 1996. In addition, in accordance with
the rules and regulations of the Securities and Exchange Commission, the
following table sets forth the hypothetical gains or "option spreads" that would
exist for the options. Such gains are based on assumed rates of annual compound
stock appreciation of 5% and 10% from the date on which the options were granted
over the full term of the options. The rates do not represent the Company's
estimate or projection of future Common Stock prices and no assurance can be
given that the rates of annual compound stock appreciation assumed for the
purposes of the following table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------ ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR(1) PRICE($/SH) DATE(2) 5%($) 10%($)
- --------------------------- ---------- -------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Louis B. Horwitz........... 40,000 30.2% 10.125 3/1/06 254,705 645,466
Heinz Badura............... 5,000 3.8% 10.125 3/1/06 31,839 80,685
Robert F. Ellis............ -- -- -- -- -- --
John (Jack) R. Rice........ 5,000 3.8% 10.125 3/1/06 31,839 80,685
David A. Young............. 5,000 3.8% 10.125 3/1/06 31,839 80,685
</TABLE>
- ---------------
(1) Options to purchase an aggregate of 132,500 shares of Common Stock were
granted to employees, including the Named Executive Officers during the
fiscal year ended December 31, 1996.
(2) Options granted have a term of 10 years, subject to earlier termination in
certain events related to termination of employment. Options become
exercisable with respect to 25% of the shares on March 1, 1997, and the
balance becomes exercisable in three equal annual installments thereafter.
Option Exercises. The following table sets forth certain information
concerning the exercise of options by each of the Company's Named Executive
Officers during the fiscal year ended December 31, 1996, including the aggregate
value of gains on the date of exercise. In addition, the table includes the
number of shares covered by both exercisable and unexercisable stock options as
of December 31, 1996. Also reported are the values for "in the money" options
which represent the positive spread between the exercise prices of any such
existing stock options and the fiscal year end price of the Company's Common
Stock ($16.875 per share).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR-END($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Louis B. Horwitz............................. 32,500 52,500 405,000 420,000
Heinz Badura................................. 3,750 16,250 21,875 99,375
Robert F. Ellis.............................. 16,563 7,187 214,339 69,724
John (Jack) R. Rice.......................... 7,500 12,500 94,688 128,438
David A. Young............................... 10,000 10,000 118,750 93,125
</TABLE>
41
<PAGE> 43
SEVERANCE AND CONSULTING AGREEMENTS
Effective as of March 7, 1986, the Company entered into an Executive
Agreement with Mr. Horwitz. The Executive Agreement provides for the payment of
benefits in the event that Mr. Horwitz's employment is terminated within three
years subsequent to a "change in control" of the Company (as defined in the
Executive Agreement) under certain circumstances. A "change in control" includes
the ownership by any person of 30% or more of the combined voting power of the
Company's outstanding securities and certain changes in the composition of the
Company's Board of Directors. The benefits payable under the Executive Agreement
are (i) an amount equal to three times the average of the aggregate annual
compensation paid by the Company to Mr. Horwitz during the five calendar years
preceding the change in control of the Company, (ii) the right for a period of
three months following the employment termination to exercise all unexercised
stock options, whether or not they have vested, and (iii) the automatic vesting
of all restricted stock awarded to Mr. Horwitz. The foregoing benefits are to be
reduced to the extent necessary so that no portion thereof shall be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended. The benefits are payable on the date of termination of Mr. Horwitz's
employment. Under the Executive Agreement, if such termination had occurred at
the end of the fiscal year ended December 31, 1996, Mr. Horwitz would have
received $761,080.
On October 9, 1992, the Company entered into a consulting agreement with
Mr. Horwitz. The Consulting Agreement provides for consulting services to be
provided commencing on the retirement of Mr. Horwitz as an officer and employee
of the Company. The Consulting agreement commences on Mr. Horwitz' retirement
and continues for twelve months thereafter and may be renewed at the Company's
option for successive additional twelve month periods or any portion thereof. In
the event of a "change of control" of the Company (as defined in the Consulting
Agreement) while the Consulting Agreement is in force, the term will be extended
for a period of ten years from commencement. Under the Consulting Agreement, Mr.
Horwitz is to provide such advice and consultation as the Company requests,
including with respect to strategic planning, management, financial analysis,
product planning and other corporate matters. As compensation, Mr. Horwitz will
be paid $8,333.33 per day, plus travel expenses, and will be guaranteed a
minimum of twelve days of service per year. In the event of death or disability
prior to the end of the term of the Consulting Agreement, or any renewal term,
and prior to a change of control of the Company, Mr. Horwitz, or his estate,
shall be entitled to an amount equal to the fee for twelve days of consulting.
In the event of death or disability after a change of control which results in
an extension of the term, Mr. Horwitz, or his estate, will be entitled to the
minimum annual payments for the balance of the term. The Consulting Agreement
provides that it will be binding on successors to the Company's business.
On September 26, 1996, the Company entered into a Consulting Agreement with
Robert F. Ellis, the Company's Vice President, Telecommunications Sales
Division. Under the terms of the Consulting Agreement, Mr. Ellis is to provide
consulting services to the Company, for an initial 12 month period, commencing
on his retirement which is scheduled to occur in July 1999. The Consulting
Agreement becomes null and void, unless reaffirmed by both parties, in the event
that Mr. Ellis' service with the Company is severed, for any reason, prior to
July 1999. Upon a "change in control" of the Company (as defined in the
Consulting Agreement) while the Consulting Agreement is in force, the term will
be extended for a period of five years commencing on Mr. Ellis's termination of
employment. Under the Consulting Agreement, Mr. Ellis is to provide such advice
and consultation as requested by the Company, including with respect to business
planning, management, financial analysis and other corporate matters. As
compensation, Mr. Ellis will be paid $2,500 per day plus travel expenses, for a
guaranteed a minimum of twelve days of service per year. In the event of death
or disability prior to the end of the term of the Consulting Agreement, or any
renewal term, and prior to a change in control of the Company, Mr. Ellis, or his
estate, shall be entitled to an amount equal to the fee for twelve days of
consulting. In the event of death or disability after a change in control which
results in an extension of the term, Mr. Ellis, or his estate, will be entitled
to the minimum annual payments for the balance of the term. The Consulting
Agreement provides that it will be binding on successor's of the Company's
business.
42
<PAGE> 44
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 31, 1996, (i) by each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than five percent of the Company's Common Stock, (ii) the
Selling Stockholders, (iii) by each of the Company's directors, (iv) by each of
the Named Executive Officers, and (v) by all directors and executive officers as
a group. The table is adjusted to reflect the sale of shares of Common Stock
offered hereby. Except as indicated in the footnotes to this table, the persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING
------------------------- SHARES -------------------
NAME AND ADDRESS(1) NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ---------------------------------- --------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C>
Efratom Holding, Inc.(2).......... 1,277,778 31.6% 600,000 677,778 13.1%
10 Longs Peak Drive
Broomfield, Colorado 80021
The Prudential Insurance
Company of America.............. 175,000 4.1 100,000 75,000 1.4
Louis B. Horwitz(3)(4)............ 213,850 5.2 -- 213,850 4.1
9975 Toledo Way
Irvine, California 92718
Heinz Badura(3)(5)................ 4,812 * -- 4,812 *
Robert F. Ellis(3)(6)............. 19,394 * -- 19,394 *
G. Tilton Gardner(3).............. 34,000 * -- 34,000 *
Donovan B. Hicks(7)............... 500 * -- 500 *
R. David Hoover(8)................ 500 * -- 500 *
Michael M. Mann(3)(9)............. 51,000 1.2 -- 51,000 *
Dan L. McGurk(3).................. 38,000 * -- 38,000 *
Edward A. Money(3)................ 36,000 * -- 36,000 *
Thomas J. O'Rourke(3)(10)......... 90,000 2.2 -- 90,000 1.7
John (Jack) R. Rice(3)(11)........ 9,422 -- 9,422 *
David A. Young(3)(12)............. 13,014 * -- 13,014 *
All Officers and Directors as a
Group (15 persons)(13).......... 554,911 12.9 -- 554,911 10.7
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of December 31, 1996 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of each other person. To the Company's knowledge,
except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table has sole
voting and investment power with respect to the shares set forth opposite
such person's name. Information with respect to beneficial ownership is
based upon the Company's stock records and data supplied to the Company by
the holders.
(2) Efratom Holding, Inc. is a wholly-owned subsidiary of Ball Corporation.
43
<PAGE> 45
(3) Included in the total number of shares listed are 42,500 shares for Mr.
Horwitz, 18,000 shares for each of Messrs. McGurk, Mann, Money and
O'Rourke, 16,563 shares for Mr. Ellis, 8,750 shares for Mr. Rice, 11,250
shares for Mr. Young, 10,000 shares for Mr. Gardner and 3,750 shares for
Mr. Badura which may be acquired within sixty days of December 31, 1996,
upon exercise of outstanding options.
(4) Includes 4,585 shares held for the account of Mr. Horwitz in the Company's
Savings and Retirement Plan. Does not include 18,000 shares owned by adult
children of Mr. Horwitz.
(5) Includes 562 shares held for the account of Mr. Badura in the Company's
Savings and Retirement Plan.
(6) Includes 2,831 shares held for the account of Mr. Ellis in the Company's
Savings and Retirement Plan.
(7) Does not include 1,277,778 shares held by Efratom Holding, Inc. Mr. Hicks
is the President of Efratom Holding, Inc. and disclaims beneficial
ownership of all such shares.
(8) Does not include 1,277,778 shares held by Efratom Holding, Inc. Mr. Hoover
is the Chief Financial Officer of Ball Corporation, the corporate parent of
Efratom Holding, Inc., and disclaims beneficial ownership of all such
shares.
(9) Includes 33,000 shares that are subject to shared voting and investment
powers. These shares are owned by Blue Marble Development Group, Inc.
Defined Benefit Pension Plan and Trust, of which Mr. Mann and his spouse
are co-trustees.
(10) Includes 33,000 shares as to which Mr. O'Rourke has shared voting and
investment powers. These shares are owned by O'Rourke Investment Corp., of
which Mr. O'Rourke is president and chairman.
(11) Includes 672 shares held for the account of Mr. Rice in the Company's
Savings and Retirement Plan.
(12) Includes 716 shares held for the account of Mr. Young in the Company's
Savings and Retirement Plan. Also includes 548 shares as to which Mr. Young
has shared voting or investment powers.
(13) Includes 198,789 shares which may be acquired within sixty days after
December 31, 1996, upon exercise of outstanding options. Also includes
14,692 shares held for the account of officers and directors in the
Company's Savings and Retirement Plan. Excludes 1,277,778 shares held by
Efratom Holding, Inc. -- see footnotes (7) and (8).
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, $.25 par value, and 1,000,000 shares of Preferred Stock, $.25
par value.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all matters
to be voted on by the stockholders. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities. Holders of Common Stock
have no preemptive rights and no rights to convert their Common Stock into any
other securities, and there are no redemption provisions with respect to such
shares. All of the outstanding shares of Common Stock are, and the shares to be
issued in this offering will be, fully paid and nonassessable.
PREFERRED STOCK
No shares of Preferred Stock are outstanding. The Board of Directors has
the authority, without further action by the stockholders, to issue the shares
of Preferred Stock in one or more series and to fix the rights, preferences and
privileges thereof, including voting rights, terms of redemption, redemption
prices, liquidation preferences, conversion rights, number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. Although it presently has no intention to do so,
the Board of Directors, without stockholder approval, could issue Preferred
Stock with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock. This provision may be deemed to have a
potential anti-takeover effect and the issuance of Preferred Stock in accordance
with such provision may delay or prevent a change of control of the Company. See
"Risk Factors -- Potential Effect of Anti-Takeover Provisions."
WARRANT
The Prudential Insurance Company of America ("Prudential") holds a warrant
to purchase 175,000 shares of Common Stock at an exercise price of $11.50 per
share, issued in connection with the sale of $18,000,000 in long-term notes
("Notes") to Prudential. See "Managements Discussion and Analysis of Financial
Condition and Results of Operations." The warrant becomes exercisable on the
earlier of September 27, 1997, the consummation of a public offering of Common
Stock, an event of default under the Notes, or a change of control of the
Company and expires September 27, 2003. Both the warrant exercise price and the
number of shares issuable upon exercise are subject to adjustments for stock
splits, combinations and other recapitalization and for certain dilutive
issuances of Common Stock. In connection with this offering, Prudential will
exercise the warrant for 100,000 shares by payment in cash and sell such shares
in this offering. As a result, Prudential will retain the remainder of the
warrant to purchase 75,000 shares.
REGISTRATION RIGHTS
Efratom Holding, Inc., a subsidiary of Ball Corporation and the holder of
1,277,778 shares of Common Stock prior to this offering, is entitled to certain
rights with respect to the registration of such shares under the Securities Act
of 1933 (the "Securities Act"). Under the terms of the Stockholder's Agreement
between the Company and Efratom Holding, if the Company proposes to register any
of its securities under the Securities Act, either for its own account or the
account of other security holders, Efratom Holding is entitled to notice of such
registration and is entitled to include shares of such Common Stock therein;
provided that, among other conditions, the underwriters of any offering have the
right to limit the number of shares included in such registration. In connection
with such right, an
45
<PAGE> 47
aggregate of 600,000 shares of Common Stock held by Efratom Holding have been
registered for sale in this offering. In addition, Efratom Holding may require
the Company, beginning four months after the date of this Prospectus, on not
more than three occasions, to file a registration statement under the Securities
Act at the Company's expense with respect to such shares, and the Company is
required to use its best efforts to effect such registration, subject to certain
conditions and limitations.
Prudential holds a warrant to purchase 175,000 shares of Common Stock of
the Company. Under the warrant, if the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders, Prudential is entitled to notice of such
registration and is entitled to include shares of such Common Stock therein;
provided that, among other conditions, the underwriters of any offering have the
right to limit the number of shares included in such registration. Prudential
has elected to include in this offering the 100,000 shares of Common Stock that
it will acquire upon exercise of the warrant. In addition, Prudential may
require the Company, on not more than two occasions, to file a registration
statement under the Securities Act at the Company's expense with respect to
shares issuable upon exercise of such warrant, and the Company is required to
use its best efforts to effect such registration, subject to certain conditions
and limitations.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of the Delaware General
Corporation Law including Section 203, an anti-takeover law. In general, Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless either (i) prior to the date at which the person becomes an
interested stockholder, the Board of Directors approves such transaction or
business combination, (ii) the stockholder acquires more than 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who are officers or held in certain employee stock plans) upon consummation of
such transaction, or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent). A "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to such
interested stockholder. For purposes of Section 203, an "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock.
The Company's Restated Certificate contains a provision which limits to the
fullest extent permitted by Delaware law, the liability of a director to the
Company or its stockholders for monetary damages for a breach of such director's
fiduciary duty as a director. Delaware law presently permits such limitation of
a director's liability except where a director (i) breaches his or her duty of
loyalty to the Company or its stockholders, (ii) fails to act in good faith or
engages in intentional misconduct or a knowing violation of law, (iii)
authorizes payment of an unlawful dividend or stock repurchase, or (iv) obtains
an improper personal benefit.
This provision is intended to afford directors additional protection, and
limit their potential liability, from suits alleging a breach of the duty of
care by a director. The Company believes this provision will assist it in
maintaining and securing the services of directors who are not employees of the
Company. As a result of the inclusion of such a provision, stockholders may be
unable to recover monetary damages against directors for actions taken by them
that constitute negligence or gross negligence or that are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable remedies are found
not to be available to stockholders for any particular case, stockholders may
not have any effective remedy against the challenged conduct. The Restated
Certificate and Bylaws also provide that directors or officers shall be
indemnified against liabilities arising from their service as directors or
officers to the fullest extent permitted by law, which generally requires that
the individual act in good faith and in a
46
<PAGE> 48
manner he or she reasonably believes to be in or not opposed to the Company's
best interests. The Company has obtained directors and officers insurance to
limit its exposure under these provisions.
Under the Company's Restated Certificate, the Board of Directors is divided
into three classes of directors with each class serving a staggered three-year
term. The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of the Company and may maintain the incumbency of the Board of Directors, as it
generally makes it more difficult for stockholders to replace a majority of the
directors. See "Risk Factors -- Potential Effect of Anti-Takeover Provisions."
STOCK TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services.
47
<PAGE> 49
UNDERWRITING
Hambrecht & Quist LLC, Oppenheimer & Co., Inc. and Van Kasper & Company are
acting as representatives (the "Representatives") of each of the underwriters
named below (the "Underwriters"). Subject to the terms and conditions set forth
in an underwriting agreement dated as of the date hereof (the "Underwriting
Agreement"), the Underwriters named below have severally agreed to purchase the
aggregate number of shares of Common Stock set forth opposite their respective
names:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
Hambrecht & Quist LLC........................................
Oppenheimer & Co., Inc.......................................
Van Kasper & Company.........................................
---------
Total..............................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriter's obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose 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 at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers. After
the public offering of the shares, the offering price and other selling terms
may be changed by the Representatives.
The Company and a Selling Stockholder have granted to the Underwriters an
option, exercisable no later than 30 days after the date of this Prospectus, to
purchase up to an aggregate of 255,000 additional shares of Common Stock at the
public offering price, less the underwriting discount, 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 which the number of shares of Common
Stock to be purchased by it shown in the above table bears to the total number
of shares of Common Stock offered hereby. The Company and such Selling
Stockholder will be obligated, pursuant to the option, to sell such shares to
the Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
48
<PAGE> 50
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Company and the beneficial owners of 1,307,689 shares of the Company's
Common Stock, after giving effect to the sales by the Selling Stockholders in
this offering, have agreed that they will not, without the prior written consent
of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned by
them during the 90 day period following the effective date of this offering,
except that the Company may issue shares upon the exercise of options granted
prior to the date hereof and pursuant to its Savings and Retirement Plan and may
grant additional options under its stock option plans.
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market, may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act during the two business day period
before commencement of offers or sales of the Common Stock. The passive market
making transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security; if all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded. Passive
market making may stabilize the market price of the Common Stock at a level
above that which might otherwise prevail and, if commenced, may be discontinued
at any time.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Stradling, Yocca, Carlson & Rauth, a
professional corporation, Newport Beach, California. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996 included
in this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
49
<PAGE> 51
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement
(including any amendments thereto) on Form S-2 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, omits certain of the information contained
in the Registration Statement and the exhibits and schedules thereto on file
with the Commission pursuant to the Securities Act and the rules and regulations
of the Commission thereunder. The Registration Statement, including exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and copies may be obtained at prescribed rates from the Public
Reference Section of the Commission at its principal office in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
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 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. In addition,
the Commission has a Web site on the World Wide Web at http://www.sec.gov,
containing reports, proxy and information statements and other information
registrants, such as the Company, file electronically with the Commission. The
Common Stock is traded on the Nasdaq National Market, and the Company's reports,
proxy or information statements and other information may be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1995, Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, and the Company's
Proxy Statement for its March 16, 1995 Special Meeting of Stockholders, 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 David
A. Young, Vice President and Chief Financial Officer, Datum Inc., 9975 Toledo
Way, Irvine, California 92718-8119, telephone (714) 380-8880.
50
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DATUM INC.
Report of Price Waterhouse LLP, Independent Accountants............................... F-2
Consolidated Balance Sheet as of December 31, 1996 and 1995........................... F-3
Consolidated Statement of Operations for the years ended
December 31, 1996, 1995 and 1994................................................... F-4
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994................................................... F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1995 and 1994................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Datum Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Datum Inc.
and its subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Costa Mesa, California
February 17, 1997
F-2
<PAGE> 54
DATUM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............................................. $ 1,389 $ 587
Accounts receivable, less allowance for doubtful accounts of $107 and
$68................................................................. 16,816 13,638
Inventories............................................................ 19,270 20,161
Prepaid expenses....................................................... 425 200
Deferred income taxes.................................................. 2,007 1,830
Income tax refund receivable........................................... 109
------- -------
Total current assets........................................... 39,907 36,525
Land, buildings and equipment, net....................................... 15,255 15,654
Excess of purchase price over net assets acquired, net of accumulated
amortization of $2,056 and $1,162...................................... 13,020 13,914
Other assets............................................................. 506 44
------- -------
$68,688 $66,137
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable....................................................... $ 7,542 $ 5,155
Accrued salaries and wages............................................. 2,693 2,102
Accrued warranty....................................................... 1,434 1,337
Other accrued expenses................................................. 1,119 1,896
Income taxes payable................................................... 1,049 105
Notes payable to bank.................................................. -- 10,442
Current portion of long-term debt...................................... 41 3,178
------- -------
Total current liabilities...................................... 13,878 24,215
------- -------
Long-term debt........................................................... 17,318 7,938
------- -------
Post-retirement benefits................................................. 446 290
------- -------
Other long-term liabilities.............................................. 1,428 1,388
------- -------
Deferred income taxes.................................................... 995 993
------- -------
Stockholders' equity --
Preferred stock, par value $.25 per share
Authorized -- 1,000,000 shares in 1996 and no shares in 1995
Issued -- none
Common stock par value $.25 per share
Authorized -- 10,000,000 shares in 1996 and 8,000,000 shares in 1995
Issued -- 4,091,291 shares in 1996 and 4,018,968 shares in 1995..... 1,023 1,005
Additional paid-in capital.......................................... 25,845 24,418
Retained earnings................................................... 7,956 5,982
Cumulative translation adjustment................................... (201) (92)
------- -------
Total stockholders' equity..................................... 34,623 31,313
Commitments (Notes C and I)
------- -------
$68,688 $66,137
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 55
DATUM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales................................................. $ 91,854 $ 67,257 $ 30,897
--------- --------- ---------
Costs and expenses
Cost of goods sold...................................... 56,285 40,010 17,491
Selling................................................. 12,182 9,836 5,206
Product development..................................... 7,667 7,087 2,494
General and administrative.............................. 10,127 8,460 3,934
Interest expense........................................ 2,255 1,667 241
Interest (income)....................................... (7) (17) (15)
--------- --------- ---------
88,509 67,043 29,351
--------- --------- ---------
Income before income taxes................................ 3,345 214 1,546
Income tax provision...................................... 1,371 154 610
--------- --------- ---------
Net income................................................ $ 1,974 $ 60 $ 936
========= ========= =========
Net income per share...................................... $ .46 $ .02 $ .34
========= ========= =========
Weighted average number of shares outstanding............. 4,253,019 3,954,307 2,732,812
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 56
DATUM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------ PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT
---------- ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993................. 2,596,659 $ 649 $ 10,004 $4,986 --
Issuance of common stock under 401(k)
plan..................................... 32,740 8 165
Exercise of stock options................... 38,825 10 125
Net income.................................. 936
--------- ------ -------- ------ -----
Balances at December 31, 1994................. 2,668,224 667 10,294 5,922 --
Issuance of common stock under 401(k)
plan..................................... 30,328 8 347
Exercise of stock options................... 42,638 11 360
Acquisition of Efratom...................... 1,277,778 319 13,417
Cumulative translation adjustment........... $ (92)
Net income.................................. 60
--------- ------ -------- ------ -----
Balances at December 31, 1995................. 4,018,968 1,005 24,418 5,982 (92)
Issuance of common stock under 401(k)
plan..................................... 44,610 11 453
Exercise of stock options................... 27,713 7 189
Issuance of common stock warrants........... 785
Cumulative translation adjustment........... (109)
Net income.................................. 1,974
--------- ------ -------- ------ -----
Balances at December 31, 1996................. 4,091,291 $1,023 $ 25,845 $7,956 $(201)
========= ====== ======== ====== =====
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 57
DATUM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 1,974 $ 60 $ 936
-------- -------- -------
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization.......................... 3,040 2,393 691
Amortization of goodwill............................... 894 616 79
Contribution of shares of common stock to the Company's
401(k) plan......................................... 464 355 173
Changes in assets and liabilities, net of acquisition:
Increase in accounts receivable.......................... (3,178) (1,486) (1,280)
(Increase) decrease in inventories....................... 891 (5,678) (342)
Increase in prepaid expenses............................. (225) (422) (305)
Decrease in income tax refund receivable................. 109 107 56
(Increase) decrease in deferred income taxes............. (175) (1,111) 59
(Increase) decrease in other assets...................... (491) 12 15
Increase (decrease) in accounts payable.................. 2,387 2,361 (49)
Increase (decrease) in accrued expenses.................. (89) 2,222 263
Increase in income taxes payable......................... 944 105 --
Increase in other long-term liabilities.................. 40 188 --
Increase in post-retirement benefits..................... 156 138 76
-------- -------- -------
Total reconciling items..................................... 4,767 (200) (564)
-------- -------- -------
Net cash provided by (used for) operating activities........ 6,741 (140) 372
-------- -------- -------
Cash flows from investing activities:
Book value of equipment disposals........................... 98 20 18
Capital expenditures........................................ (2,685) (2,937) (766)
Payment for acquisition, net of cash acquired............... -- (15,246) --
Other....................................................... (99) (190) --
-------- -------- -------
Net cash used in investing activities....................... (2,686) (18,353) (748)
-------- -------- -------
Cash flows from financing activities:
Proceeds from (reductions of) line of credit................ (10,442) 7,442 75
Proceeds from long-term debt and notes payable.............. 17,736 12,596 --
Repayment of long-term debt and notes payable............... (11,528) (1,550) (264)
Exercise of stock options................................... 196 371 135
Proceeds from issuance of common stock warrants............. 785 -- --
-------- -------- -------
Net cash provided by (used for) financing activities........ (3,253) 18,859 (54)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents.......... 802 366 (430)
Cash and cash equivalents at beginning of year................ 587 221 651
-------- -------- -------
Cash and cash equivalents at end of year...................... $ 1,389 $ 587 $ 221
======== ======== =======
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 58
DATUM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE A -- DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of the Company: Datum designs, manufactures and markets a wide
variety of high-performance time and frequency products used to synchronize the
flow of information in telecommunications networks. The Company is also a
leading supplier of precise timing products for enterprise computing networks
and a wide variety of space, scientific and industrial test and measurement
applications.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly-owned.
All significant intercompany transactions and accounts have been eliminated.
Revenue Recognition: Revenues are recorded when products are shipped.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the respective reporting periods. Actual results could differ from those
estimates.
Inventory Valuation: Inventories are stated at the lower of cost or
market; cost is determined on a first-in, first-out basis.
Inventories comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Purchased parts.................................................. $ 7,074 $ 7,801
Work-in-process.................................................. 9,096 9,002
Finished products................................................ 3,100 3,358
------- -------
$19,270 $20,161
======= =======
</TABLE>
Land, Buildings and Equipment: Land, buildings and equipment, which are
recorded at cost and depreciated where appropriate by the straight-line method,
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- DEPRECIABLE
1996 1995 LIFE
------- ------- ---------------
<S> <C> <C> <C>
Land........................................... $ 2,040 $ 2,040
Buildings...................................... 4,494 4,474 20 to 40 years
Equipment...................................... 15,685 15,145 3 to 10 years
Leasehold improvements......................... 930 1,150 5 to 20 years
------- -------
23,149 22,809
Less accumulated depreciation and
amortization................................. 7,894 7,155
------- -------
$15,255 $15,654
======= =======
</TABLE>
Expenditures for maintenance and repairs are charged directly to income,
and betterments and major renewals are capitalized.
F-7
<PAGE> 59
DATUM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Excess of Acquisition Costs Over Fair Value of Net Assets of Businesses
Acquired: The excess of the purchase price of businesses or assets acquired
over the fair value of the net assets is amortized over varying periods ranging
from 15 to 40 years. At each balance sheet date, the Company reviews the
recoverability of long-lived assets and certain intangible assets, including
goodwill. In the event the sum of expected undiscounted future cash flows
resulting from the use of the asset is less than the carrying amount of the
asset, an impairment loss equal to the excess of the asset's carrying value over
its fair value is recorded.
Income Taxes: Effective January 1, 1993, the Company adopted statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
Under the liability method specified under FAS 109, the deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. Deferred tax
expense is calculated as the change in net deferred liabilities or assets.
Consolidated Statement of Cash Flows: For purposes of the consolidated
statement of cash flows, cash equivalents include highly liquid investments,
with an original maturity of less than three months. Cash paid for interest
totaled $2,109, $1,508 and $232 in 1996, 1995 and 1994, respectively. Cash paid
for income taxes totalled $580, $909 and $730 in 1996, 1995 and 1994,
respectively. In connection with the acquisition of Efratom, the Company issued
1,277,778 shares of common stock valued at $13,736.
Stock Options and Awards: The Company accounts for employee stock-based
compensation in accordance with Accounting Principles Bulletin No. 25. See the
disclosures in accordance with Financial Accounting Standard No. 123 (FAS 123)
in Note F.
Net Income Per Share: Net income per share is based upon the weighted
average number of common and common equivalent shares outstanding during the
year. Common equivalent shares include those issuable on the exercise of
dilutive stock options and common stock warrants (after reduction for common
shares assumed to have been purchased with the proceeds). Net income per share
is the same on a fully diluted basis for all years presented.
Disclosures About Fair Value of Financial Instruments: The carrying values
of cash, cash equivalents, accounts receivable, accrued liabilities and notes
payable approximate their fair values because of the short maturity of these
instruments. The carrying value of long-term debt approximates its fair value.
Long-Lived Assets: In March 1995, Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," was issued. SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
or disposed of by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. During 1996, the Company adopted this statement and the effect
of adoption in 1996 was not material.
Foreign Currency Translation: The Company follows principles of Statement
of Financial Accounting Standards No. 52 "Foreign Currency Translation", (FAS
52) in accounting for foreign operations. The financial statements of the
Company's German subsidiary, whose functional currency is the German mark, have
been translated into U.S. dollars.
Reclassifications: Certain reclassifications have been made to the
consolidated financial statements for prior years to conform to the 1996
presentation.
F-8
<PAGE> 60
DATUM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- ACQUISITION
On March 16, 1995 the stockholders of the Company approved the purchase of
all the outstanding capital stock of Efratom Time and Frequency Products, Inc.,
a Colorado corporation, and Ball Efratom Elektronik GmbH, a corporation
organized under the laws of the Republic of Germany (collectively, Efratom). The
purchase price consisted of $15,000 cash and 1,277,778 shares of Datum common
stock. The final purchase price was subject to a post-closing adjustment of
$1,270 based on a comparison of the working capital and fixed assets of Efratom
as of August 7, 1994 and as of March 17, 1995. The post closing adjustment was
included in goodwill and other long-term liabilities. The acquisition, which has
been accounted for as a purchase, closed March 17, 1995.
The unaudited pro forma combined condensed balance sheet of the Company and
Efratom as of December 31, 1994, presuming the acquisition had taken place on
that date, after giving effect to certain pro forma adjustments is as follows:
<TABLE>
<S> <C>
ASSETS
Current assets..................................................... $28,545
Land, buildings and equipment, net................................. 15,446
Goodwill........................................................... 12,090
-------
$56,081
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities................................................ $13,587
Long-term debt and other liabilities............................... 14,328
Stockholders' equity............................................... 28,166
-------
$56,081
=======
</TABLE>
The unaudited pro forma combined results of operations of the Company and
Efratom for the years ended December 31, 1995 and 1994, presuming the
acquisition had taken place on January 1, 1994, after giving effect to certain
pro forma adjustments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Revenues......................................................... $76,552 $66,139
======= =======
Net income....................................................... $ 442 $ 2,141
======= =======
Net income per share............................................. $ 0.11 $ 0.53
======= =======
</TABLE>
The condensed pro forma combined financial information is provided for
informational purposes only and does not purport to be indicative of the future
results or financial position of the Company or what the results of operations
or financial position would have been had the acquisition been effective on the
dates indicated. This information should be read in conjunction with these
audited consolidated financial statements.
F-9
<PAGE> 61
DATUM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- LONG-TERM DEBT
Long-term obligations outstanding are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
$12,000 Revolving Line of Credit, expires November 11, 1998, with
interest payable at prime or at LIBOR plus 2.75%, (8.25% at
December 31, 1996), secured by all assets...................... $ 21
$6,000 Series A Secured Notes (net of discount of $250),
principal due semi-annually beginning March 27, 1999, to
September 27, 2000, with interest payable quarterly at 9.07%,
secured by all assets.......................................... 5,750
$12,000 Series B Secured Notes (net of discount of $500),
principal due semi-annually beginning March 27, 2001, to
September 27, 2003, with interest payable quarterly at 10.25%,
secured by all assets.......................................... 11,500
$14,000 Revolving Line of Credit, expires June 6, 1996, with
interest payable at prime plus .5% (9.0% at December 31, 1995),
secured by accounts receivable and inventory................... $10,442
Term Loan I, principal due in monthly installments of $35
beginning April 17, 1995, to March 17, 2001, with interest
payable at prime plus .75% (9.25% at December 31, 1995),
secured by equipment........................................... 2,187
Term Loan II, principal due in monthly installments of $8
beginning April 17, 1995, to March 17, 2000, with interest
payable in monthly installments at prime plus .5% (9.0% at
December 31, 1995), secured by real estate..................... 2,425
Term Loan III, principal due in monthly installments of $125
beginning April 17, 1995, to March 17, 1999, with interest
payable at prime plus .75% (9.25% at December 31, 1995),
unsecured...................................................... 4,875
Term Commitment up to $2,000, principal due in monthly
installments of $42 beginning February 10, 1996, to January 10,
1999, with interest payable monthly commencing September 10,
1995, at a rate of prime plus .75% (9.25% at December 31,
1995), secured by equipment.................................... 1,500
Capital equipment leases for various machinery and equipment with
interest at 6.25% to 14.26% maturing at various dates.......... 88 129
------- -------
Total debt....................................................... 17,359 21,558
Less line of credit............................................ -- (10,442)
Less current portion........................................... (41) (3,178)
------- -------
Long-term debt, less current portion............................. $17,318 $ 7,938
======= =======
</TABLE>
F-10
<PAGE> 62
DATUM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt before debt discount at December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 41
1998........................................................... 48
1999........................................................... 3,020
2000........................................................... 3,000
2001........................................................... 4,000
Thereafter..................................................... 8,000
-------
Total................................................ $18,109
=======
</TABLE>
The Company issued common stock warrants in connection with the Series A
and Series B Secured Notes allowing for the purchase of up to 175,000 shares of
common stock at an exercise price of $11.50 per share. The common stock
warrants, which were valued by the Company at $785, have been reflected as debt
discount and amortized as additional interest expense. The value of the common
stock warrants is included in additional paid-in capital.
The current credit agreements impose operating and financial restrictions
on the Company, including a requirement to maintain certain financial ratios and
a certain profitability level. Such restrictions affect, and in some respects
limit or prohibit, among other things, the ability of the Company to incur
additional indebtedness, repay certain indebtedness prior to its stated
maturity, create liens, engage in mergers and acquisitions, transfer assets,
make certain capital expenditures and pay dividends.
NOTE D -- INCOME TAXES
The income tax provision comprises the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------ ----- ----
<S> <C> <C> <C>
Provision for income taxes:
Current:
Federal............................................. $1,081 $ 702 $474
State............................................... 445 168 77
Foreign............................................. 20 105 --
------ ----- ----
1,546 975 551
------ ----- ----
Deferred:
Federal............................................. (155) (683) 32
State............................................... (20) (138) 27
------ ----- ----
(175) (821) 59
------ ----- ----
$1,371 $ 154 $610
====== ===== ====
</TABLE>
F-11
<PAGE> 63
DATUM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provision differs from the amount computed by applying the
statutory federal income tax rate to income before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax expense........... $1,171 35.0% $ 73 34.0% $541 35.0%
State income tax, net of federal income
tax effect............................ 272 8.1% 11 5.1% 87 5.6%
Amortization of excess of purchase price
over net assets acquired.............. 31 1.0% 31 14.5% 31 2.0%
Foreign earnings taxed at different
rates................................. 20 0.6% 26 12.2% -- --
Other................................... (123) (3.7)% 13 6.2% (49) (3.1)%
------ ---- ---- ---- ---- ----
$1,371 41.0% $154 72.0% $610 39.5%
====== ==== ==== ==== ==== ====
</TABLE>
The primary components of temporary differences which give rise to the
Company's net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Inventory...................................................... $ 470 $ 522
Accruals and reserves.......................................... 1,537 1,308
------ ------
2,007 1,830
------ ------
Deferred tax liabilities:
Property, plant and equipment.................................. 946 975
Other.......................................................... 49 18
------ ------
995 993
------ ------
$1,012 $ 837
====== ======
</TABLE>
NOTE E -- POST-RETIREMENT BENEFITS
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions" (FAS 106). Under FAS 106, post-retirement benefits
are recognized over the employee's service period based on the expected costs of
providing such benefits to the employee and the employee's beneficiaries after
retirement. The Company elected to recognize the transition obligation over a
20-year period.
The Company's post-retirement benefit program comprises two plans, the life
insurance plan and the health care plan. Any permanent full-time employee is
eligible upon retirement after age 62 and with 12 years of service. The health
care plan is a contributory plan.
F-12
<PAGE> 64
DATUM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following sets forth the Company's post-retirement program's status
reconciled with amounts reported in the consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees.......................................................... $ 343 $ 316
Fully eligible active plan participants........................... 150 132
Other active plan participants.................................... 667 586
------ ------
Total accumulated post-retirement benefit obligations............. 1,160 1,034
Plan assets at fair value......................................... -- --
------ ------
Accumulated post-retirement benefit obligation in excess of plan
assets......................................................... 1,160 1,034
Unrecognized transition obligation................................ (714) (744)
------ ------
Accrued post-retirement benefit obligation........................ $ 446 $ 290
====== ======
</TABLE>
Net periodic post-retirement benefit cost includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Service cost.............................................. $ 71 $ 68 $ 22
Interest cost............................................. 71 68 46
Amortization of transition obligation..................... 30 30 30
---- ---- ----
Net periodic postretirement expense....................... $ 172 $ 166 $ 98
==== ==== ====
Discount rate............................................. 7.0% 7.0% 7.75%
</TABLE>
F-13
<PAGE> 65
DATUM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- COMMON STOCK RESERVED
In June 1994, the stockholders of the Company approved the 1994 Incentive
Stock Plan providing for the granting of options or restricted shares of the
Company's common stock to the Company's officers, directors and employees and
also to consultants, business associates and others with important business
relationships with the Company. The initial number of shares available under the
Plan for issuance is 250,000 and will increase by 50,000 shares on the last day
of each calendar year. The exercise price of the options shall not be less than
100% of the fair market value of the underlying common stock on the date of the
grant. Options granted are exercisable in such amounts and at such intervals as
the Board of Directors determined in granting the options. This plan replaces
the prior stock option plan and Restricted Stock Award Plan that expired in
1994. In March 1995, the stockholders of the Company approved an amendment of
the 1994 Stock Incentive Plan providing for 200,000 additional option shares to
be reserved for issuance thereunder. The following table summarizes activity
under the 1994 Incentive Stock Plan during the years ended December 31, 1996 and
1995 and 1994:
<TABLE>
<CAPTION>
NUMBER PER SHARE
OF SHARES OPTION PRICE
--------- ------------------------
<S> <C> <C>
Issued during 1994....................................... 86,800 $4.25 - $ 5.00
--------
Outstanding, December 31, 1994........................... 86,800 $4.25 - $ 5.00
Issued during 1995....................................... 219,250 $10.31 - $16.38
Exercised during 1995.................................... (6,313) $4.38
Cancelled during 1995.................................... (30,500) $4.38 - $10.75
--------
Outstanding, December 31, 1995........................... 269,237 $4.25 - $16.38
Issued during 1996....................................... 132,500 $8.50 - $14.88
Exercised during 1996.................................... (6,388) $4.38 - $10.75
Cancelled during 1996.................................... (41,625) $4.38 - $10.75
--------
Outstanding, December 31, 1996........................... 353,724 $4.25 - $16.38
========
Exercisable, December 31, 1996........................... 78,701 $4.25 - $16.38
========
</TABLE>
As of December 31, 1996, 1995 and 1994, 233,575, 274,450 and 213,200 option
shares, respectively, were available for grant under the 1994 plan.
The following table summarizes activity under the prior stock option plan
for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
NUMBER PER SHARE
OF SHARES OPTION PRICE
--------- -----------------------
<S> <C> <C>
Outstanding, December 31, 1993............................ 250,075 $3.00 - $6.50
Issued during 1994........................................ 121,525 $4.88
Exercised during 1994..................................... (38,825) $3.00 - $5.25
Cancelled during 1994..................................... (49,500) $3.00 - $6.50
--------
Outstanding, December 31, 1994............................ 283,275 $3.00 - $5.00
Exercised during 1995..................................... (36,325) $3.00 - $4.88
Cancelled during 1995..................................... (4,875) $4.88
--------
Outstanding, December 31, 1995............................ 242,075 $3.00 - $4.88
Exercised during 1996..................................... (21,325) $3.00 - $4.88
--------
Outstanding, December 31, 1996............................ 220,750 $3.00 - $4.88
========
Exercisable, December 31, 1996............................ 163,238 $3.00 - $4.88
========
</TABLE>
No further option shares will be granted under the prior plan.
F-14
<PAGE> 66
DATUM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost been determined on the basis of fair value pursuant
to FAS 123 net income and net income (loss) per share would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
---------- ---------
<S> <C> <C>
Net income (loss)
As reported............................................... $1,974,000 $ 60,000
=========== ==========
Pro forma................................................. $1,824,000 $(186,000)
=========== ==========
Net income (loss) per share
As reported............................................... $ .46 $ .02
=========== ==========
Pro forma................................................. $ .43 $ (.05)
=========== ==========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes model with the following assumptions used for grants during
both periods: risk free interest rates of 5.97% in 1996 and 6.94% in 1995,
expected volatility of 48% in 1996 and 49% in 1995, and an expected option life
of 5 years and no expected dividends in 1996 and 1995.
NOTE G -- SAVINGS AND RETIREMENT PLAN
Effective July 1, 1984, the Company adopted a savings and retirement plan
which covers all eligible employees. The plan provides for matching by the
Company of 100% of the first 2% of employee deferral and 50% of the next 1% of
employee deferral. Employer matching contributions are made in the form of
shares of the Company's common stock. Total retirement expense under the Plan
amounted to $497, $408, and $190 for the years ended December 31, 1996, 1995 and
1994, respectively.
NOTE H -- U.S. GOVERNMENT AND FOREIGN SALES AND SIGNIFICANT CUSTOMERS
Direct and indirect sales to the United States government aggregated
approximately $13,856, $14,812, and $10,043 in 1996, 1995 and 1994,
respectively. Direct sales to the United States government aggregated
approximately $5,668, $5,167, and $5,265 in 1996, 1995 and 1994, respectively.
Foreign sales in 1996, 1995 and 1994 amounted to $20,151, $13,033, and $7,340.
One customer accounted for 36%, 30% and 10% of net sales in 1996, 1995 and 1994,
respectively.
NOTE I -- COMMITMENTS
Total rental expense for operating leases amounted to $1,735, $1,031, and
$380 in 1996, 1995 and 1994, respectively. The future minimum rental commitments
under all noncancelable operating leases, exclusive of property taxes and
certain occupancy costs, are as follows:
<TABLE>
<S> <C>
1997....................................................... $ 1,337
1998....................................................... 1,239
1999....................................................... 1,221
2000....................................................... 1,327
2001....................................................... 1,241
Thereafter................................................. 4,152
-------
Total minimum lease payments..................... $10,517
=======
</TABLE>
F-15
<PAGE> 67
======================================================
NO DEALER, SALESPERSON OR ANY 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, ANY SELLING STOCKHOLDER
OR ANY UNDERWRITER. 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.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT 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........................... 5
Use of Proceeds........................ 5
Price Range of Common Stock............ 14
Dividend Policy........................ 14
Capitalization......................... 15
Selected Consolidated Financial Data... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 23
Management............................. 37
Principal and Selling Stockholders..... 43
Description of Capital Stock........... 45
Underwriting........................... 48
Legal Matters.......................... 49
Experts................................ 49
Additional Information................. 50
Incorporation of Certain Documents by
Reference............................ 50
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
1,700,000 SHARES
LOGO
LOGO
COMMON STOCK
------------------
PROSPECTUS
------------------
HAMBRECHT & QUIST
OPPENHEIMER & CO., INC.
VAN KASPER & COMPANY
, 1997
======================================================
<PAGE> 68
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereunder. All of the amounts
shown are estimates except for the SEC registration fee, the NASD filing fee and
the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
TO BE PAID
BY THE
COMPANY
--------------
<S> <C>
SEC registration fee.......................................... $ 11,331
NASD filing fee............................................... 4,239
Nasdaq National Market application fee........................ 17,500
Printing expenses............................................. 125,000
Legal fees and expenses....................................... *
Accounting fees and expenses.................................. *
Blue sky fees and expenses.................................... 10,000
Transfer agent and registrar fees............................. *
Miscellaneous................................................. *
--------
Total............................................... $ *
========
</TABLE>
- ------------------------------
* To be filed by amendment
The Company will bear the expenses in connection with the registration and
offering of shares by the Selling Stockholder, other than the underwriting
discounts and commissions and the fees and expenses of any separate counsel,
advisors or accountants retained by the Selling Stockholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the Restated
Certificate of Incorporation, as amended of the Company (the "Restated
Certificate") limits the liability of directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a directors,
except to the extent otherwise required by the Delaware General Corporation Law.
The Company also carries directors and officers liability insurance.
(b) The Restated Certificate provides that the Company will indemnify each
person who was or is made a party to any proceeding by reason of the fact that
such person is or was a director or officer of the Company against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith to the fullest extent authorized by the Delaware General Corporation
Law. The Company's Bylaws provide for a similar indemnity to directors and
officers of the Company to the fullest extent authorized by the Delaware General
Corporation Law.
(c) The Restated Certificate also gives the Company the ability to enter
into indemnification agreements with each of its directors and officers. The
Company has entered into indemnification agreement with each of its directors
and officers (Exhibit 10.10 hereto), which provide for the indemnification of
directors and officers of the Company against any and all expenses, judgments,
fines, penalties and amounts paid in settlement, to the fullest extent permitted
by law.
II-1
<PAGE> 69
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- ----------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement dated as of October 20, 1994 by and among Ball
Corporation, Efratom Holding, Inc. and the Registrant (incorporated by
reference to Exhibit 10.31 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994).
4.1 Stockholder's Agreement dated as of March 17, 1995 by and between the
Registrant and Efratom Holding, Inc. (incorporated by reference to the same
numbered exhibit to Registrant's Form 10-K for the year ended December 31,
1994).
*5.1 Opinion of Stradling, Yocca, Carlson & Rauth relating to the Common Stock
covered by this Registration Statement.
10.3 1981 Restricted Stock Award Plan, as amended to date (incorporated by
reference to the same numbered exhibit to Registrant's Annual Report on Form
10-K for the year ended December 31, 1991).
10.4 1984 Stock Option Plan, as amended to date (incorporated by reference to
Registrant's Registration Statements on Form S-8 Registration numbers
2-96564, 33-10335 and 33-41709).
10.6 Executive Agreement dated March 7, 1986 with Louis B. Horwitz, (incorporated
by reference to the same numbered exhibit to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991).
10.10 Form of Indemnification Agreement dated May 27, 1987 as entered into with
certain directors and officers of Registrant (incorporated by reference to
the same numbered exhibit to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991).
10.18 Lease commencing January 1, 1992 relating to Registrant's facility at 749
Ward Drive, Goleta, California (incorporated by reference to the same
numbered exhibit to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991).
10.19 Savings and Retirement Plan, as amended to date (incorporated by reference
to the same numbered exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991).
10.21 Consulting Agreement dated October 9, 1992 with Louis B. Horwitz
(incorporated by reference to the same numbered exhibit to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992).
10.21.1 First Amendment to Consulting Agreement, dated as of March 1, 1996, between
Louis B. Horwitz and the Registrant (incorporated by reference to the same
numbered exhibit to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
10.28 Sublease commencing November 1, 1993, relating to the Registrant's facility
at 749 Ward Drive, Goleta, California (incorporated by reference to the same
numbered exhibit to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993).
10.29 1994 Stock Incentive Plan (incorporated by reference to Registrant's
registration statement on Form S-8 Registration #33-79772).
10.29.1 Amendment to 1994 Stock Incentive Plan, effective March 16, 1995
(incorporated by reference to the same numbered exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
</TABLE>
II-2
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- ----------------------------------------------------------------------------
<S> <C>
10.30.5 Amended and Restated Credit Agreement, dated as of September 27, 1996, by
and between the Registrant and Wells Fargo Bank, N.A. (incorporated by
reference to the same numbered exhibit to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996).
10.31 Lease Agreement dated February 3, 1992 by and between The Irvine Company and
Ball Efratom for EFRATOM Time and Frequency Products, Inc.'s facility at 4
Cromwell, Suite 201, Irvine, California (incorporated by reference to the
same numbered exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.32 Lease Agreement dated September 15, 1986 by and between The Irvine Company
and Efratom Division, Ball Corporation, for Efratom Time and Frequency
Products, Inc.'s facility at 3 Parker, Irvine, California (incorporated by
reference to the same numbered exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.32.1 First Amendment to Lease dated March 15, 1995 by and between The Irvine
Company and Efratom Division, Ball Corporation for Lease Agreement dated
September 15, 1986 (Exhibit 10.32) (incorporated by reference to the same
numbered exhibit to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.32.2 Amendment to Leases dated May 11, 1995 by and between The Irvine Company and
the Registrant (incorporated by reference to the same numbered exhibit to
the Registrant's Form 10-Q for the quarter ended June 30, 1995).
10.32.3 Second Amendment to Lease dated May 11, 1995 by and between The Irvine
Company and the Registrant, relating to the Registrant's facility at 4
Cromwell, Irvine, California (incorporated by reference to the same numbered
exhibit to the Registrant's Form 10-Q for the quarter ended June 30, 1995).
10.32.4 Second Amendment to Lease dated May 11, 1995 by and between The Irvine
Company and the Registrant, relating to the Registrant's facility at 3
Parker, Irvine, California (incorporated by reference to the same numbered
exhibit to the Registrant's Form 10-Q for the quarter ended June 30, 1995).
10.34 Industrial Lease Agreement dated May 11, 1995, by and between The Irvine
Company and the Registrant, relating to the Registrant's facility at 9975
Toledo Way, Irvine, California (incorporated by reference to the same
numbered exhibit to the Registrant's Form 10-Q for the quarter ended June
30, 1995).
10.35 Lease Agreement between Berg & Berg Developers and the Registrant dated
January 4, 1996, relating to Registrant's facility at 6781 Via del Oro, San
Jose, California (incorporated by reference to the same numbered exhibit to
the Registrant's Form 10-K for the year ended December 31, 1995).
10.36 Note and Warrant Purchase Agreement, dated as of September 27, 1996, by and
between The Prudential Insurance Company of America and the Registrant
(incorporated by reference to the same numbered exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996).
10.37 Common Stock Purchase Warrant, dated September 27, 1996 (incorporated by
reference to the same numbered exhibit to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996).
</TABLE>
II-3
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- ----------------------------------------------------------------------------
<S> <C>
10.38 Series A Note, dated September 27, 1996, in favor of The Prudential
Insurance Company of America (incorporated by reference to the same numbered
exhibit to the Registrant's Quarter Report on Form 10-Q for the quarter
ended September 30, 1996).
10.39 Series B Note, dated September 27, 1996, in favor of The Prudential
Insurance Company of America (incorporated by reference to the same numbered
exhibit to the Registrant's Quarter Report on Form 10-Q for the quarter
ended September 30, 1996).
10.40 Agreement dated June 12, 1995 between the Company and AT&T Corp. (Portions
of this Exhibit are omitted and were filed separately with the Secretary of
the Commission pursuant to the Company's application requesting confidential
treatment under Rule 406 of the Securities Act of 1933).
10.41 Consulting Agreement dated September 26, 1996, between the Company and
Robert F. Ellis.
11 Computation of Earnings Per Common Share.
23.1 Consent of Stradling, Yocca, Carlson & Rauth (included in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP, independent accountants
24.1 Power of Attorney (included on Signature Page)
27.1 Financial Data Schedule
</TABLE>
- ------------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company 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 Company 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 of 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 Company hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 72
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, thereto duly
authorized, in the City of Irvine, State of California, on the 21st day of
February, 1997.
Datum Inc.
By: /s/ LOUIS B. HORWITZ
------------------------------------
Louis B. Horwitz
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Datum Inc., do hereby
constitute and appoint Louis B. Horwitz and David A. Young, or either of them,
our true and lawful attorneys and agents, to do any and all acts and things in
our name and behalf in our capacities as directors and officers and to execute
any and all instruments for us and in our names in the capacities indicated
below, which said attorneys and agents, or either of them, may deem necessary or
advisable to enable said corporation to comply with the Securities Act of 1933,
as amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or any
of us in our names and in the capacities indicated below, any and all amendments
(including post-effective amendments) hereto or any related registration
statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended; and we do hereby ratify and confirm all that
the said attorneys and agents, or either of them, shall do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
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/ LOUIS B. HORWITZ President, Chief February 21, 1997
- ----------------------------------------------- Executive Officer and
Louis B. Horwitz Director (Principal
Executive Officer)
/s/ DAVID A. YOUNG Chief Financial February 21, 1997
- ----------------------------------------------- Officer (Principal
David A. Young Financial and
Principal Accounting
Officer)
/s/ G. TILTON GARDNER Director February 21, 1997
- -----------------------------------------------
G. Tilton Gardner
/s/ DONOVAN B. HICKS Director February 21, 1997
- -----------------------------------------------
Donovan B. Hicks
/s/ R. DAVID HOOVER Director February 21, 1997
- -----------------------------------------------
R. David Hoover
</TABLE>
II-5
<PAGE> 73
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------- ------------------
<S> <C> <C>
/s/ MICHAEL M. MANN Director February 21, 1997
- -----------------------------------------------
Michael M. Mann
/s/ DAN L. MCGURK Director February 21, 1997
- -----------------------------------------------
Dan L. McGurk
/s/ EDWARD A. MONEY Director February 21, 1997
- -----------------------------------------------
Edward A. Money
/s/ THOMAS J. O'ROURKE Director February 21, 1997
- -----------------------------------------------
Thomas J. O'Rourke
</TABLE>
II-6
<PAGE> 74
DATUM INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING *OTHER END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS ACQUISITIONS DEDUCTIONS PERIOD
- --------------------------------- ---------- --------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for doubtful
accounts.................... $ 68 $ 121 $ 36 $ 107
Reserve for inventories........ 1,952 1,309 1,177 2,084
Accumulated amortization of
acquired intangible
assets...................... 1,162 894 2,056
Year Ended December 31, 1995
Allowance for doubtful
accounts.................... 93 53 86 $ 49 $ 41 68
Reserve for inventories........ 854 1,124 1,024 998 1,952
Accumulated amortization of
acquired intangible
assets...................... 546 616 1,162
Year Ended December 31, 1994
Allowance for doubtful
accounts.................... 131 31 31 38 93
Reserve for inventories........ 872 332 350 854
Accumulated amortization of
acquired intangible
assets...................... 467 79 546
</TABLE>
- ---------------
* Aacom note payments received.
S-1
<PAGE> 75
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ---------------------------------------------------------------- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement..................................
2.1 Stock Purchase Agreement dated as of October 20, 1994 by and
among Ball Corporation, Efratom Holding, Inc. and the Registrant
(incorporated by reference to Exhibit 10.31 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1994).......................................................
4.1 Stockholder's Agreement dated as of March 17, 1995 by and
between the Registrant and Efratom Holding, Inc. (incorporated
by reference to the same numbered exhibit to Registrant's Form
10-K for the year ended December 31, 1994)......................
*5.1 Opinion of Stradling, Yocca, Carlson & Rauth relating to the
Common Stock covered by this Registration Statement.............
10.3 1981 Restricted Stock Award Plan, as amended to date
(incorporated by reference to the same numbered exhibit to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991)..............................................
10.4 1984 Stock Option Plan, as amended to date (incorporated by
reference to Registrant's Registration Statements on Form S-8
Registration numbers 2-96564, 33-10335 and 33-41709)............
10.6 Executive Agreement dated March 7, 1986 with Louis B. Horwitz,
(incorporated by reference to the same numbered exhibit to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991)..............................................
10.10 Form of Indemnification Agreement dated May 27, 1987 as entered
into with certain directors and officers of Registrant
(incorporated by reference to the same numbered exhibit to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991)..............................................
10.18 Lease commencing January 1, 1992 relating to Registrant's
facility at 749 Ward Drive, Goleta, California (incorporated by
reference to the same numbered exhibit to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991).......
10.19 Savings and Retirement Plan, as amended to date (incorporated by
reference to the same numbered exhibit to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991).......
10.21 Consulting Agreement dated October 9, 1992 with Louis B. Horwitz
(incorporated by reference to the same numbered exhibit to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992)..............................................
10.21.1 First Amendment to Consulting Agreement, dated as of March 1,
1996, between Louis B. Horwitz and the Registrant (incorporated
by reference to the same numbered exhibit to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1996).......................................................
10.28 Sublease commencing November 1, 1993, relating to the
Registrant's facility at 749 Ward Drive, Goleta, California
(incorporated by reference to the same numbered exhibit to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993)..............................................
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ---------------------------------------------------------------- -----------
<S> <C> <C>
10.29 1994 Stock Incentive Plan (incorporated by reference to
Registrant's registration statement on Form S-8 Registration
#33-79772)......................................................
10.29.1 Amendment to 1994 Stock Incentive Plan, effective March 16, 1995
(incorporated by reference to the same numbered exhibit to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994)..............................................
10.30.5 Amended and Restated Credit Agreement, dated as of September 27,
1996, by and between the Registrant and Wells Fargo Bank, N.A.
(incorporated by reference to the same numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).............................................
10.31 Lease Agreement dated February 3, 1992 by and between The Irvine
Company and Ball Efratom for EFRATOM Time and Frequency
Products, Inc.'s facility at 4 Cromwell, Suite 201, Irvine,
California (incorporated by reference to the same numbered
exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994)...................................
10.32 Lease Agreement dated September 15, 1986 by and between The
Irvine Company and Efratom Division, Ball Corporation, for
Efratom Time and Frequency Products, Inc.'s facility at 3
Parker, Irvine, California (incorporated by reference to the
same numbered exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994)......................
10.32.1 First Amendment to Lease dated March 15, 1995 by and between The
Irvine Company and Efratom Division, Ball Corporation for Lease
Agreement dated September 15, 1986 (Exhibit 10.32) (incorporated
by reference to the same numbered exhibit to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994)...........................................................
10.32.2 Amendment to Leases dated May 11, 1995 by and between The Irvine
Company and the Registrant (incorporated by reference to the
same numbered exhibit to the Registrant's Form 10-Q for the
quarter ended June 30, 1995)....................................
10.32.3 Second Amendment to Lease dated May 11, 1995 by and between The
Irvine Company and the Registrant, relating to the Registrant's
facility at 4 Cromwell, Irvine, California (incorporated by
reference to the same numbered exhibit to the Registrant's Form
10-Q for the quarter ended June 30, 1995).......................
10.32.4 Second Amendment to Lease dated May 11, 1995 by and between The
Irvine Company and the Registrant, relating to the Registrant's
facility at 3 Parker, Irvine, California (incorporated by
reference to the same numbered exhibit to the Registrant's Form
10-Q for the quarter ended June 30, 1995).......................
10.34 Industrial Lease Agreement dated May 11, 1995, by and between
The Irvine Company and the Registrant, relating to the
Registrant's facility at 9975 Toledo Way, Irvine, California
(incorporated by reference to the same numbered exhibit to the
Registrant's Form 10-Q for the quarter ended June 30, 1995).....
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ---------------------------------------------------------------- -----------
<S> <C> <C>
10.35 Lease Agreement between Berg & Berg Developers and the
Registrant dated January 4, 1996, relating to Registrant's
facility at 6781 Via del Oro, San Jose, California (incorporated
by reference to the same numbered exhibit to the Registrant's
Form 10-K for the year ended December 31, 1995).................
10.36 Note and Warrant Purchase Agreement, dated as of September 27,
1996, by and between The Prudential Insurance Company of America
and the Registrant (incorporated by reference to the same
numbered exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996)..................
10.37 Common Stock Purchase Warrant, dated September 27, 1996
(incorporated by reference to the same numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).............................................
10.38 Series A Note, dated September 27, 1996, in favor of The
Prudential Insurance Company of America (incorporated by
reference to the same numbered exhibit to the Registrant's
Quarter Report on Form 10-Q for the quarter ended September 30,
1996)...........................................................
10.39 Series B Note, dated September 27, 1996, in favor of The
Prudential Insurance Company of America (incorporated by
reference to the same numbered exhibit to the Registrant's
Quarter Report on Form 10-Q for the quarter ended September 30,
1996)...........................................................
10.40 Agreement dated June 12, 1995 between the Company and AT&T Corp.
(Portions of this Exhibit are omitted and were filed separately
with the Secretary of the Commission pursuant to the Company's
application requesting confidential treatment under Rule 406 of
the Securities Act of 1933).....................................
10.41 Consulting Agreement dated September 26, 1996, between the
Company and Robert F. Ellis.....................................
11 Computation of Earnings Per Common Share........................
23.1 Consent of Stradling, Yocca, Carlson & Rauth (included in
Exhibit 5.1)....................................................
23.2 Consent of Price Waterhouse LLP, independent accountants........
24.1 Power of Attorney (included on Signature Page)..................
27.1 Financial Data Schedule.........................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
DATUM INC.
1,700,000 Shares(1)
COMMON STOCK
UNDERWRITING AGREEMENT
_____ __, 1997
HAMBRECHT & QUIST LLC
OPPENHEIMER & CO., INC.
VAN KASPER & COMPANY
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Datum Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell 1,000,000 shares of its authorized but
unissued Common Stock, $0.25 par value (herein called the Common Stock), and
the stockholders of the Company named in Schedule II hereto (herein
collectively called the Selling Stockholders) propose to sell an aggregate of
700,000 shares of Common Stock of the Company (said 1,700,000 shares of Common
Stock being herein called the Underwritten Stock). The Company and Efratom
Holding, Inc., a Selling Stockholder ("Efratom"), propose to grant to the
Underwriters (as hereinafter defined) an option to purchase up to an aggregate
of 255,000 additional shares of Common Stock (herein called the Option Stock
and with the Underwritten Stock herein collectively called the Stock). The
Common Stock is more fully described in the Registration Statement and the
Prospectus hereinafter mentioned.
The Company and the Selling Stockholders severally hereby
confirm the agreements made with respect to the purchase of the Stock by the
several underwriters, for whom you are acting, named in Schedule I hereto
(herein collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent
and warrant that you have been authorized by each of the other Underwriters to
enter into this Agreement on its behalf and to act for it in the manner herein
provided.
1. REGISTRATION STATEMENT. The Company has filed with
the Securities and Exchange Commission (herein called the Commission) a
registration statement on Form S-2 (No. 333-_____), including the related
preliminary prospectus, for the registration under the Securities Act of 1933,
as amended (herein called the Securities Act), of the Stock.
- -------------
(1) Plus an option to purchase from the Company and Efratom Holding, Inc.,
a Selling Stockholder, up to 255,000 additional shares to cover over-
allotments.
<PAGE> 2
Copies of such registration statement and of each amendment thereto, if any,
including the related preliminary prospectus (meeting the requirements of Rule
430A of the rules and regulations of the Commission) heretofore filed by the
Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement
shall mean such registration statement, including all documents incorporated by
reference therein, all exhibits and financial statements, all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto
after the effective date of such registration statement (herein called the
Effective Date), shall also mean (from and after the effectiveness of such
amendment) such registration statement as so amended (including any Rule 462(b)
registration statement). The term Prospectus as used in this Agreement shall
mean the prospectus, including the documents incorporated by reference therein,
relating to the Stock first filed with the Commission pursuant to Rule 424(b)
and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to
such prospectus after the Effective Date, shall also mean (from and after the
filing with the Commission of such supplement or the effectiveness of such
amendment) such prospectus as so supplemented or amended. The term Preliminary
Prospectus as used in this Agreement shall mean each preliminary prospectus,
including the documents incorporated by reference therein, included in such
registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under
the Securities Act, and no post-effective amendment to the Registration
Statement has been filed as of the date of this Agreement. The Company has
caused to be delivered to you copies of each Preliminary Prospectus and has
consented to the use of such copies for the purposes permitted by the
Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SELLING STOCKHOLDERS.
(a) The Company hereby represents and warrants as
follows:
(i) The Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of Delaware, has full corporate power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus and as being conducted, and is duly
qualified as a foreign corporation and in good standing in all jurisdictions in
which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary (except where the
failure to be so qualified would not have a material adverse effect on the
business, properties, condition (financial or otherwise) or results of
operations or prospects of the Company and its subsidiaries taken as whole (a
"Material Adverse Effect")).
2
<PAGE> 3
(ii) The Company owns all of the shares
of capital stock of each subsidiary of the Company, and each of the Company's
subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement
and the Prospectus and as being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary except where the failure to be so qualified would
not have a Material Adverse Effect.
(iii) Since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been any materially adverse change in the business, properties,
financial condition or results of operations or prospects of the Company and
its subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the ordinary
course of business, neither the Company nor any of its subsidiaries has entered
into any material transaction not referred to in the Registration Statement and
the Prospectus.
(iv) The Commission has not issued any
order preventing or suspending the use of any Preliminary Prospectus relating
to the proposed offering of the Stock nor instituted or, to the best knowledge
of the Company, after due inquiry, threatened instituting proceedings for that
purpose. The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Option Stock
is to be purchased, the Prospectus will comply, in all material respects, with
the provisions of the Securities Act and the Securities Exchange Act of 1934,
as amended (herein called the "Exchange Act"), and the rules and regulations of
the Commission thereunder. On the Effective Date, the Registration Statement
did not contain any untrue statement of a material fact and did not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading; and, on the Effective Date the
Prospectus did not and, on the Closing Date and any later date on which Option
Stock is to be purchased, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties in this subparagraph (iv) shall apply to statements in, or omissions
from, the Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus.
(v) The Stock is duly and validly
authorized, is (or, in the case of shares of the Stock to be sold by the
Company and The Prudential Insurance Company of America, a Selling Stockholder,
will be, when issued and sold to the Underwriters as provided herein) duly and
validly issued, fully paid and nonassessable and conforms to the description
thereof in the Prospectus. No further approval or authority of the stockholders
or the Board of Directors of the Company will be required for the issuance and
sale of the Stock as contemplated
3
<PAGE> 4
herein. The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus. The shares of
Common Stock outstanding prior to the issuance of the Underwritten Stock and,
if any, the Option Stock have been duly authorized and are validly issued,
fully paid and non-assessable.
(vi) Prior to the Closing Date, the Stock
to be issued and sold by the Company will be authorized for listing on the
Nasdaq National Market (herein called "NNM") upon official notice of issuance.
(vii) Except as specifically disclosed in
the Registration Statement, the Company does not have outstanding any options
to purchase, or any preemptive rights, or other rights to subscribe or to
purchase or rights of co-sale, any securities or obligations convertible into,
or any contracts or commitments to issue or sell or register for sale, shares
of its capital stock or any such options, rights, convertible securities or
obligations.
(viii) The consolidated financial
statements of the Company, together with related notes and schedules as set
forth in the Registration Statement ("Financial Statements"), present fairly
the financial position and the results of operations of the Company and its
subsidiaries, taken as a whole, at the indicated dates and for the indicated
periods. The Financial Statements have been prepared in accordance with
generally accepted accounting principles, consistently applied through the
period involved, and all adjustments necessary for a fair presentation of
results for such periods have been made. The selected and summary financial
data and the tables set forth under "Results of Operations" and "Quarterly
Results of Operations" in the Management's Discussion and Analysis of Financial
Condition and Results of Operations section, included in the Registration
Statement, present fairly the information shown therein and have been compiled
on a basis consistent with the Financial Statements presented in the
Registration Statement.
(ix) Neither the Company nor any of its
subsidiaries is in violation or default under any provision of its charter
documents or bylaws, as currently in effect, or any indenture, license,
mortgage, lease, franchise, permit, deed of trust or other agreement or
instrument to which such corporation is a party or by which such corporation or
any of its properties is bound or may be affected, except where such violation
or default would not have a Material Adverse Effect.
(x) The Company has full legal right,
power and authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable in accordance with its terms, except as rights to
indemnity and contribution hereunder may be limited by applicable laws and
except as the enforcement hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, or by general equitable principles. The execution
and performance of this Agreement and the consummation of the transactions
herein contemplated do not and will not: (i) conflict with, or result in a
breach of, or violation of, any of the terms or provisions of, or constitute,
either by itself or upon notice or the
4
<PAGE> 5
passage of time or both, a default under, any indenture, license, mortgage,
lease, franchise, permit, deed of trust or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which any such
corporation or any of its properties is bound or may be affected, except where
such breach, violation or default would not have a Material Adverse Effect,
(ii) violate any of the provisions of the charter documents or bylaws of any
such corporation, except where such violation would not have a Material Adverse
Effect, or (iii) violate any material order, judgment, statute, rule or
regulation applicable to any such corporation or of any regulatory,
administrative or governmental body or agency having jurisdiction over any such
corporation or any of its properties, except where such violation would not
have a Material Adverse Effect.
(xi) Except as disclosed in the
Prospectus, there is not any pending or, to the Company's knowledge, threatened
action, suit, claim or proceeding against the Company or any of its
subsidiaries or any of their respective officers or any of their properties,
assets or rights before any court or governmental agency or body or otherwise
which (i) might have a Material Adverse Effect, or (ii) might prevent
consummation of the transactions contemplated hereby or (iii) is required to be
disclosed in the Registration Statement; and there are no contracts or
documents of the Company or any of its subsidiaries that are required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been fairly and accurately described in all material
respects in the Prospectus or filed as exhibits to the Registration Statement
as the case may be. The contracts so described in the Prospectus are in full
force and effect on the date hereof; and neither the Company nor any of its
subsidiaries nor, to the Company's knowledge any other party, is in breach of
or default under any of such contracts.
(xii) Except as disclosed in the
Prospectus, the Company owns or possesses adequate rights to use all patents,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names and copyrights described or referred to in the Prospectus as owned
or used by it or which are necessary for the conduct of its businesses as
described in the Prospectus; the Company has not received any notice of, and
the Company has no knowledge of, any infringement of or conflict with asserted
rights of others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, might reasonably have a Material Adverse Effect.
(xiii) The Company has not taken and will
not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Stock.
(xiv) Except as set forth in the
Prospectus, the Company and each of its subsidiaries has all permits, licenses,
approvals and registrations required to be issued under applicable federal,
state and local laws, statutes and regulations relating to the protection of
human health, safety, the environment and natural resources ("Environmental
Laws") with respect to its business as conducted and as proposed to be
conducted in the Prospectus and is in substantial compliance with the terms and
conditions thereunder except where failure to have
5
<PAGE> 6
such permits, licenses, approvals and registrations, or to be in compliance
thereunder would not have a Material Adverse Effect. Except as set forth in
the Prospectus, the Company and each of its subsidiaries is in substantial
compliance with and there are no past or present conditions, activities,
actions or plans which may prevent substantial compliance with, any current or
past law related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the release, emission or discharge
of any hazardous substance or hazardous waste ("Hazardous Substance Issues") or
any regulations, plans, judgments, injunctions or notices promulgated or
approved thereunder which may give rise to any liability of the Company or its
subsidiaries or otherwise form the basis of any ongoing or threatened claims,
actions, demands, suits, proceedings, hearings, studies or investigations
against or relating to the Company or its subsidiaries, the property owned or
leased by the Company or its subsidiaries that are based on or related to any
Hazardous Substance Issues except for such non-compliance which would not have
a Material Adverse Effect.
(xv) Except as set forth in the
Prospectus, there has been no material disposal, release or threatened release
of any hazardous substance or hazardous waste on, from or under the property
owned or leased currently or in the past by the Company, its subsidiaries or
any predecessor, other than those authorized by permit under federal, state and
local laws except such as would not have a Material Adverse Effect. For
purposes of this Agreement, the terms "disposal," "release," "hazardous
substance" and "hazardous waste" shall have the definitions assigned thereto
under federal, state and local laws applicable to the Company, its
subsidiaries, the Company's or any subsidiary's assets and the property owned
or leased by the Company, including without limitation the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
42 U.S.C. Section 9601 et seq., as amended, and any regulations promulgated
thereto.
(xvi) Except as set forth in the
Prospectus, no disposal or release of a hazardous substance or hazardous waste
has come to be located on or beneath and remain located on or beneath any of
the real property owned or leased currently or in the past by the Company, any
subsidiary or any predecessor or upon which any of the property owned or leased
currently or in the past by the Company, any subsidiary or any predecessor are,
or have been, held or maintained except such as would not have a Material
Adverse Effect.
(xvii) Except as set forth in the
Prospectus, the Company and its subsidiaries have no knowledge of the possible
or actual presence, disposal, release or threatened release of any hazardous
substance or hazardous waste on or under any adjacent properties to the any
property owned or leased currently or in the past by the Company, any
subsidiary or any predecessor except such as would not have a Material Adverse
Effect.
(b) Each of the Selling Stockholders severally
and not jointly hereby represents and warrants as follows:
(i) Such Selling Stockholder has, or
will have upon delivery to the Underwriters good and marketable title to all
the shares of Stock to be sold by such Selling Stockholder hereunder, free and
clear of all liens, encumbrances, equities, security interests and
6
<PAGE> 7
claims whatsoever, with full right and authority to deliver the same hereunder,
subject, in the case of each Selling Stockholder, to the rights of any
custodian pursuant to a custody agreement (herein called the "Custodian"), and
that upon the delivery of and payment for such shares of the Stock hereunder,
the several Underwriters will receive good and marketable title thereto, free
and clear of all liens, encumbrances, equities, security interests and claims
whatsoever.
(ii) Such Selling Stockholder has duly
authorized (if applicable), executed and delivered, in the form heretofore
furnished to the Underwriters, a Custody Agreement and Power of Attorney (the
"Custody Agreement and Power of Attorney") appointing Louis B. Horwitz and
David A. Young as attorneys-in-fact (collectively, the "Attorneys" and
individually, an "Attorney") and appointing Chase Mellon Shareholder Services
as Custodian; the Custody Agreement and Power of Attorney (if applicable)
constitutes a valid and binding agreement on the part of such Selling
Stockholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of
such Selling Stockholder's Attorneys, acting alone, is authorized to execute
and deliver this Agreement and the certificate referred to in Section 9(k)
hereof on behalf of such Selling Stockholder, to determine the purchase price
to be paid by the several Underwriters to such Selling Stockholder as provided
in Section 3 hereof, to authorize the delivery of the shares of Stock to be
sold by such Selling Stockholder under this Agreement and to duly endorse (in
blank or otherwise) the certificate or certificates representing such Stock or
a stock power or powers with respect thereto, to accept payment therefor, and
otherwise to act on behalf of such Selling Stockholder in connection with this
Agreement.
(iii) All consents, approvals,
authorizations and orders required for the execution and delivery by such
Selling Stockholder of the Power of Attorney and the Custody Agreement (if
applicable), the execution and delivery by or on behalf of such Selling
Stockholder of this Agreement and the sale and delivery of the shares of Stock
to be sold by such Selling Stockholder under this Agreement (other than, at the
time of the execution hereof (if the Registration Statement has not yet been
declared effective by the Commission), the issuance of the order of the
Commission declaring the Registration Statement effective and such consents,
approvals, authorizations or orders as may be necessary under state or other
securities or Blue Sky laws) have been obtained and are in full force and
effect; such Selling Stockholder, if other than a natural person, has been duly
organized and is validly existing in good standing under the laws of the
jurisdiction of its organization as the type of entity that it purports to be;
and such Selling Stockholder has full legal right, power and authority to enter
into and perform its obligations under this Agreement and such Power of
Attorney and Custody Agreement (if applicable), and to sell, assign, transfer
and deliver the Stock to be sold by such Selling Stockholder under this
Agreement.
(iv) Certificates in negotiable form for
the shares of the Stock to be sold by such Selling Stockholder have been placed
in custody under a Custody Agreement and Power of Attorney for delivery under
this Agreement with the Custodian (if applicable); provided, however, that in
the case of shares to be sold pursuant hereto upon exercise of a
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warrant to purchase Common Stock such Selling Stockholder shall have deposited
with their legal counsel irrevocable instructions to exercise such warrant (the
"Irrevocable Instructions"); such Selling Stockholder specifically agrees that
the shares of the Stock represented by the certificates so held in custody for
such Selling Stockholder, or the shares of the Stock to be issued upon exercise
of the warrant, as the case may be, are subject to the interests of the several
Underwriters and the Company, that the arrangements made by such Selling
Stockholder for such custody, or the arrangements made for such exercise,
including the Power of Attorney provided for in such Custody Agreement and
Power of Attorney, or the Irrevocable Instructions, are to that extent
irrevocable, and that the obligations of such Selling Stockholder shall not be
terminated by any act of such Selling Stockholder or by operation of law,
whether by the death or incapacity of such Selling Stockholder (or, in the case
of a Selling Stockholder that is not an individual, the dissolution or
liquidation of such Selling Stockholder) or the occurrence of any other event;
if any such death, incapacity, dissolution, liquidation or other such event
should occur before the delivery of such shares of the Stock hereunder,
certificates for such shares of the Stock shall be delivered by the Custodian
in accordance with the terms and conditions of this Agreement as if such death,
incapacity, dissolution, liquidation or other event had not occurred,
regardless of whether the Custodian shall have received notice of such death,
incapacity, dissolution, liquidation or other event.
(v) Each Selling Stockholder has
reviewed the Registration Statement and Prospectus and, although such Selling
Stockholder has not independently verified the accuracy or completeness of all
the information contained therein, nothing has come to the attention of such
Selling Stockholder that would lead such Selling Stockholder to believe that
(A) on the Effective Date, the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, and (B) on the Effective Date the Prospectus contained and, on the
Closing Date, contains any untrue statement of a material fact or omitted or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(vi) All information furnished by or on
behalf of such Selling Stockholder relating to such Selling Stockholder and the
shares of Stock to be sold by such Selling Stockholder pursuant hereto that is
contained in the representations and warranties of such Selling Stockholder in
such Selling Stockholder's Custody Agreement and Power of Attorney (if
applicable) or set forth in the Registration Statement or the Prospectus is,
and at the time the Registration Statement became or becomes, as the case may
be, effective and at all times subsequent thereto up to and on the Closing
Date, was or will be, true, correct and complete, and does not, and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make such
information not misleading.
(vii) Such Selling Stockholder will review
the Prospectus and will comply with all agreements and satisfy all conditions
on its part to be complied with or satisfied pursuant to this Agreement on or
prior to the Closing Date and will advise one of its
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Attorneys and Hambrecht & Quist LLC prior to the Closing Date if any statement
to be made on behalf of such Selling Stockholder in the certificate
contemplated by Section 9(k) would be inaccurate if made as of the Closing
Date.
(viii) Such Selling Stockholder has not
taken and will not take, directly or indirectly, any action designed to or that
might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Stock.
(ix) Such Selling Stockholder does not
have, or has waived prior to the date hereof, any preemptive right, co-sale
right or right of first refusal or other similar right to purchase any of the
Stock that are to be sold by the Company or any of the other Selling
Stockholders to the Underwriters pursuant to this Agreement; such Selling
Stockholder does not have, or has waived prior to the date hereof, any
registration right or other similar right to participate in the offering made
by the Prospectus, other than such rights of participation as have been
satisfied by the participation of such Selling Stockholder in the transactions
to which this Agreement relates in accordance with the terms of this Agreement;
and such Selling Stockholder does not own any warrants, options or similar
rights to acquire, and does not have any right or arrangement to acquire, any
capital stock, rights, warrants, options or other securities from the Company,
other than those described in the Registration Statement and the Prospectus and
any document incorporated therein by reference.
(x) Such Selling Stockholder has not
distributed and will not distribute any prospectus or other offering material
in connection with the offering and sale of the Stock.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and
warranties and subject to the terms and conditions herein set forth, the
Company agrees to issue and sell 1,000,000 shares of the Underwritten Stock to
the several Underwriters, each Selling Stockholder agrees to sell to the
several Underwriters the number of shares of the Underwritten Stock set forth
in Schedule II opposite the name of such Selling Stockholder, and each of the
Underwriters agrees to purchase from the Company and the Selling Stockholders
the respective aggregate number of shares of Underwritten Stock set forth
opposite its name in Schedule I. The price at which such shares of
Underwritten Stock shall be sold by the Company and the Selling Stockholders
and purchased by the several Underwriters shall be $___ per share. The
obligation of each Underwriter to the Company and each of the Selling
Stockholders shall be to purchase from the Company and the Selling Stockholders
that number of shares of the Underwritten Stock which represents the same
proportion of the total number of shares of the Underwritten Stock to be sold
by each of the Company and the Selling Stockholders pursuant to this Agreement
as the number of shares of the Underwritten Stock set forth opposite the name
of such Underwriter in Schedule I hereto represents of the total number of
shares of the Underwritten Stock to be purchased by all Underwriters pursuant
to this Agreement, as adjusted by you in such manner as you deem advisable to
avoid fractional shares. In making this Agreement, each Underwriter is
contracting
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severally and not jointly; except as provided in paragraphs (b) and (c) of this
Section 3, the agreement of each Underwriter is to purchase only the respective
number of shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the
Underwriters shall fail or refuse (otherwise than for a reason sufficient to
justify the termination of this Agreement under the provisions of Section 8 or
9 hereof) to purchase and pay for the number of shares of the Stock agreed to
be purchased by such Underwriter or Underwriters, the Company or the Selling
Stockholders shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the shares of the Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of
the Stock which the defaulting Underwriter or Underwriters agreed to purchase
shall not be purchased or absorbed in accordance with the two preceding
sentences, the Company and the Selling Stockholders shall have the right,
within 24 hours next succeeding the 24-hour period above referred to, to make
arrangements with other underwriters or purchasers satisfactory to you for
purchase of such shares and portion on the terms herein set forth. In any such
case, either you or the Company and the Selling Stockholders shall have the
right to postpone the Closing Date determined as provided in Section 5 hereof
for not more than seven business days after the date originally fixed as the
Closing Date pursuant to said Section 5 in order that any necessary changes in
the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company and the Selling Stockholders shall make arrangements within the 24-hour
periods stated above for the purchase of all the shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Stockholders to any non-
defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company or the Selling Stockholders. Nothing
in this paragraph (b), and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
(c) On the basis of the representations,
warranties and covenants herein contained, and subject to the terms and
conditions herein set forth, the Company and Efratom grant an option to the
several Underwriters to purchase, severally and not jointly, up to 255,000
shares of the Option Stock at the same price per share as the Underwriters
shall pay for the Underwritten Stock. Each such option may be exercised only
to cover over-allotments in the
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<PAGE> 11
sale of the Underwritten Stock by the Underwriters and may be exercised in
whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares of
the Option Stock as to which the several Underwriters are exercising the
option. Delivery of certificates for the shares of Option Stock, and payment
therefor, shall be made as provided in Section 5 hereof. The number of shares
of the Option Stock to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Stock to be purchased by
the several Underwriters as such Underwriter is purchasing of the Underwritten
Stock, as adjusted by you in such manner as you deem advisable to avoid
fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by
the Underwriters of the Stock to be purchased by them shall be as set forth in
the Prospectus. The Underwriters may from time to time change the public
offering price after the closing of the initial public offering and increase or
decrease the concessions and discounts to dealers as they may determine.
(b) The information set forth in the last
paragraph on the front cover page and under "Underwriting" in the Registration
Statement, any Preliminary Prospectus and the Prospectus relating to the Stock
filed by the Company (insofar as such information relates to the Underwriters)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Preliminary Prospectus, and
the Prospectus, and you on behalf of the respective Underwriters represent and
warrant to the Company that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of
the Underwritten Stock and the Option Stock (if the option granted by Section
3(c) hereof shall have been exercised not later than 7:00 A.M., San Francisco
time, on the date two business days preceding the Closing Date), and payment
therefor, shall be made at the office of Stradling, Yocca, Carlson & Rauth, 660
Newport Center Drive, Suite 1600, Newport Beach, California, at 7:00 a.m., San
Francisco time, on the [fourth] business day after the date of this Agreement,
or at such time on such other day, not later than seven full business days
after such fourth business day, as shall be agreed upon in writing by the
Company, the Selling Stockholders and you. The date and hour of such delivery
and payment (which may be postponed as provided in Section 3(b) hereof) are
herein called the Closing Date.
(b) If the option granted by Section 3(c) hereof
shall be exercised after 7:00 a.m., San Francisco time, on the date two
business days preceding the Closing Date, delivery of certificates for the
shares of Option Stock, and payment therefor, shall be made at the office of
Stradling, Yocca, Carlson & Rauth, 660 Newport Center Drive, Suite 1600,
Newport Beach, California, at 7:00 a.m., San Francisco time, on the third
business day after the exercise of such option.
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(c) Payment for the Stock purchased from the
Company shall be made to the Company or its order, and payment for the Stock
purchased from the Selling Stockholders shall be made to the Custodian, for the
account of the Selling Stockholders, in each case by one or more certified or
official bank check or checks in same day funds. Such payment shall be made
upon delivery of certificates for the Stock to you for the respective accounts
of the several Underwriters against receipt therefor signed by you.
Certificates for the Stock to be delivered to you shall be registered in such
name or names and shall be in such denominations as you may request at least
one business day before the Closing Date, in the case of Underwritten Stock,
and at least one business day prior to the purchase thereof, in the case of the
Option Stock. Such certificates will be made available to the Underwriters for
inspection, checking and packaging at the offices of Lewco Securities
Corporation, 2 Broadway, New York, New York 10004 on the business day prior to
the Closing Date or, in the case of the Option Stock, by 3:00 p.m., New York
time, on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf of
the Underwriters, may (but shall not be obligated to) make payment to the
Company and the Selling Stockholders for shares to be purchased by any
Underwriter whose check shall not have been received by you on the Closing Date
or any later date on which Option Stock is purchased for the account of such
Underwriter. Any such payment by you shall not relieve such Underwriter from
any of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING
STOCKHOLDERS. Each of the Company and the Selling Stockholders respectively
covenants and agrees as follows:
(a) The Company will (i) prepare and timely file
with the Commission under Rule 424(b) a Prospectus containing information
previously omitted at the time of effectiveness of the Registration Statement
in reliance on Rule 430A and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you shall have
reasonably objected in writing or which is not in compliance with the
Securities Act or the rules and regulations of the Commission.
(b) The Company will promptly notify each
Underwriter in the event of (i) the request by the Commission for amendment of
the Registration Statement or for supplement to the Prospectus or for any
additional information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or proceeding for
that purpose, (iv) the receipt by the Company of any notification with respect
to the suspension of the qualification of the Stock for sale in any
jurisdiction, or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company and the Selling
Stockholders will make every reasonable effort to prevent the issuance of such
a stop order and, if such an order shall at any time be issued, to obtain the
withdrawal thereof at the earliest possible moment.
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(c) The Company will (i) on or before the Closing
Date, deliver to you a signed copy of the Registration Statement as originally
filed and of each amendment thereto filed prior to the time the Registration
Statement becomes effective and, promptly upon the filing thereof, a signed
copy of each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously furnished
to you) and will also deliver to you, for distribution to the Underwriters, a
sufficient number of additional conformed copies of each of the foregoing (but
without exhibits) so that one copy of each may be distributed to each
Underwriter, (ii) as promptly as possible deliver to you and send to the
several Underwriters, at such office or offices as you may designate, as many
copies of the Prospectus as you may reasonably request, and (iii) thereafter
from time to time during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer, likewise send to the Underwriters as
many additional copies of the Prospectus and as many copies of any supplement
to the Prospectus and of any amended prospectus, filed by the Company with the
Commission, as you may reasonably request for the purposes contemplated by the
Securities Act.
(d) If at any time during the period in which a
prospectus is required by law to be delivered by an Underwriter or dealer any
event relating to or affecting the Company, or of which the Company shall be
advised in writing by you, shall occur as a result of which it is necessary, in
the opinion of counsel for the Company or of counsel for the Underwriters, to
supplement or amend the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser of the Stock, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
prospectus so that the Prospectus as so supplemented or amended will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public offering of the Stock
by the Underwriters and during such period, the Underwriters shall propose to
vary the terms of offering thereof by reason of changes in general market
conditions or otherwise, you will advise the Company in writing of the proposed
variation, and, if in the opinion either of counsel for the Company or of
counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the
Commission, the Company will submit to you, for your information, a copy of any
post-effective amendment to the Registration Statement and any supplement to
the Prospectus or any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as
requested by you, in the qualification of the Stock for offer and sale under
the securities or blue sky laws of such jurisdictions as you may designate and,
during the period in which a prospectus is required by
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<PAGE> 14
law to be delivered by an Underwriter or dealer, in keeping such qualifications
in good standing under said securities or blue sky laws; provided, however,
that the Company shall not be obligated to file any general consent to service
of process or to qualify as a foreign corporation in any jurisdiction in which
it is not so qualified. The Company will, from time to time, prepare and file
such statements, reports, and other documents as are or may be required to
continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Stock.
(g) During a period of five years commencing with
the date hereof, the Company will furnish to you, and to each Underwriter who
may so request in writing, copies of all periodic and special reports furnished
to stockholders of the Company and of all information, documents and reports
filed with the Commission.
(h) Not later than the 45th day following the end
of the fiscal quarter first occurring after the first anniversary of the
Effective Date, the Company will make generally available to its security
holders an earnings statement in accordance with Section 11(a) of the
Securities Act and Rule 158 thereunder.
(i) The Company and the Selling Stockholders
jointly and severally agree to pay all costs and expenses incident to the
performance of their respective obligations under this Agreement, including all
costs and expenses incident to (i) the preparation, printing and filing with
the Commission and the National Association of Securities Dealers, Inc.
("NASD") of the Registration Statement, any Preliminary Prospectus and the
Prospectus, (ii) the furnishing to the Underwriters of copies of any
Preliminary Prospectus and of the several documents required by paragraph (c)
of this Section 6 to be so furnished, (iii) the printing of this Agreement and
related documents delivered to the Underwriters, (iv) the preparation, printing
and filing of all supplements and amendments to the Prospectus referred to in
paragraph (d) of this Section 6, (v) the furnishing to you and the Underwriters
of the reports and information referred to in paragraph (g) of this Section 6
and (vi) the printing and issuance of stock certificates, including the
transfer agent's fees. The Selling Stockholders will pay any transfer taxes
incident to the transfer to the Underwriters of the shares the Stock being sold
by the Selling Stockholders.
(j) The Company agrees to reimburse you, for the
account of the several Underwriters, for blue sky fees and related
disbursements (including counsel fees and disbursements and cost of printing
memoranda for the Underwriters) paid by or for the account of the Underwriters
or their counsel in qualifying the Stock under state securities or blue sky
laws and in the review of the offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of
this Section are intended to relieve the Underwriters from the payment of the
expenses and costs which the Company and the Selling Stockholders hereby agree
to pay and shall not affect any agreement which the Company and the Selling
Stockholders may make, or may have made, for the sharing of any such expenses
and costs.
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(l) The Company hereby agrees that, without the
prior written consent of Hambrecht & Quist LLC on behalf of the Underwriters,
the Company will not, for a period of 90 days following the commencement of
the public offering of the Stock by the Underwriters, directly or indirectly,
(i) sell, offer, contract to sell, make any short sale, pledge, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for or any rights to purchase or acquire Common Stock or (ii) enter
into any swap or other agreement that transfers, in whole or in part, any of
the economic consequences or ownership of Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Stock to be sold to the Underwriters
pursuant to this Agreement, (B) shares of Common Stock issued by the Company
upon the exercise of options granted under the stock option plans of the
Company (the "Option Plans"), all as described in footnote (1) to the table
under the caption "Capitalization" in the Preliminary Prospectus, and (C)
options to purchase Common Stock granted under the Option Plans.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of
this Section 7, the Company and the Selling Stockholders jointly and severally
agree to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Securities Act from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Securities Exchange Act of 1934, as amended (herein called the Exchange
Act), or the common law or otherwise, and the Company and the Selling
Stockholders jointly and severally agree to reimburse each such Underwriter and
controlling person for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement), or 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, or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that (1) the indemnity agreements of the Company and the
Selling Stockholders contained in this paragraph (a) shall not apply to any
such losses, claims, damages, liabilities or expenses if such statement or
omission was made in reliance upon and in conformity with
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information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of any Underwriter for use in any Preliminary
Prospectus or the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto, (2) the indemnity agreement contained
in this paragraph (a) 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 purchased the Stock which is
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
Stock a copy of 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 Prospectus (or the Prospectus as amended or supplemented) unless the
failure is the result of noncompliance by the Company with paragraph (c) of
Section 6 hereof, and (3) each Selling Stockholder shall only be liable under
this paragraph with respect to (A) information pertaining to such Selling
Stockholder furnished by or on behalf of such Selling Stockholder expressly for
use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto or (B) facts
that would constitute a breach of any representation or warranty of such
Selling Stockholder set forth in Section 2(b) hereof. The indemnity agreements
of the Company and the Selling Stockholders contained in this paragraph (a) and
the representations and warranties of the Company and the Selling Stockholders
contained in Section 2 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to
indemnify and hold harmless the Company, each of its officers who signs the
Registration Statement on his own behalf or pursuant to a power of attorney,
each of its directors, each other Underwriter and each person (including each
partner or officer thereof) who controls the Company or any such other
Underwriter within the meaning of Section 15 of the Securities Act, and the
Selling Stockholders from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Exchange Act, or the common
law or otherwise and to reimburse each of them for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or 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 or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented
if the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, if such
statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or
16
<PAGE> 17
otherwise furnished in writing to the Company by or on behalf of such
indemnifying Underwriter for use in the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto. The indemnity
agreement of each Underwriter contained in this paragraph (b) shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Stock.
(c) Each party indemnified under the provision of
paragraphs (a) and (b) of this Section 7 agrees that, upon the service of a
summons or other initial legal process upon it in any action or suit instituted
against it or upon its receipt of written notification of the commencement of
any investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall
not relieve such indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than on
account of such indemnity agreement. Any indemnifying party shall be entitled
at its own expense to participate in the defense of any action, suit or
proceeding against, or investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt of the Notice by giving written notice (herein called the Notice
of Defense) to the indemnified party, to assume (alone or in conjunction with
any other indemnifying party or parties) the entire defense of such action,
suit, investigation, inquiry or proceeding, in which event such defense shall
be conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties and (ii) in any event, the indemnified party or
parties shall be entitled to have counsel chosen by such indemnified party or
parties participate in, but not conduct, the defense. If, within a reasonable
time after receipt of the Notice, an indemnifying party gives a Notice of
Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the indemnifying
party or parties will not be liable under paragraphs (a) through (c) of this
Section 7 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the
17
<PAGE> 18
preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party
or parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding.
(d) If the indemnification provided for in this Section 7
is unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Stock received by the Company and the
Selling Stockholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault 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 each indemnifying
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this
paragraph (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities, or actions in respect thereof, referred
to in the first sentence of this paragraph (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigation, preparing to defend or defending against any
action or claim which is the subject of this paragraph (d) to the extent such
indemnified party would be entitled to indemnification for such legal or other
expenses under paragraph 7(c). Notwithstanding the provisions of this
paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Stock purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
18
<PAGE> 19
Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may be
sought from any obligation it may have hereunder or otherwise (except as
specifically provided in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling
Stockholders will, without the prior written consent of each Underwriter,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or
proceeding.
(f) The liability of each Selling Stockholder
under the indemnity and reimbursement agreements contained in the provisions of
this Section 7 and Section 11 hereof shall be limited to an amount equal to the
initial public offering price of the stock sold by such Selling Stockholder to
the Underwriters. The Company and the Selling Stockholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
8. TERMINATION. This Agreement may be terminated by you
at any time prior to the Closing Date by giving written notice to the Company
and the Selling Stockholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States
on or after the date hereof, (ii) any outbreak of hostilities or other national
or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, calamity, crisis or change in
economic or political conditions in the financial markets of the United States
would, in the Underwriters' reasonable judgment, make the offering or delivery
of the Stock impracticable, (iii) suspension of trading in securities generally
or a material adverse decline in value of securities generally on the New York
Stock Exchange, the American Stock Exchange, or The Nasdaq Stock Market, or
limitations on prices (other than limitations on hours or numbers of days of
trading) for securities on either such exchange or system, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of, or commencement of any proceeding or
investigation by, any court, legislative body, agency or other governmental
authority which in the Underwriters' reasonable opinion materially and
adversely affects or will materially or adversely affect the business or
operations of the Company, (v) declaration of a banking moratorium by either
federal or New York State authorities or (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 Underwriters' reasonable opinion has a material
adverse effect on the securities markets in the United States. If this
Agreement shall be
19
<PAGE> 20
terminated pursuant to this Section 8, there shall be no liability of the
Company or the Selling Stockholders to the Underwriters and no liability of the
Underwriters to the Company or the Selling Stockholders; provided, however,
that in the event of any such termination the Company and the Selling
Stockholders agree to indemnify and hold harmless the Underwriters from all
costs or expenses incident to the performance of the obligations of the Company
and the Selling Stockholders under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The
obligations of the several Underwriters to purchase and pay for the Stock shall
be subject to the performance by the Company and by the Selling Stockholders of
all their respective obligations to be performed hereunder at or prior to the
Closing Date or any later date on which Option Stock is to be purchased, as the
case may be, and to the following further conditions:
(a) The Registration Statement shall have become
effective; and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings therefor shall be pending or threatened by the
Commission.
(b) The legality and sufficiency of the sale of
the Stock hereunder and the validity and form of the certificates representing
the Stock, all corporate proceedings and other legal matters incident to the
foregoing, and the form of the Registration Statement and of the Prospectus
(except as to the financial statements contained therein), shall have been
approved at or prior to the Closing Date by Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, counsel for the Underwriters.
(c) You shall have received from Stradling,
Yocca, Carlson & Rauth, counsel for the Company and the Selling Stockholders,
an opinion addressed to the Underwriters covering the matters set forth in
Annex A hereto and from environmental counsel for the Company and each dated
the Closing Date, an opinion addressed to the Underwriters regarding certain
environmental matters involving the Company's subsidiary, Austron, Inc.
reasonably satisfactory to counsel to the Underwriters and if Option Stock is
purchased at any date after the Closing Date, additional opinions from each
such counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such
opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the
Effective Date, the statements made in the Registration Statement and the
Prospectus were true and correct and neither the Registration Statement nor the
Prospectus omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which should
have been set forth in a supplement or amendment to the Prospectus which has
not been set forth in such a supplement or amendment, (iii) since the
respective dates as of which information is given in the Registration Statement
in the form in which it originally became effective and the Prospectus
contained therein, there has not been any material adverse change or any
development involving a prospective material adverse change in or affecting the
business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, and, since such dates, except
in the
20
<PAGE> 21
ordinary course of business, the Company does not have/neither the Company nor
any of its subsidiaries has entered into any material transaction not referred
to in the Registration Statement in the form in which it originally became
effective and the Prospectus contained therein, (iv) neither the Company nor
any of its subsidiaries has any material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus, (v) there are not
any pending or known threatened legal proceedings to which the Company or any
of its subsidiaries is a party or of which property of the Company or any of
its subsidiaries is the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be filed
as exhibits to the Registration Statement which have not been filed as
required, (vii) the representations and warranties of the Company herein are
true and correct in all material respects as of the Closing Date or any later
date on which Option Stock is to be purchased, as the case may be, and (viii)
there has not been any material change in the market for securities in general
or in political, financial or economic conditions from those reasonably
foreseeable as to render it impracticable in your reasonable judgment to make a
public offering of the Stock, or a material adverse change in market levels for
securities in general (or those of companies in particular) or financial or
economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date
and on any later date on which Option Stock is purchased a certificate, dated
the Closing Date or such later date, as the case may be, and signed by the
President and the Chief Financial Officer of the Company, stating that the
respective signers of said certificate have carefully examined the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein and any supplements or amendments thereto, and
that the statements included in clauses (i) through (vii) of paragraph (d) of
this Section 9 are true and correct.
(f) You shall have received from Price Waterhouse
LLP, a letter or letters, addressed to the Underwriters and dated the Closing
Date and any later date on which Option Stock is purchased, confirming that
they are independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their letter
delivered to you concurrently with the execution of this Agreement (herein
called the Original Letter), but carried out to a date not more than three
business days prior to the Closing Date or such later date on which Option
Stock is purchased (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing
Date or such later date, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company or any of its subsidiaries which, in your sole judgment, makes it
impractical or inadvisable to proceed with the public offering of the Stock or
the purchase of the Option Stock as contemplated by the Prospectus.
21
<PAGE> 22
(g) You shall have received from Price Waterhouse
LLP a letter stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's financial statements as at December
31, 1996, did not disclose any weakness in internal controls that they
considered to be material weaknesses.
(h) You shall have been furnished evidence in
usual written or telegraphic form from the appropriate authorities of the
several jurisdictions, or other evidence satisfactory to you, of the
qualification referred to in paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be
issued and sold by the Company shall have been duly authorized for listing by
the Nasdaq National Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall
have received from all directors, officers, and beneficial holders of more than
5% of the outstanding Common Stock agreements, in form reasonably satisfactory
to Hambrecht & Quist LLC, stating that without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, such person or entity will
not, for a period of 90 days following the commencement of the public offering
of the Stock by the Underwriters, directly or indirectly, (i) sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise.
(k) You shall be satisfied that, and you shall
have received a certificate, dated the Closing Date, or any later date on which
Option stock are to be purchased, as the case may be, from the Attorneys for
each Selling Stockholder to the effect that, as of the Closing Date, or any
later date on which Option stock are to be purchased, as the case may be, they
have not been informed that:
(i) The representations and warranties
made by such Selling Stockholder herein are not true or correct in any material
respect on the Closing Date or on any later date on which Option stock are to
be purchased, as the case may be; or
(ii) Such Selling Stockholder has not
complied with any obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Stockholder at or prior to
the Closing Date or any later date on which Option stock are to be purchased,
as the case may be.
All the agreements, opinions, certificates and letters
mentioned above or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only
22
<PAGE> 23
if Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for
the Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9
shall not be fulfilled, this Agreement may be terminated by you by giving
notice to the Company and to the Selling Stockholders. Any such termination
shall be without liability of the Company or the Selling Stockholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Stockholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Stockholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Stockholders
under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof, and (ii) if this Agreement is
terminated by you because of any refusal, inability or failure on the part of
the Company or the Selling Stockholders to perform any agreement herein, to
fulfill any of the conditions herein, or to comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all realonable
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the transactions
contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE
SELLING STOCKHOLDERS. The obligation of the Company and the Selling
Stockholders to deliver the Stock shall be subject to the conditions that (a)
the Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10
shall not be fulfilled, this Agreement may be terminated by the Company and the
Selling Stockholders by giving notice to you. Any such termination shall be
without liability of the Company and the Selling Stockholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Stockholders; provided, however, that in the event of any such
termination the Company and the Selling Stockholders jointly and severally
agree to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company and the
Selling Stockholders under this Agreement, including all costs and expenses
referred to in paragraphs (i) and (j) of Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to
its other obligations under Section 7 of this Agreement (and subject, in the
case of a Selling Stockholder, to the provisions of paragraph (f) of Section
7), (i) the Company and agrees to reimburse on a quarterly basis the
Underwriters for all reasonable legal and other expenses incurred in connection
with investigating or defending any claim, action, investigation, inquiry or
other proceding arising out of or based upon any
23
<PAGE> 24
statement or omission, or any alleged statement or omission, described in
paragraph (a) Section 7 of this Agreement, and subject to clause (3) thereof,
and (ii) the Selling Shareholders hereby severally agree to reimburse on a
quarterly basis the Underwriters for all reasonable legal and other expenses
incurred in connection with investigating or defending any claim, action,
investigation, omission, or any proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This
Agreement shall inure to the benefit of the Company, the Selling Stockholders
and the several Underwriters and, with respect to the provisions of Section 7
hereof, the several parties (in addition to the Company, the Selling
Stockholders and the several Underwriters) indemnified under the provisions of
said Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give
to any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser,
as such purchaser, of any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by facsimile and, if to the
Underwriters, shall be mailed, sent by facsimile or delivered to Hambrecht &
Quist LLC, One Bush Street, San Francisco, California 94104; and if to the
Company, shall be mailed, , sent by facsimile or delivered to it at its office,
9975 Toledo Way, Irvine, California 92618, Attention: Louis B. Horwitz,
President and Chief Executive Officer; and if to the Selling Stockholders,
shall be mailed, , sent by facsimile or delivered to the Selling Stockholders
in care of Louis B. Horwitz or David A. Young at Datum Inc., 9975 Toledo Way,
Irvine, California 92618. All notices given by facsimile shall be promptly
confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification
and contribution agreements contained in this Agreement and the
representations, warranties and covenants in this Agreement shall remain in
full force and effect regardless of (a) any termination of this Agreement, (b)
any investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Company or the Selling Stockholders or their
respective directors or officers, and (c) delivery and payment for the Stock
under this Agreement; provided, however, that if this Agreement is terminated
prior to the Closing Date, the provisions of paragraphs (g), (h) and (l) of
Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
24
<PAGE> 25
Please sign and return to the Company and to the Selling
Stockholders in care of the Company the enclosed duplicates of this letter,
whereupon this letter will become a binding agreement among the Company, the
Selling Stockholders and the several Underwriters in accordance with its terms.
Very truly yours,
DATUM INC.
By:
------------------------------------
Louis B. Horwitz
President and Chief Executive Officer
SELLING STOCKHOLDERS:
EFRATOM HOLDING, INC.
By
-------------------------------------
Name
-----------------------------------
Title
----------------------------------
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By
-------------------------------------
Name
-----------------------------------
Title
----------------------------------
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
OPPENHEIMER & CO., INC.
VAN KASPER & COMPANY
By Hambrecht & Quist LLC
By
-----------------------
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
25
<PAGE> 26
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
UNDERWRITERS PURCHASED
- ------------ ------------
<S> <C>
Hambrecht & Quist LLC . . . . . . . . . . . . . . .
Oppenheimer & Co. Inc. . . . . . . . . . . . . . .
Van Kasper & Company . . . . . . . . . . . . . . .
-----------
Total . . . . . . . . . . . . . .
===========
</TABLE>
S-1
<PAGE> 27
SCHEDULE II
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
NAME AND ADDRESS OF SELLING STOCKHOLDERS SOLD
- ---------------------------------------- -----------
<S> <C>
Efratom Holding, Inc.
10 Longs Peak Drive
Broomfield, Colorado 80021
The Prudential Insurance Company of America
Prudential Plaza
Newark, NJ 07102-3777
Total . . . . . . . . . . .
===========
</TABLE>
S-2
<PAGE> 28
ANNEX A
Matters to be Covered in the Opinion of
Stradling, Yocca, Carlson & Rauth
Counsel for the Company
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, is duly qualified as a foreign corporation and in good standing in
___________, ____________, and _____________, and is so qualified and in good
standing in each jurisdiction in which, to its knowledge, the 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 business,
properties, condition (financial or otherwise) or results of operations or
prospects of the Company and its subsidiaries taken as whole and has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement;
(ii) The Company owns of record, and to our knowledge owns
beneficially all of the outstanding shares of capital stock of each subsidiary
of the Company, and each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(iii) The authorized capital stock of the Company consists
of __________ shares of Preferred Stock, $__ par value, none of which are
issued and outstanding, and ___________ shares of Common Stock, $__ par value,
of which there are issued and outstanding of record __________ shares
(including the Underwritten Stock plus the number of shares of Option Stock
issued on the date hereof); proper corporate proceedings have been taken
validly to authorize such authorized capital stock; all of the outstanding
shares of such capital stock (including the Underwritten Stock plus the number
of shares of Option Stock issued on the date hereof) have been duly and validly
issued and are fully paid and nonassessable; any Option Stock purchased on or
after the Closing Date, when issued and delivered to and paid for by the
Underwriters as provided in the Underwriting Agreement, will have been duly and
validly issued and be fully paid and nonassessable; no preemptive rights or
rights of refusal exist with respect to the Stock, or the issue and sale
thereof, pursuant to the Restated Certificate of Incorporation or Bylaws of the
Company; and, to the best of such counsel's knowledge, there are no contractual
preemptive rights, rights of first refusal or rights of co-sale which exist
with respect to the issue and sale of the Stock by the Company or the sale of
Stock by the Selling Stockholders that have not been waived. Except as
disclosed in the Registration Statement, to the best of such counsel's
knowledge the Company does not have outstanding any options to purchase, or any
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell shares of
its capital stock or any such options, rights, convertible securities or
obligations;
(iv) The Registration Statement has become effective under
the Securities Act and, to the best of such counsel's knowledge after due
inquiry, no stop order suspending the effectiveness of the Registration
Statement or suspending or preventing the use of the Prospectus
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is in effect and no proceedings for that purpose have been instituted or are
pending or threatened by the Commission. Any required filing of the Prospectus
and any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations
has been made in the manner within the time period required by such Rule
424(b).
(v) The Registration Statement at the Effective Date and
the Prospectus and each amendment and supplement thereto (except as to the
financial statements and schedules and other financial data contained therein
and matters related to patents, as to which such counsel need express no
opinion) complied as to form in all material respects with the requirements of
the Securities Act, the Exchange Act and with the rules and regulations of the
Commission thereunder;
(vi) The information required to be set forth in the
Registration Statement in answer to Items 9 and 10 (insofar as Item 10 relates
to the beneficial ownership of shares of Common Stock of the Company by
partners of such counsel) of Form S-2 is, to the best of such counsel's
knowledge, accurately and adequately set forth therein in all material respects
or no response is required with respect to such Items; and to such counsel's
knowledge, the description of the Company's stock option plans and the options
granted and which may be granted thereunder set forth or incorporated by
reference in the Prospectus accurately and fairly presents the information
required to be shown with respect to said plans and options to the extent
required by the Securities Act and the rules and regulations of the Commission
thereunder;
(vii) To the best of such counsel's knowledge, there are no
franchises, contracts, leases, documents or legal proceedings, pending or
threatened, which in the opinion of such counsel are of a character required to
be described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement, which are not described or filed as
required, as the case may be; such franchises, contracts, leases, documents and
legal proceedings as are summarized in the Registration Statement or the
Prospectus fairly and correctly present the information disclosed with respect
thereto in all material aspects;
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company;
(ix) The Underwriting Agreement has been duly executed and
delivered by or on behalf of the Selling Stockholders; and the Custody
Agreement and Power of Attorney between the Selling Stockholders and the
Custodian as defined in the Custody Agreement and Power of Attorney, and the
Power of Attorney referred to in such Custody Agreement and Power of Attorney
have been duly executed and delivered by or on behalf of each of the Selling
Stockholders;
(x) The issue and sale by the Company of the shares of
Stock sold by the Company as contemplated by the Underwriting Agreement will
not conflict with, or result in a breach of, the Restated Certificate of
Incorporation or Bylaws of the Company or any material agreement or instrument
known to such counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or any of their assets
are bound or any applicable law or regulation, or so far as is known to such
counsel, any order, writ,
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injunction or decree, of any jurisdiction, court or governmental
instrumentality to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or any of their assets are
bound;
(xi) To such counsel's knowledge, all holders of
securities of the Company having rights to the registration of shares of Common
Stock, or other securities, because of the filing of the Registration Statement
by the Company are set forth in the Prospectus under the heading "Principal and
Selling Stockholders" or have waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent to file
the Registration Statement;
(xii) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as have
been obtained under the Securities Act and such as may be required under state
securities or blue sky laws or under the rules of the National Association of
Securities Dealers, Inc. in connection with the purchase and distribution of
the Stock by the Underwriters.
(xiii) The Stock to be sold under the Agreement to the
Underwriters is duly authorized for quotation on the Nasdaq National Market.
(xiv) Good and marketable title to the shares of Stock sold
by the Selling Stockholders under the Underwriting Agreement, free and clear of
all liens, encumbrances, equities, security interest and claims, has been
transferred to the Underwriters who have severally purchased such shares of
Stock under the Underwriting Agreement, assuming for the purpose of this
opinion that the Underwriters purchased the same in good faith without notice
of any adverse claims; and
(xv) Based insofar as factual matters with respect to the
Stock to be sold by the Selling Stockholders are concerned solely upon
representations of the Selling Stockholders, the accuracy of which such counsel
have no reason to question, no consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as have
been obtained under the Securities Act and such as may be required under state
securities or blue sky laws in connection with the purchase and distribution of
the Stock by the Underwriters.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or of the State of Delaware,
upon opinions of local counsel satisfactory in form and scope to counsel for
the Underwriters. Copies of any opinions so relied upon shall be delivered to
the Representatives and to counsel for the Underwriters and the foregoing
opinion shall also state that counsel knows of no reason the Underwriters are
not entitled to rely upon the opinions of such local counsel.
In addition to the matters set forth above, counsel rendering the
foregoing opinion shall also include a statement to the effect that nothing has
come to the attention of such counsel that
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leads them to believe that the Registration Statement (except as to the
financial statements and schedules and other financial and statistical data
contained or incorporated by reference therein, as to which such counsel need
not express any opinion or belief) at the Effective Date contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus (except as to the financial statements and schedules and
other financial and statistical data contained or incorporated by reference
therein, as to which such counsel need not express any opinion or belief) as of
its date or at the Closing Date (or any later date on which Option Stock is
purchased), contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances as under which they were
made, not misleading.
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<PAGE> 1
EXHIBIT 10.40
AT&T
Global Procurement
CONTRACT NO. LCB529E
Datum Inc. ACCEPTANCE SHALL BE INDICATED BY SIGNING
Efratom Time and Frequency AND RETURNING DUPLICATE TO:
Products, Inc.
3 Parker AT&T Corp.
Irvine, California 92718 6200 E. Broad Street
Columbus, Ohio 43213
AT&T Corp. ("Company") agrees to purchase and Datum/Efratom ("Supplier") agrees
to sell in accordance with the terms and conditions stated in this Agreement and
on the reverse side of page one of this Agreement.
MATERIAL
Such quantities of Reference Frequency and Timing Generators of Supplier's
manufacture, identified in the PRICE Clause, as may be ordered by Company during
the period of May 1, 1995 through April 30, 1998.
PRICE
See Attachment A
CFC PACKAGING
Supplier warrants that all packaging materials furnished under this Agreement
and all packaging associated with material furnished under this Agreement were
not manufactured using and do not contain Chloroflurocarbons. "Packaging" means
all bags, wrappings, boxes, cartons, and any other packing materials used for
packaging. Supplier shall indemnify and hold Company harmless for usability,
fine, or penalty incurred by Company to any third party or governmental agency
arising out of Company's good faith reliance upon said warranty.
CONSIGNMENT PROCEDURES
A. CONSIGNMENT MATERIAL MANAGEMENT
(1) For Consignment items mutually agreed upon between Company and
Supplier, and shall be designated as such on Attachment A, Company
shall issue to Supplier an annual order during the term of this
Agreement which will state Company's (12)
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month estimated annual usage for such material (the "Master Purchase
Order"). Such Master Purchase Order will include the statement
"Consignment Items covered by this order are subject to the clause
CONSIGNMENT PROCEDURES in the above referenced governing contract."
Such estimated annual usage will be provided for administrative and
planning purposes only and shall not be deemed a commitment to
purchase the amount set forth in the Master Purchase Order.
(2) Each week Company shall provide Supplier a report for each such item
of Consignment Material in the form attached hereto as Attachment B
(the "Consignment Report"). The Consignment Report shall contain a
twelve (12) month forecast including weekly estimated requirements for
a minimum of 26 weeks. The forecast shall be for planning purposes
only and, except to the extent set forth in paragraphs 5 and 6, shall
not be deemed a commitment to purchase the amount set forth in the
forecast. The forecast contained in the Consignment Report may differ
from the Master Purchase Order estimated annual usage. The Consignment
Report shall also list the net amount of material withdrawn (the
quantity designated in the row entitled "Total Used") by part number
by Company from Consigned Material Storage, and the balance of such
Consigned Material Storage (designated in the row entitled "On-hand
Quantity"). Supplier shall invoice Company each week only for net
Consigned Material withdrawn by Company the previous week, quantity
designated in the row entitled "Total Used."
(3) Supplier shall review the forecast contained in the consignment Report
and shall adjust Consigned Material Storage support levels. Supplier
shall manufacture and ship enough finished goods material into
Consigned Material Storage so that Consigned Material Storage contains
the following 1 week forecast plus a level of safety stock not to
exceed the next 3 weeks of Company's forecast for such part numbers in
Attachment B based on the then current Consignment Report.
(4) Supplier shall have the Material Management responsibility for
Company's Consignment Site for the part numbers included in
Consignment.
(5) Company's commitment to purchase shall be only those quantities
withdrawn by Company from Consigned Material Storage and to the extent
set forth in the next subsection (6).
(6) If at any time during the twelve (12) month period covered by a Master
Purchase Order, Consignment is terminated by mutual agreement of the
parties or unilaterally terminated by Company as set forth in the
clause TERMINATION, or if Company changes the forecast contained in
the Consignment Report to eliminate or materially reduce the
quantities forecasted under the Master Purchase Order(s), of if the
Consignment Agreement expires and is not renewed, Company's sole
liability to Supplier shall be to purchase the first 4 weeks of
finished goods (as forecasted in the previous week's Consignment
Report). Such 4 weeks gross forecasted finished goods shall include
those already in Consigned Material Storage, in transit or at
Supplier's location. For the portion of the work in process material
at the Supplier's location,
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Company's obligation will be specified in Attachment B and limited to:
(a) Supplier's purchase price of raw material (not usable in
Supplier's other operations or salable to Supplier's other
customers),
(b) minus any salvage thereof
(c) plus Supplier's direct labor cost in manufacturing such work in
progress.
(d) not to exceed the equivalent quantity of Company's previous
forecast prior to the termination which precipitated the
inventory buildup for weeks one through ten (1-10) of that
forecast.
If requested, Supplier agrees to substantiate such costs with proof
satisfactory to Company.
(7) Volume Reductions - In the case of a reduction in demand, adjustments
will be made to work in process at Supplier to accommodate the change.
If the reduction results in a stock level greater than six months'
future usage or results in a significant dollar amount of stranded
stock, removal of the comcode from Consignment and billing of
inventory at the Company location at the current price will occur. The
Company will provide either a routine purchase order to consume
Supplier's finished goods and work in process or scrap authorization
within 60 days consistent with the liabilities stated in subsection
three (3) "Authorized Stock" or scrap authorization within thirty (30)
days.
B. MATERIAL ON CONSIGNMENT
Supplier shall deliver the material on Consignment to Company as set forth
below:
(1) Consigned material - Per Supplier's or Company's specifications as
indicated in the clause SPECIFICATIONS/DRAWINGS, a copy of which
Supplier and Company have in their possession, as they may be amended
from time to time by Company or with Company's written approval.
Additionally, a pink sticker with the word "CONSIGNMENT" is required
on the outside of each final carton. (See Attachment B for Consigned
Material.)
(2) The Consignment Report shall set forth the Consignment Site
(designated by the row entitled "Rec Loc") and Company's contact
person (designated by the row entitled "Contact").
(3) Consigned Material Storage - Upon receipt of each shipment of
Consigned Material, Company shall cause it to be placed in segregated
storage ("Consigned Material Storage") at the Consignment Site
partitioned or marked to evidence Supplier's
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<PAGE> 4
ownership and in such a way that the Consigned Material may be readily
distinguished from other inventory by physical inspection. Supplier
may physically inspect Consigned Material in Consigned Material
Storage at a mutually agreeable time during normal business hours.
After such inspection, Supplier may invoice Company for any
unaccounted for inventory of Consigned Material at the price then in
effect under this Agreement.
(4) Title and Risk of Loss - Upon receipt at Consignment Site of a
particular lot of Consigned Material for Consigned Material Storage,
risk of loss of such lot shall pass to Company. Upon withdrawal of
such lot by Company from Consigned Material Storage, title to such lot
shall pass to Company and sale of that lot shall be deemed to occur.
(5) Terms of Payment - Terms of payment for material withdrawn from
Consigned Material Storage are Net 15 days.
(6) Withdrawal from Consigned Material Storage - Company may withdraw or
cause to be withdrawn Consigned Material from Consigned Material
Storage at any time. Company shall keep or cause to be kept records
and reports ("Consignment Reports") and shall provide weekly to
Supplier the quantities withdrawn and the balance of Consigned
Material in Consigned Material Storage as set forth in the section
CONSIGNMENT MATERIAL MANAGEMENT. Supplier's invoices for the Consigned
Material shall be based upon such Consignment Reports. Supplier shall
regularly replace quantities withdrawn to maintain mutually agreed
stock support levels as set forth in the section CONSIGNMENT MATERIAL
MANAGEMENT.
(7) Personal Property Taxes - Supplier shall be responsible for the
reporting and payment of personal property taxes, if any, on such
Consigned Material Storage by Company.
(8) Transportation Loss and Damage or Hidden Manufacturing Defects - As to
loss of or damage to Consigned Material which is reasonably apparent
upon delivery from the Carrier, Company shall cause the following to
be done:
(a) At time of delivery, mark delivery receipt with appropriate
exceptions describing the damage before signing; and
(b) At the time of delivery, request the Carrier to either inspect
the loss or damage and forward to Supplier a signed exception
report outlining the extent of loss or damage, or issue a written
waiver of inspection and forward it to Supplier; and
(c) Within ten (10) days after delivery, inspect the damaged material
and notify Supplier whether Company will (i) accept it at a
mutually agreed lower price
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<PAGE> 5
reflecting the transportation damage (if Supplier had the risk of
loss) or the manufacturing defect, or (ii) reject it. Rejected
lots shall be set aside by Company pending disposition by
Supplier as soon as reasonably possible but no later than sixty
(60) days following delivery, after which time any such damaged
Consigned Material remaining undisposed of shall be deemed to be
abandoned and Company may dispose of it as it sees fit without
any obligation to Supplier. As to concealed transportation damage
of hidden manufacturing defects in material, if after withdrawal
of Consigned Material from Consigned Material Storage, Company
discovers concealed transportation damage or defective material,
Company shall notify Supplier within five (5) days of such
discovery, take reasonable steps to preserve evidence of how such
damage occurred and take all actions provided for in subparagraph
(c) above. Where Consigned Material Storage is located on
premises other than Company premises, Company shall direct the
owner of such other premises to comply with the procedure set
forth in this clause.
C. CONSIGNMENT SERVICE PERFORMANCE
The Company intends to monitor the delivery performance of Supplier via
special performance reports. However, for Consigned Material, Supplier
shall maintain a 100% performance rating for "PERCENT OF FORECAST QUANTITY
ON-HAND WHEN MEASURED." Company will provide monthly updates to Supplier's
performance results.
CONTINUING AVAILABILITY
Supplier agrees to offer for sale to Company, during the term of this Agreement
and for at least one year after the expiration of this Agreement, MATERIAL
conforming to the Technical Specifications set forth in this Agreement. Supplier
further agrees to offer for sale to Company, during the term of this Agreement
and until five (5) years after the expiration of this Agreement, maintenance,
replacement, and repair parts ("Parts") which are functionally equivalent and
identical in form and fit for the MATERIAL covered by this Agreement. The price
for the MATERIAL and Parts shall be the price set forth in Supplier's then
current agreement with Company for said MATERIAL or Parts or, if no such
agreement exists, at a price agreed upon by Company and Supplier. If the parties
fail to agree on a price, the price shall be a reasonably competitive price for
said MATERIAL or Parts at the time for delivery. The MATERIAL and Parts shall be
warranted as set forth in the WARRANTY clause of this Agreement.
In the event Supplier files for bankruptcy and fails to supply such MATERIAL or
Parts and Supplier is unable to obtain another source of supply for Company,
then such failure or inability shall be considered noncompliance with this
clause and Supplier shall, without obligation of or charge to Company, provide
Company with Supplier's technical information and grant a non-exclusive world
wide license to use Supplier's technical information or any other rights
required so that Company can manufacture, have manufactured or obtain such
MATERIAL or Parts from other sources; limited only to that part of the Material
which Supplier is unable to continue to supply or discontinues to manufacture.
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<PAGE> 6
DEMAND PULL PROCEDURES
A. For Demand Pull items mutually agreed upon between Company and Supplier,
and shall be designed as such on Attachment A; Company shall issue an
annual order during the term of this Agreement which will state Company's
estimated annual usage for such material (the "EAU order"). Such EAU order
will include the statement "Demand Pull Items covered by this order are
subject to the clause DEMAND PULL PROCEDURES in the above referenced
governing contract."
Each week Company shall provide Supplier with a 52-week forecast for each
such item of Demand Pull material in the form attached hereto as Attachment
C (the "Forecast"). Such Forecast may also contain Company's authorization
to Supplier to ship, within twenty-four hours of Supplier's receipt of the
Forecast, the quantity designated in the column entitled "Supplier Action."
The shipment shall have an on-Company dock date no later than Friday of the
week in which the Demand Pull sheet is issued. Supplier shall immediately
notify Company's authorizing agent in writing (e.g., fax, e-mail, or EDI)
as to the quantity and description of material shipped, as well as any
failure to ship complete an authorized shipment. Supplier shall reference
the EAU order number on its shipping and invoicing documents. Said EAU
order and Forecast shall be for planning purposes only and, except to the
extent set forth in paragraph D below, shall not be deemed a commitment to
purchase the amount set forth in the EAU order or Forecast.
B. Supplier shall maintain 1) an inventory of Supplier inspected finished
Demand Pull material equivalent to the amount specified on Attachment A of
the then current forecast and 2) Demand-pull material in process and/or raw
materials and components in the aggregate sufficient to manufacture such
Demand-Pull material equivalent to the amount specified on Attachment A of
the then current forecast (subject to the proviso in paragraph C below).
C. Supplier shall review the weekly Forecast and make adjustments to
Supplier's inspected inventory, work in process and raw materials and
components based upon increases/decreases in the Forecast and Company's
"Customer Quantity on Hand" level as set forth in said Forecast. Provided,
however, that if the total of the weeks 1 through 12 of a Forecast has
increased or decreased by more than 25% from the previous week's total
Forecast of weeks 1 through 12, such adjustment must be confirmed in
writing by Company and Supplier.
D. Company's commitment for the Demand Pull material shall be limited to 1)
the quantities set forth in the "Supplier Action" column of the Forecast,
2) the inspected inventory, work in process, raw materials and components
as set forth in paragraph B above.
Company's liability for the items in paragraph D.2) shall be limited to:
a. for inspected inventory (not usable in Supplier's other operations or
salable to Supplier's other customers): the unit prices set forth in
the Agreement;
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<PAGE> 7
b. for raw materials and components: Supplier's purchase price of such
raw materials and components (not usable in Supplier's other
operations or salable to Supplier's other customers);
c. for work in process: the actual costs incurred by Supplier in
procuring and manufacturing Demand Pull material (not usable in
Supplier's other operations or salable to Supplier's other customers);
less
d. any salvage value thereof.
If requested, Supplier agrees to substantiate such costs with proof satisfactory
to Company.
DISTRIBUTION RIGHTS
Supplier agrees that it will not sell or offer for sale anywhere in the world
products which are the same as described in the Technical Specification clause
of this Agreement.
Nothing in this clause shall be deemed to be contradiction with the rights of
the Company as stated in the clause "NONEXCLUSIVE MARKET RIGHTS."
EPIDEMIC CONDITION
In the event that during the term of this Agreement and for one year after the
last shipment date of MATERIAL under this Agreement Company notifies Supplier
that MATERIAL shows evidence of an "Epidemic Condition," Supplier shall prepare
and propose a Corrective Action Plan ("CAP") with respect to such MATERIAL
within ten (10) working days of such notification, addressing implementation and
procedure milestones for remedying such Epidemic Condition(s). An extension of
this time-frame is permissible upon mutual written agreement of the parties.
Upon notification of the Epidemic Condition to Supplier, Company shall have the
right to postpone all or part of the shipments of unshipped MATERIAL, by giving
written notice of such postponement to Supplier, pending correction of the
Epidemic Condition. Such postponement shall temporarily relieve Supplier of its
shipment liability and Company of its shipment acceptance liability. Should
Supplier not agree to the existence of an Epidemic Condition or should Company
not agree to the CAP, then Company shall have the right to suspend all or part
of its unshipped orders without liability to Company until such time as a
mutually acceptable solution is reached.
An Epidemic Condition will be considered to exist when one or more of the
following conditions occur:
(1) Failure reports or statistical samplings show that one (1) percent or more
of MATERIAL installed or one (1) percent or more of MATERIAL shipped during
any two consecutive months, or one (1) percent or more of the MATERIAL
tracked by Company's Field Quality Engineering contain a potential safety
hazard (such as personal injury or death, fire,
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<PAGE> 8
explosion, toxic emissions, etc.), or exhibit a highly objectionable
symptom (such as emissions of smoke, loud noises, deformation of housing)
or other disconcerting symptoms of this type.
(2) Reliability plots of relevant data indicate that the MATERIAL has actual
Mean Time Between Failures (MTBF) of less than 80% of the MTBF stipulated
in the Technical Specification. The MTBF parameter of MATERIAL is defined
as the total operating or power-on time of any population under observation
("T"), in hours, divided by the total number of critical failures ("n")
that have occurred during the observed period. A critical failure is
defined as a failure to operate per the requirements of the Technical
Specification. The total operating time of a population is the summation of
operating time of individual units in that population. MTBF is expressed as
MTBF = T/n. An Epidemic Condition shall exist when data derived from
populations being tracked confirms the condition with 80% confidence.
(3) MATERIAL Dead on Arrival (DOA) failures exceed 5%.
Only major functional and visual/mechanical/appearance defects are considered
for determining Epidemic condition. MATERIAL could be either sampled or, at
Company's option, 100% audited at Company warehouses, factories or Company's
customers' locations. If MATERIAL is sampled, the data must have 80% or better
statistical confidence.
For the purpose of this Agreement, functional DOA shall be defined as any
MATERIAL that during the test, installation or upon its first use fails to
operate as expected or specified. Visual/mechanical/appearance DOA is defined as
any MATERIAL containing one or more major defects that would make the MATERIAL
unfit for use or installation.
An Epidemic Condition shall not include failures due to customer misapplication,
utilization of parts not approved by Supplier, or chain failures induced by
internally or externally integrated subassemblies.
In the event that Supplier develops a remedy for the defect(s) that caused the
Epidemic Condition and Company agrees in writing that the remedy is acceptable,
Supplier shall:
(a) Incorporate the remedy in the affected MATERIAL.
(b) Ship all subsequent MATERIAL incorporating the required modification
correcting the defect(s) at no additional charge to Company; and
(c) Repair and/or replace MATERIAL, at Supplier's option, that caused the
Epidemic Condition. In the event that Company incurs costs due to such
repair and/or replacement, including but not limited to labor and
shipping costs, Supplier shall reimburse Company for such costs.
Supplier shall bear risk of in transit loss and damage for such
repaired and/or replaced MATERIAL.
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Supplier and Company shall mutually agree in writing as to the remedy's
implementation schedule. Supplier agrees to utilize its best efforts to
implement the remedy in accordance with the agreed-upon schedule.
In the event that Supplier is unable to develop a mutually agreeable remedy, or
does not adequately take into account the business interests of Company, as
reasonably agreed by the parties, Company may (1) develop and implement such
remedy and, in such case, implementation costs and risk of in-transit loss and
damage shall be allocated between the parties as set forth in this clause,
and/or (2) cancel postponed orders without liability and return all MATERIAL
affected by such Epidemic Condition for full refund, payable by Supplier within
thirty (30) days after receipt of returned MATERIAL (with risk of loss or
in-transit damage borne by Supplier) and/or (3) terminate this Agreement without
further liability.
FLEXIBLE DELIVERY
From time to time during the term of this Agreement, one or more ordering
Companies and/or one or more of the Company's ordering locations (e.g., a
Company manufacturing location) may decide to implement a "Consignment" or
"Demand Pull" delivery arrangement for one or more items of MATERIAL covered by
the Agreement. Upon mutual agreement between Company and Supplier, Company shall
have the right to implement such delivery arrangements by providing written
notice to Supplier at least one hundred twenty (120) days prior to the
implementation date; unless an earlier date is mutually agreed upon. Such notice
shall specify the particular Company or Companies and/or Company ordering
locations which will be covered by such delivery arrangement, the item(s) of
MATERIAL covered by such delivery arrangement, and the implementation date. The
terms and conditions of the applicable delivery arrangement, which are covered
in the clauses CONSIGNMENT PROCEDURES and DEMAND PULL PROCEDURES shall apply to
any such implemented delivery arrangements. The other terms and conditions of
this Agreement shall also apply to such delivery arrangements, provided, however
that if there is a conflict between the terms and conditions in Appendices
and/or the other terms and conditions stated in this Agreement, the terms and
conditions of such applicable Appendices shall control.
FREIGHT ON BOARD
Freight Collect-Irvine, Ca.
HEAVY METAL IN PACKAGING
Supplier warrants to Company that no lead, cadmium, mercury, or hexavalent
chromium have been intentionally added to any packaging or packaging components
(as defined under applicable laws) to be provided to Company under this
Agreement. Supplier further warrants to Company that the sum of the
concentration levels of lead, cadmium, mercury, or hexavalent chromium in the
package or packaging components provided to Company under this Agreement does
not exceed 100 parts per million. Upon request, Supplier shall provide to
Company Certificates of Compliance certifying that the packaging and/or
packaging components provided under this Agreement are in compliance with the
requirements set forth above in this clause. Supplier shall indemnify and hold
Company
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harmless for any liability, fine or penalty incurred by Company to any
third party or governmental agency arising out of Company's good faith reliance
upon said warranties or any Certificates of Compliance.
ISO COMPLIANCE
Supplier shall make best effort to obtain ISO 9000 certification within the
eighteen (18) month period following the execution of this Agreement.
LATE DELIVERY
In addition to any other rights and remedies Company may have for Supplier's
late delivery, if Supplier fails to deliver fully conforming MATERIAL within the
Supplier Interval specified in this Agreement, or by the delivery date specified
in an order placed pursuant to this Agreement and accepted by Supplier, Company
may, at its option, establish a new delivery date for Supplier or cancel this
Agreement or order. If Company establishes a revised delivery date and Supplier
fails to deliver fully conforming MATERIAL by the revised date, Company may
cancel this Agreement or order. Cancellations made pursuant to this clause shall
be at no charge or liability to Company.
LEAD TIME (SUPPLIER INTERVAL)
Supplier is responsible for delivery within the Supplier Interval stated in this
Agreement, unless Supplier agrees to an earlier delivery date on the purchase
order acknowledgment. Supplier Interval is defined as that time from placement
of order with Supplier to delivery at Company's final destination. Unless
otherwise specified in this Agreement or the purchase order, Supplier will be
responsible for meeting the delivery requirements specified in the clause
"SERVICE".
MARKING
All MATERIAL furnished under this Agreement shall be marked for identification
purposes in accordance with the specifications set forth in this Agreement and
as follows:
(a) with Supplier model/serial number; and
(b) with month and year of manufacture.
In addition, Supplier agrees to add any other identification which might be
requested by Company from time to time. Charges, if any, for such additional
identification marking shall be as agreed upon by Supplier and Company.
MEDIATION
If a dispute arises out of or relates to this Agreement, or its breach, and the
parties have not been
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<PAGE> 11
successful in resolving such dispute through negotiation, the parties agree to
attempt to resolve the dispute through mediation by submitting the dispute to a
sole mediator selected by the parties or, at any time at the option of a party,
to mediation by the American Arbitration Association ("AAA"). Each party shall
bear its own expenses and an equal share of the expenses of the mediator and the
fees of the AAA. The parties, their representatives, other participants and the
mediator shall hold the existence, content and result of the mediation in
confidence. If such dispute is not resolved by such mediation, the parties shall
have the right to resort to any remedies permitted by law. All defenses based on
passage of time shall be tolled pending the termination of mediation. Nothing in
this clause shall be construed to preclude any party from seeking injunctive
relief in order to protect its rights pending mediation. A request by a party to
a court for such injunctive relief shall not be deemed a waiver of the
obligation to mediate.
NEW AND CHANGED METHODS/COST REDUCTIONS
Supplier agrees to keep abreast of major developments in Supplier's industry and
promptly advise Company of any developments which might affect the production of
any MATERIAL under this Agreement.
If during the term of this Agreement Supplier's costs are reduced by using
improvement from the:
1. adoption of new production methods, processes, techniques, or
materials, or
2. use of additional, new, or different equipment or facilities prices
shall be reduced by agreement of the parties to fairly reflect such
reduction.
NON-EXCLUSIVE MARKET RIGHTS
It is expressly understood and agreed that this Agreement neither grants to
Supplier an exclusive right or privilege to manufacture or repair for Company
any or all MATERIAL of the type described in this Agreement, nor requires the
purchase of any manufactured or repaired MATERIAL from Supplier by Company. It
is, therefore, understood that Company may contract with other manufacturers and
suppliers for the manufacture or repair of MATERIAL and other products.
OPTION TO EXTEND
Company shall have the right to extend the period specified in the clause
MATERIAL for up to Twenty-four (24) months by giving Supplier at least thirty
(30) days prior written notice.
Within ten (10) days of the date of Company's notice to extend the period,
Supplier shall notify Company in writing whether Supplier proposes to revise the
price(s) under this Agreement. If the parties fail to agree on the revised
price(s) within twenty (20) days after the date of Supplier's notice, Company's
notice of extension shall be considered withdrawn and prices for outstanding
orders or orders placed during the term of this Agreement shall not be revised.
11
<PAGE> 12
OZONE DEPLETING SUBSTANCES LABELING
Supplier warrants and certifies that all products, including packaging and
packaging components, provided to Company under this Agreement have been
accurately labeled, in accordance with the requirements of 40 CFR part 82
entitled "Protection of Stratospheric Ozone, Subpart E - The Labeling of
Products Using Ozone Depleting Substances." Supplier agrees to indemnify, defend
and save harmless Company, its officers, directors and employees from and
against any losses, damages, claims, demands, suits, liabilities, fines,
penalties, and expenses (including reasonable attorneys' fees) that may be
sustained by reason of Supplier's non-compliance with such applicable law or the
terms of this warranty and certification.
OZONE DEPLETING CHEMICALS
Supplier hereby warrants that it is aware of international agreements and
pending legislation in several nations, including the United States, which would
limit, ban and/or tax importation of any product containing, or produced using,
ozone depleting chemicals ("ODCs"), including chlorofluorocarbons, halons, and
certain chlorinated solvents. Supplier hereby warrants that manufactured and/or
repaired Material will conform to applicable requirements established pursuant
to such agreements, legislation, or regulations, and that manufactured and
repaired Material will be able to be imported into and used lawfully in (and
without additional taxes associated with ODCs not reported to Company by
Supplier as set forth in this clause) the United States and other countries
designated by Company, under all such agreements, legislation, and regulations.
Supplier also warrants that it is currently reducing, and is currently causing
all of its parts and component manufacturing vendors to reduce, and will, in an
expeditious manner, eliminate and cause its parts and component manufacturing
vendors to eliminate, the use of ODCs in the manufacture and repair of Material
and all of its parts and components.
Supplier shall, upon execution of this Agreement, and at any time that new
products are ordered under this Agreement or changes are made to Material
manufactured and/or repaired under this Agreement, complete, sign, and return to
Company an ODC Content Certification, in the form requested by Company. The ODC
Content Certification must be signed by Supplier's facility manager, corporate
officer, or delegate.
The term "ODC content" on the ODC Content Certification means the total pounds
of ODC used directly in the manufacture and/or repair of each unit of Material.
This includes all ODCs Supplier uses in its manufacturing, assembly, and repair
operations, plus all ODCs used by Supplier's vendors and any other vendors in
producing parts, components, or other products incorporated into Material.
Supplier warrants to Company that all information furnished by Supplier on the
ODC Content Certification is complete and accurate and that Company may rely on
such information for any purpose, including but not limited to providing reports
to government agencies or otherwise complying with applicable laws. Supplier
agrees to defend, indemnify, and hold Company harmless of and from any claims,
demands, suits, judgments, liabilities, costs, and expenses (including
additional ODC taxes and reasonable attorneys' fees) which Company may incur
under any applicable federal, state, or local laws or international agreements,
and any and all amendments thereto, by reason of Company's use of or reliance on
the information furnished to Company by Supplier on the ODC Content
Certification or by reason of Supplier's breach of this clause. Supplier
12
<PAGE> 13
agrees to cooperate with Company in responding to any inquiry concerning the use
of ODCs to manufacture and/or repair Material or components thereof and to
execute without additional charge any documents reasonably required to certify
the absence or quantity of ODCs used to manufacture and/or repair Material or
components thereof.
PACKING
MATERIAL purchased, repaired, replaced or refurbished under this Agreement shall
be packed by Supplier at no additional charge in containers which meet the
specifications set forth in PKG-91NJ1045 Issue 3 and any other individual
product packaging specifications and as may be changed from time to time by
Company, attached hereto and incorporated herein as Attachment D.
PAYMENT TERMS
Net 30 days.
PRICE REVISION
Either party may initiate a revision in prices under the Agreement by giving
written notice to the other at least thirty (30) days prior to the proposed
effective date thereof. Such revision shall be based on changes in Supplier's
cost and shall be determined by mutual agreement of the parties. Supplier shall
substantiate such changes in cost with documentation satisfactory to Company,
including, but not limited to, a list of purchased material and purchased
services showing quantities and cost of each, and direct labor hours for each
operation. If the parties fail to mutually agree upon revised prices by the
proposed effective date, Company shall have the right to terminate outstanding
orders with respect to all unshipped material other than quantities theretofore
manufactured, which quantities shall not be affected by the proposed price
revision, and no further orders will be placed against this Agreement.
PROCESS CERTIFICATION
Company has the right to review, inspect, and evaluate Supplier's parts and
supplies and Supplier's sources for parts and supplies. Company has the right to
specify types of parts used in manufacture and/or repair of Material and/or
suppliers of these parts. If this impacts previously agreed to unit prices, such
prices shall be negotiated and mutually agreed to. All changes to Company
specified parts, supplies, and sources must be approved in writing by Company,
which approval shall not be unreasonably delayed or withheld.
In regard to Supplier's manufacturing processes, Company also reserves the right
to perform periodic quality surveys, evaluations, and approvals, including, but
not limited to, analysis of each manufacturing or assembly position for
acceptability of procedures, equipment calibration, and operator performance, as
well as evaluation of quality control/quality assurance and data collection and
analysis procedures.
13
<PAGE> 14
Supplier shall conduct appropriate incoming inspection of components in
accordance with its standard practices approved by Company and any specific
requirements of Company. Such practices may be modified from time to time to
address specific conditions as requested by Company. Any increases or decreases
to price resulting from such modifications shall be mutually agreed upon.
PRODUCT CONFORMANCE REVIEW
Paragraph (1) of the clause PRODUCT CONFORMANCE REVIEW on the reverse side of
page 1 applies.
PRODUCT DOCUMENTATION
Supplier agrees to furnish, at mutually agreed upon prices, product
documentation and any succeeding changes thereto, as described in the Technical
Specification. Company may use, reproduce, reformat, modify and distribute such
product documentation.
Company agrees to reproduce Supplier's copyright notice contained in any
documentation reproduced without change by Company. For documentation which is
reformatted or modified by Company, Company shall have the right to place only
Company's own copyright notice on the reformatted or modified documentation. It
is the intent of the parties that Company's copyright notice shall be
interpreted to protect the underlying copyright rights of Supplier to the
documentation to the extent such underlying rights are owned by Supplier.
REGISTRATION AND RADIATION STANDARDS
When MATERIAL furnished under this Agreement is subject to Part 2, Part 15, Part
22 or any other part of the Federal Communication Commission's Rules and
Regulations, as may be amended from time to time (hereinafter "FCC Rules"),
Supplier warrants that such MATERIAL complies with the registration,
certification, type-acceptance and/or verification standards of the FCC Rules
including, but not limited to, all labeling, customer instruction requirements,
and the suppression of radiation to specified levels. Supplier shall also
establish periodic on-going compliance retesting and follow a Quality Control
program, submitted by Company, to assure that MATERIAL shipped complies with the
applicable FCC Rules. Supplier agrees to indemnify and save Company harmless
from any liability, claims or demands (including the costs, expenses and
reasonable attorney's fees on account thereof) that may be made because of
Supplier's noncompliance with the applicable FCC Rules. Supplier agrees to
defend Company, at Company's request, against such liability, claim or demand.
In addition, should MATERIAL which is subject to Part 15 of the FCC Rules,
during use generate harmful interference to radio communications, Supplier shall
provide the Company information relating to methods of suppressing such
interference and pay the cost of suppressing such interference or, at the option
of Company, accept the return of the MATERIAL and refund to Company the price
paid for the MATERIAL less a reasonable amount for depreciation, if applicable.
To the extent that MATERIAL furnished under this Agreement is also subject to
FCC Rules governing the use of the MATERIAL as a component in a system, Company
shall be responsible for
14
<PAGE> 15
compliance with the applicable FCC Rules governing the system. Supplier shall
fully cooperate with Company, by providing technical support and information,
and, upon written request from Company, shall modify MATERIAL to enable Company
to ensure ongoing compliance with the FCC Rules. Company agrees to pay any
increase in Supplier's costs and/or expenses resulting from Company's request to
modify MATERIAL to enable Company to comply with the FCC Rules.
Nothing in this clause shall be deemed to diminish or otherwise limit Supplier's
obligations under the "WARRANTY" clause or any other clause for this Agreement.
REPAIRS NOT COVERED UNDER WARRANTY
In addition to repairs provided for in the WARRANTY clause, Supplier agrees to
provide repair service on all MATERIAL ordered under this Agreement during the
term of this Agreement and until five (5) years after the expiration of this
Agreement. Repairs shall be provided by Supplier at no charge, except as may be
mutually agreed to by the parties and charges for repairs in such excepted cases
shall be stated on an individual purchase order. MATERIAL to be repaired under
this clause will be returned to a location designated by Supplier, and unless
otherwise agreed upon by Supplier and Company, Supplier shall ship the repaired
MATERIAL which meets the specifications set forth in the "SPECIFICATIONS OR
DRAWINGS" clause within thirty (30) days of receipt of the defective or
non-conforming MATERIAL.
If MATERIAL is returned to Supplier for repair as provided for in this clause
and is determined to be beyond repair, Supplier shall so notify Company and
provide replacement (or substitute) Material to Company at its then current
price for such MATERIAL. Further, if requested by Company, Supplier shall take
the necessary steps to dispose of the irreparable MATERIAL and pay to Company
the salvage value, if any.
Replacement and repaired MATERIAL shall be warranted as set forth in the
WARRANTY clause.
It is expressly understood and agreed that this Agreement does not grant
Supplier an exclusive privilege to repair any or all of the MATERIAL purchased
under this Agreement for which Company may require repair; and Company may
perform the repairs or contract with others for these services. In addition,
Supplier authorizes Company and any qualified repairer with whom Company may
contract to perform repairs on all MATERIAL purchased under this Agreement. All
transportation costs of and in transit risk of loss and damage to MATERIAL
returned to Supplier for repair under this clause will be borne by Company and
all transportation costs of and in transit risk of loss and damage to such
repaired or replacement MATERIAL returned to Company will be borne by Company.
REPAIR PROCEDURES
Company shall furnish a repair order containing the following information with
MATERIAL returned to Supplier for repair: (a) Company's name and complete
address; (b) name(s) and telephone number(s) of Company's employee(s) to contact
in case of questions about the MATERIAL to be repaired; (c) ship-to address for
return of repaired MATERIAL if different than (a); (d) a complete list of
MATERIAL returned; (e) the nature of the defect or failure if known; and (f)
whether or not returned MATERIAL is in warranty. Supplier shall, within ten (10)
days of the execution of this Agreement, provide a written notice to Company
specifying (i) the name(s) and telephone number(s) of the individual(s) to be
contacted concerning any questions that may arise
15
<PAGE> 16
concerning repair, and (ii) if required, any special packing of MATERIAL which
might be necessary to provide adequate in-transit protection from transportation
damage.
MATERIAL repaired by Supplier shall have the repair completion date stenciled or
otherwise identified in a permanent manner at a readily visible location on the
MATERIAL and the repaired MATERIAL shall be returned with a tag or other papers
describing the repairs which have been made. Material forwarded to Supplier may
have original factory designation markings. Supplier shall line out these
markings in a manner such that they will remain partially readable, and then
affix replacement nomenclature as may be provided by Company.
Supplier will close all repair orders and recover transportation charges by
forwarding to Company a weekly summary listing indicating the serial numbers and
the associated transportation costs of all Material shipped. In addition, if
replacement Material has been substituted by Supplier for original Material,
Supplier shall furnish, by repair order number, the serial numbers of both the
original and replacement Material. Company shall reimburse Supplier for
transportation costs monthly. Any invoices originated by Supplier for repair
services must be clearly identified as such, and must contain: (1) a reference
to Company's purchase order for these repair services, and (2) a description of
repairs made by Supplier. Further, the provisions of the INVOICING and SHIPPING
clauses, other than provisions relating to transportation charges with respect
to MATERIAL repaired under warranty, shall apply to Supplier's return to Company
of repaired MATERIAL.
RETURN GOODS MATERIAL
Company may return Material that was either (1) never shipped by Company; or (2)
never installed by Company (hereinafter referred to as RGM). Such RGM will be
returned to Supplier for repair, upgrade or refurbishment. Supplier shall,
within thirty (30) days receipt of any such Material, evaluate the extent of
reconditioning required to upgrade and rewarrant Material and provide a written
cost estimate for such RGM services to Company. If Company accepts Supplier's
cost estimate then Company shall issue a purchase order for the completion by
Supplier of RGM services. RGM MATERIAL returned by Supplier shall be warranted
as set forth in the WARRANTY clause.
Any invoices originated by Supplier for (RGM) repair services must be clearly
identified as such, and must contain: (1) a reference to Company's purchase
order for these (RGM) repair services, and (2) a description of repairs made by
Supplier. Further, the provisions of the INVOICING and SHIPPING clauses, other
than provisions relating to transportation charges with respect to MATERIAL
repaired under warranty, shall apply to Supplier's return to Company of repaired
MATERIAL.
SAFETY CERTIFICATION
All Material purchased under this Agreement shall be designed to be in
compliance with the applicable Underwriters Laboratories (UL), Canadian
Standards Association (CSA) and International standards and regulations.
Supplier shall be responsible for making Material available for testing and
Company and Supplier agree to negotiate all costs associated with bringing
Material into compliance with said UL, CSA and International standards and
regulations.
16
<PAGE> 17
SECTION HEADINGS
The headings of the clauses in this Agreement are inserted for convenience only
and are not intended to affect the meaning or interpretation of this Agreement.
SERVICE
Company intends to monitor the delivery performance of each Supplier via special
performance reports. It should be noted that Company shall interpret delivery as
arrival at the final destination specified in the order. Ideally every Supplier
should maintain a performance level of 100% received to Want Date (current and
back) and 100% received by lead time (Supplier Interval). Company's minimum
requirement is that Supplier will maintain an "AVERAGE PERCENT RECEIVED TO
REQUIRED DATE of 85% and an "AVERAGE PERCENT RECEIVED BY LEAD TIME" (Supplier
Interval) of 100%. For MATERIAL ordered via Consignment, if any, Supplier shall
maintain a one hundred percent (100%) performance rating for "PERCENT OF
FORECAST QUANTITY ON HAND WHEN MEASURED".
Supplier is expected to make every reasonable effort to deliver MATERIAL in
accordance with Company's required delivery schedule as contained in Company's
orders, and as the delivery schedule may be subsequently modified by Company.
Supplier is also expected to communicate to Company any foreseeable change to
Supplier's acknowledged delivery schedule. Supplier's compliance with the
foregoing expectations will not relieve Supplier of the minimum service
requirements established in the preceding paragraph. If Supplier advises Company
that it will be unable to meet acknowledged delivery dates, and Company elects
to call for expedited shipments, Supplier will be required to pay the difference
in cost between the method of shipping specified in the order and the actual
cost incurred for expedited shipment.
SPECIFICATIONS OR DRAWINGS
Technical Specifications, WP-92066, Iss. 2 dated 8/11/94; and KS-24019, Iss. 1.0
dated 02/28/95, copies of which are in the Supplier's possession, and as may be
changed from time to time with Supplier's written approval, are hereby made part
of this Agreement.
Any Proposed changes to the Technical Specification shall require the prior
written approval of Company. Supplier shall provide Company with at least thirty
(30) days prior written notice of any change proposed to be made by Supplier in
the MATERIAL furnished pursuant to the Technical Specification under this
Agreement. If Company, in its sole discretion, does not agree to the change
proposed by Supplier, then in addition to all other rights and remedies at law
or equity or otherwise, and without any cost to or liability or obligation of
Company, Company shall have the right to terminate this Agreement and to
terminate any or all purchase orders for MATERIAL affected by such change.
Supplier agrees to continue to supply MATERIAL to Company pursuant to the
Technical Specification for the term of the Agreement. If Supplier is unable to
continue to thus supply or discontinues manufacture of MATERIAL, Company shall
be entitled to one year's advance notice.
17
<PAGE> 18
TERMINATION OF ORDER(S)
Company may at any time terminate without cause any or all Orders placed by it
hereunder. Unless otherwise specified herein, Company's liability to Supplier
with respect to such terminated Order or Orders shall be limited to the lesser
of: (1) the value of the terminated Order, or (2) the total of: (i) Supplier's
purchase price of all parts (not usable in Supplier's other operations or, with
the exception of all programmed ROM type devices, salable to Supplier's other
customers), less the salvage value thereof, plus (ii) the actual costs incurred
by Supplier in manufacturing Material in process at the date of notice of
termination. However, no such termination charges will be invoiced, if within
sixty (60) days of notice of termination, manufactured or repaired Material
equivalent in volume to that being terminated is ordered by Company. If
requested, Supplier agrees to substantiate such costs with proof satisfactory to
Company. Termination of Orders under this Clause shall not require judicial
intervention to be effective.
Supplier shall use its best efforts to cancel, stop, return, or otherwise
dispose of all Supplier-sourced parts not used in manufacture or repair of
Material. Upon request, Supplier shall identify its parts suppliers and
cancellation terms, and shall permit and assist Company in discussions
concerning cancellation charges with such parts suppliers.
TERMINATION
Company may terminate this Agreement in whole or part by giving Supplier at
least sixty (60) days prior written notice. Prices for any work remaining with
Supplier under this Agreement terminated in part may be adjusted to fairly
reflect Supplier's costs resulting from work withdrawn. Upon termination,
Company shall pay Supplier all amounts due for services and material provided by
Supplier to Company under this Agreement up to and including the effective date
of termination. Such payment shall constitute a full and complete discharge of
Company's obligations under this Agreement.
TRAINING
If requested by Company, Supplier will provide instructors and the necessary
instructional material of Supplier's standard format, at mutually agreed upon
prices, to train Company's personnel in the installation, practices, operation,
maintenance and repair of conducted at reasonable intervals at locations agreed
upon by Supplier and Company.
WARRANTY
The WARRANTY clause on the reverse side of Page 1 is hereby amended to read as
follows in item (b) of the second sentence:
(b) Three years after the material is accepted by Company or
WORK DONE BY OTHERS
If any part of the Work is dependent upon work done by others, Supplier shall
inspect, and promptly report to Company's Representative any defect that renders
such other work unsuitable for Supplier's proper performance. Supplier's silence
shall constitute approval of such other work as fit, proper and suitable for
Supplier's performance of the Work.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACCEPTED: Date June 12, 1995
Supplier:Datum Inc./Efratom Time AT&T Corp.
and Frequency Products, Inc.
By: /s/ DONALD SINNAR By: /s/ L.S. CONTERNO
-------------------------------- --------------------------------
Donald Sinnar L.S. Conterno
Title: Vice President Title: Global Procurement Vice
President Worldwide
Operations
19
<PAGE> 20
ATTACHMENT A - LCB529E
<TABLE>
<CAPTION>
LEAD DEMAND/PULL CONSIGNMENT FINISHED GOODS WIP
COMCODE DESCRIPTION PRICE (ea) TIME(wks) Y/N Y/N (WEEKS) (WEEKS)
<S> <C> <C> <C> <C> <C> <C> <C>
Column data Column data Column data
omitted pursuant omitted pursuant omitted pursuant
to Rule 406 to Rule 406 to Rule 406
12 Y N 2 Through 5 6 Through 12
8 Y N 2 Through 5 6 Through 8
12 Y N 2 Through 5 6 Through 12
8 Y N 2 Through 5 6 Through 8
12 Y N 2 Through 5 6 Through 12
8 Y N 2 Through 5 6 Through 8
12 Y N 2 Through 5 6 Through 12
8 Y N 2 Through 5 6 Through 8
12 Y N 2 Through 5 6 Through 12
8 Y N 2 Through 5 6 Through 8
8 Y N 2 Through 5 6 Through 8
12 Y N 2 Through 5 6 Through 12
8 Y N 2 Through 5 6 Through 8
12 Y N 2 Through 5 6 Through 12
8 Y N 2 Through 5 6 Through 8
8 Y N 2 Through 5 6 Through 8
</TABLE>
20
<PAGE> 21
LCB529E
ATTACHMENT B
Page 1 of 1
AT&T NETWORK SYSTEMS -- COLUMBUS WORKS
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
AT&T ENTERPRISE PROCUREMENT AND PAYABLES SYSTEM DATE: ___/95
REPORT: 8655 CONSIGNMENT REPORT TIME: 00:18
ORD-LOC: COLUMBUS WORKS FOR WEEK OF ___/01/95 PAGE: 106
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PUR-LOC: CB COLUMBUS WORKS
REC LOC: CB SHIP TO: 8
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
VENDOR: DI
PURCHASE ORDER NUMBER:
ITEM NUMER: 00001
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
CONTACT: 42BF
PHONE: 614-860-______
EDI: N EDS: Y ERS: N
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PART NUMBER: Omitted pursuant ISSUE:
DESCRIPTION: to Rule 406
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
ON-HAND QTY: 2498 DENOM: PC
- ---------------------------------------------------------------------------------------------------------------------------------
***** TOTAL USED 0 *****
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
NETTED WEEKLY REQUIREMENTS: FISCAL MONTHLY REQUIREMENTS:
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
05/01/95 Column data omitted 07/31/95 Column data omitted 11/95 Column data omitted
05/08/95 pursuant to Rule 406 08/07/95 pursuant to Rule 406 12/95 pursuant to Rule 406
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
05/15/95 08/14/95 01/96
05/22/95 08/21/95 02/96
05/29/95 08/28/95 03/96
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
06/05/95 09/04/95 04/96
06/12/95 09/11/95
06/19/95 09/18/95
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
06/26/95 09/25/95
07/03/95 10/02/95
07/10/95 10/09/95
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
07/17/95 10/16/95
07/24/95 10/23/95
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
*********************************************
TOTAL (WEEKLY + MONTHLY): Omitted pursuant to Rule 406
*********************************************
- ---------------------------------------------------------------------------------------------------------------------------------
LAST RECEIVALS: PACKING SLIP #
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
04/28/95 Column data omitted 138379
04/20/95 pursuant to Rule 406 238298
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
04/13/95 138295
03/31/95 138200
03/24/95 138191
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
ATT -- PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTIONS
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
LCB529E
ATTACHMENT C
Page 1 of 1
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
AT&T NETWORK SYSTEMS -- COLUMBUS WORKS
- ---------------------------------------------------------------------------------------------------------------------------------
AT&T ENTERPRISE PROCUREMENT AND PAYABLES SYSTEM DATE: ___/95
REPORT: 8650 DEMAND PULL REPORT TIME: 00:18
ORD-LOC: COLUMBUS WORKS FOR WEEK OF ___/01/95 PAGE: 236
- ---------------------------------------------------------------------------------------------------------------------------------
PUR-LOC: CB COLUMBUS WORKS
REC LOC: CB SHIP TO: 8
- ---------------------------------------------------------------------------------------------------------------------------------
VENDOR: DI
PURCHASE ORDER NUMBER:
ITEM NUMER: 00001
- ---------------------------------------------------------------------------------------------------------------------------------
CONTACT: 42BF
PHONE: 614-860-______
EDI: N EDS: Y ERS: N
- ---------------------------------------------------------------------------------------------------------------------------------
PART NUMBER: Omitted pursuant ISSUE:
DESCRIPTION: to Rule 406
- ---------------------------------------------------------------------------------------------------------------------------------
ON-HAND QTY: 949 DENOM: PC
- ---------------------------------------------------------------------------------------------------------------------------------
***** SUPPLIER ACTION: SHIP 674 *****
- ---------------------------------------------------------------------------------------------------------------------------------
NETTED WEEKLY REQUIREMENTS: FISCAL MONTHLY REQUIREMENTS:
- ---------------------------------------------------------------------------------------------------------------------------------
05/01/95 Column data omitted 07/31/95 Column data omitted 11/95 Column data omitted
05/08/95 pursuant to Rule 406 08/07/95 pursuant to Rule 406 12/95 pursuant to Rule 406
- ---------------------------------------------------------------------------------------------------------------------------------
05/15/95 08/14/95 01/96
05/22/95 08/21/95 02/96
05/29/95 08/28/95 03/96
- ---------------------------------------------------------------------------------------------------------------------------------
06/05/95 09/04/95 04/96
06/12/95 09/11/95
06/19/95 09/18/95
- ---------------------------------------------------------------------------------------------------------------------------------
06/26/95 09/25/95
07/03/95 10/02/95
07/10/95 10/09/95
- ---------------------------------------------------------------------------------------------------------------------------------
07/17/95 10/16/95
07/24/95 10/23/95
- ---------------------------------------------------------------------------------------------------------------------------------
*********************************************
TOTAL (WEEKLY + MONTHLY): Omitted pursuant to Rule 406
*********************************************
- ---------------------------------------------------------------------------------------------------------------------------------
LAST RECEIVALS: PACKING SLIP #
- ---------------------------------------------------------------------------------------------------------------------------------
04/29/95 Column data omitted 87200
04/20/95 pursuant to Rule 406 067344
- ---------------------------------------------------------------------------------------------------------------------------------
04/19/95 065216
04/04/95 64949
03/28/95 NA
- ---------------------------------------------------------------------------------------------------------------------------------
ATT -- PROPRIETARY
USE PURSUANT TO COMPANY INSTRUCTIONS
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
TERMS AND CONDITIONS (3-94)
Applicable to PD-60-59 and PD-59A
ASSIGNMENT AND SUBCONTRACTING - Supplier shall not assign any right or interest
under this Agreement (excepting monies due or to become due) or delegate or
subcontract any Work or other obligation to be performed or owed under this
Agreement without the prior written consent of Company. Any attempted
assignment, delegation or subcontracting in contravention of the above
provisions shall be void and ineffective. Any assignment of monies shall be void
and ineffective to the extent that (1) Supplier shall not have given Company at
least thirty (30) days prior written notice of such assignment or (2) such
assignment attempts to impose upon Company obligations to the assignee
additional to the payment of such monies, or to preclude Company from dealing
solely and directly with Supplier in all matters pertaining to this Agreement
including the negotiation of amendments or settlements of charges due. All Work
performed by Supplier's subcontractor`(s) at any tier shall be deemed Work
performed by Supplier.
CHOICE OF LAW - The construction, interpretation and performance of this
Agreement and all transactions under it shall be governed by the laws of the
State of New Jersey excluding its choice of laws rules and excluding the
Convention of the International Sale of Goods. The parties agree that the
provisions of the New Jersey Uniform Commercial Code apply to this Agreement and
all transactions under it, including agreements and transactions relating to the
furnishing of services, the lease or rental of equipment or material, and the
license of software. Supplier agrees to submit to the jurisdiction of any court
wherein an action is commenced against Company based on a claim for which
Supplier has agreed to identify Company under this Agreement.
COMPLIANCE WITH LAWS - Supplier and all persons furnished by Supplier shall
comply at their own expense with all applicable federal, state, local and
foreign laws, ordinances, regulations and codes, including those relating to the
use of chlorofluorocarbons, and including the identification and procurement of
required permits, certificates, licenses, insurance, approvals and inspections
in performance under this Agreement. Supplier agrees to indemnify, defend (at
Company's request) and save harmless Company, its affiliates, its and their
customers and each of their officers, directors and employees from and against
any losses, damages, claims, demands, suits, liabilities, fines, penalties and
expenses (including reasonable attorney's fees) that arise out of or result from
any failure to do so.
ENTIRE AGREEMENT - This Agreement shall incorporate the typed or written
provisions on Company's orders issued pursuant to this Agreement and shall
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and the order(s) and shall not be modified or
rescinded, except by a writing signed by Supplier and Company. All references in
these terms and conditions to this Agreement or to Work, services, material,
equipment, products, software or information furnished under, in performance of,
pursuant to, or in contemplation of, this Agreement shall also apply to any
orders issued pursuant to this Agreement. Printed provisions on the reverse side
of Company's orders (except as specified otherwise in this Agreement) and all
provisions on Supplier's forms shall be deemed deleted. Additional or different
terms inserted in this Agreement by Supplier, or deletions thereto, whether by
alterations, addenda, or otherwise, shall be of no force and effect, unless
expressly consented to by Company in writing. Estimates of
23
<PAGE> 24
forecasts furnished by Company shall not constitute commitments. The provisions
of this Agreement supersede all contemporaneous oral agreements and all prior
oral and written quotations, communications, agreements and understandings of
the parties with respect to the subject matter of this Agreement. The term
"Work" as used in this Agreement may also be referred to as "services."
FORCE MAJEURE - Neither party shall be held responsible for any delay or failure
for any delay or failure in performance of any part of this Agreement to the
extent such delay or failure is caused by fire, flood, explosion, war, strike,
embargo, government requirement, civil or military authority, act of God, or
other similar causes beyond its control and without the fault or negligence of
the delayed or nonperforming party or its subcontractors ("force majeure
conditions"). Notwithstanding the foregoing, Supplier's liability for loss or
damage to Company's material in Supplier's possession or control shall not be
modified by this clause. If any force majeure condition occurs, the party
delayed or unable to perform shall not be modified by this clause. If any force
majeure condition occurs, the party delayed or unable to perform shall give
immediate notice to the other party, stating the nature of the force majeure
condition and any action being taken to avoid or minimize its effect. The party
affected by the other's delay or inability to perform may elect to: (1) suspend
this Agreement or an order for the duration of the force majeure condition and
(i) at is option buy, sell, obtain or furnish elsewhere material or services to
be bought, sold, obtained or furnished under this Agreement or an order (unless
such sale or furnishing is prohibited under this Agreement) and deduct from any
commitment the quality bought, sold, obtained or furnished or for which
commitments have been made elsewhere and (ii) once the force majeure condition
ceases, resume performance under this Agreement or order with an option in the
affected party to extend the period of this Agreement or an order up to the
length of time the force majeure condition endured and/or (2) when the delay or
nonperformance continues for a period of at least fifteen (15) days, terminate,
at no charge, this Agreement or an order or the part of it relating to material
not already shipped, or services not already performed. Unless written notice is
given within forty-five (45) days after the affected party is notified of the
force majeure condition, (1) shall be deemed selected.
GOVERNMENT CONTRACT PROVISIONS - The following provisions regarding equal
opportunity, and all applicable laws, rules, regulations and executive orders
specifically related thereto, including applicable provisions and clauses from
the Federal Acquisition Regulation and all supplements thereto are incorporated
in this Agreement as they apply to work performed under specific U.S. Government
contracts: 41 CFR 60-1.4, Equal Opportunity; 41 CFR 60-1.7, Reports and Other
Required information; 41 CFR 60-1.8, Segregated Facilities; 41 CFR 60-250.4,
Affirmative Action for Disabled Veterans and Veterans of the Vietnam Era (if in
excess of $10,000); and 41 CFR 60-741.4, Affirmative Action for Disabled Workers
(if in excess of $2,500), wherein the terms "contractor" and "subcontractor"
shall mean "Supplier". In Addition, orders placed under this Agreement
containing a notation that the material or services are intended for use under
Government contracts shall be subject to such other Government provisions
printed, typed or written hereon, or on the reverse side thereof, or in
attachments thereto.
IDENTIFICATION - Supplier shall not, without Company's prior written consent,
engage in advertising, promotion or publicity related to this Agreement, or make
public use of any identification in any circumstances related to this Agreement.
"Identification" means any copy or semblance of any trade name, trademark,
service mark, insignia, symbol, logo, or any other product,
24
<PAGE> 25
service or organization designation, or any specification or drawing to AT&T or
its affiliates, or evidence of inspection by or for any of them. Supplier shall
remove or obliterate any Identification prior to any use of disposition of any
material rejected or not purchased by Company, and, failing to do so, shall
indemnify, defend (at Company's request) and save harmless AT&T and its
affiliates and each of their officers, directors and employees from and against
any losses, damages, claims demands, suits, liabilities, fines, penalties and
expenses (including reasonable attorneys' fees) arising out of Supplier's
failure to so remove or obliterate.
IMPLEADOR - Supplier shall not implead or bring an action against Company or its
customers or the employees of either based on any claim by any person for
personal injury or death to an employee of Company or its customers occurring in
the course or scope of employment and that arises out of material or services
furnished under this Agreement.
INFRINGEMENT - Supplier shall indemnify and save harmless Company, its
affiliates, its and their customers and each of their officers, directors,
employees, successors and assigns (all hereinafter referred to in this clause as
Company) from and against any losses, damages, liabilities, fines, penalties,
and expenses (including reasonable attorneys' fees) that arise out of or result
from any proved or unproved claim (1) of infringement of any patent, copyright,
trademark or trade secret right, or other intellectual property right, private
right, or any other proprietary or personal interest, and (2) related by
circumstances to the existence of this Agreement or performance under or in
contemplation of it (an Infringement Claim). If the Infringement Claim arises
solely from Supplier's adherence to Company's written instructions regarding
services or tangible or intangible goods provided by Supplier (Items) and if the
Items are not (1) commercial items available on the open market or the same as
such items, or (2) items of Supplier's designated origin, design or selection,
Company shall indemnify Supplier. Company or Supplier (at Company's request)
shall defend or settle, at its own expense any demand, action or suit on any
Infringement Claim for which it is indemnitor under the preceding provisions and
each shall timely notify the other of any assertion against it of any
Infringement Claim and shall cooperate in good faith with the other to
facilitate of any such action.
INVOICING - Supplier shall: (1) render original Invoice, or as otherwise
specified in this Agreement, showing Agreement and order number, through routing
and weight; (2) render separate invoices for each shipment within twenty-four
(24) hours after shipment; and (3) mail invoices with copies of bills of lading
and shipping notices to the address shown on this Agreement or order. If
prepayment of transportation charges is authorized, Supplier shall include the
transportation charges from the FOB point to the destination as a separate item
on the invoice stating the name of the carrier used. No minimum billing charges
are permitted unless expressly authorized in this Agreement.
PAYMENT TERMS - Unless payment terms more favorable to Company appear on
Supplier's invoice and Company elects to pay on such items, invoices shall be
paid in accordance with the terms stated in this Agreement, and due dates for
payment of invoices shall be computed from the date of receipt of invoices by
Company.
PRODUCT CONFORMANCE REVIEWS - paragraph (1) or (2) applies if either is
indicated in this Agreement or order. Paragraph (3) applies to both paragraphs
(1) and (2). (1) All material is subject to a Product Conformance Review
("Review") prior to shipment. Supplier shall notify Company's
25
<PAGE> 26
Global Manufacturing and Engineering (GM&E) organization when material is ready
for such Review. (2) Supplier may ship material without a Review but Company may
perform such Review prior to shipment by giving Supplier notice to that effect,
in which event Supplier shall notify Company's GM&E organization when material
is ready for such Review. (3) Supplier will provide, without charge, any
production testing facilities and personnel required to perform or assist in the
Review as specified in the applicable Quality Program Specification or other
quality specification provided under this Agreement or order. Company's reviews
as set forth in Paragraphs (1) and (2) may only be waived by written
notification from Company's GM&E organization.
RELEASE VOID - Neither party shall require (i) waivers or releases of any
personal rights or (ii) execution of documents which conflict with the terms of
this Agreement, from employees, representatives or customers of the other in
connection with visits to its premises and both parties agree that no such
releases, waivers or documents shall be pleaded by them or third persons in any
action or proceeding.
RIGHT OF ENTRY AND PLANT RULES - Each party shall have the right to enter the
premises of the other party during normal business hours with respect to the
performance of this Agreement, subject to all plant rules and regulations,
security regulations and procedures and U.S. Government clearance requirements
if applicable.
SHIPPING - Supplier shall: (1) ship the material covered by this Agreement or
order complete unless instructed otherwise; (2) ship to the destination
designation designated in the Agreement or order; (3) ship according to routing
instructions given by Company; (4) place the Agreement and order number on all
subordinate documents; (5) enclose a packing memorandum with each shipment and,
when more than one package is shipped, identify the package containing the
memorandum; and (6) mark the Agreement and order number on all packages and
shipping papers. Adequate protective packing shall be furnished at no additional
charge. Shipping and routing instructions may be furnished or altered by Company
without a writing. If Supplier does not comply with the terms of the FOB clause
of this Agreement or order or with Company's shipping or routing instructions,
Supplier authorizes Company to deduct from any invoice of Supplier (or to charge
back to Supplier), any increased costs incurred by Company as a result of
Supplier's noncompliance.
SUPPLIER'S INFORMATION - Supplier shall not provide under, or have provided in
contemplation of, this Agreement any idea, data, program, technical, business or
other intangible information, however conveyed, or any document, print, tape,
disc, semiconductor memory or other information-conveying tangible article,
unless Supplier has the right to do so, and Supplier shall not view any of the
foregoing as confidential or proprietary.
SURVIVAL OF OBLIGATIONS - The obligations of the parties under this Agreement,
which by their nature would continue beyond the termination, cancellation or
expiration of this Agreement, including, by way of illustration only and not
limitation, those in the clauses COMPLIANCE WITH LAWS, IDENTIFICATION,
IMPLEADER, INFRINGEMENT, RELEASES VOID, USE OF INFORMATION and WARRANTY (and
INSURANCE and INDEMNITY if included in this Agreement), shall survive
termination, cancellation or expiration of this Agreement.
TAXES - Company shall reimburse Supplier only for the following tax payments
with respect to transactions under this Agreement unless Company advises
Supplier that an exemption applies:
26
<PAGE> 27
state and local sales and use taxes, as applicable. Taxes payable by Company
shall be billed as separate items on Supplier's invoices and shall not be
included in Supplier's prices. Company shall have the right to have Supplier
contest any such taxes that Company deems improperly levied at Company's expense
and subject to Company's direction and control.
TITLE AND RISK OF LOSS - Title and risk of loss and damage to material purchased
by Company under this Agreement shall vest in Company when the material has been
delivered at the FOB point. If this Agreement or an order issued pursuant to
this Agreement calls for additional services including, but not limited to,
unloading, installation, or testing, to be performed after delivery. Supplier
shall retain title and risk of loss and damage to the material until the
additional services have been performed. Notwithstanding the foregoing sentence,
if Supplier is expressly authorized to invoice Company for material upon
shipment or prior to the performance of additional services, title to such
material shall vest in Company upon payment of the invoice, but risk of loss and
damage shall pass to Company as provided in the foregoing sentence.
USE OF INFORMATION - Supplier shall view as Company's property any idea, data,
program, technical, business or other tangible information, however conveyed,
and any document, print, tape, disc, tool or other tangible
information-conveying or performance-aiding article owned or controlled by
Company, and provided to, or acquired by, Supplier under or in contemplation of
this Agreement (Information). Supplier shall, at no charge to Company, as
Company directs, destroy or surrender to Company promptly at its request any
such article or any copy of such information. Supplier shall keep information
confidential and use it only in performing under this Agreement and obligated
its employees, subcontractors and others working for it to do so, provided that
the foregoing shall not apply to information previously known to Supplier free
of obligation, or made public through no fault imputable to Supplier.
VARIATION IN QUANTITY - Company assumes no liability for material produced,
processed or shipped in excess of the amount specified in this Agreement or
order.
WAIVER - The failure of either party at any time to enforce any right or remedy
available to it under this Agreement or otherwise with respect to any breach or
failure by the other party shall not be construed to be a waiver of such right
or remedy with respect to any other breach or failure by the other party.
WARRANTY - Supplier warrants to Company and its customers that material
furnished will be new, merchantable, free from defects in design, material and
workmanship and will conform to and perform in accordance with the
specifications, drawings and samples. These warranties extended to the future
performance of the material and shall continue for a period of twelve months (or
such longer period specified elsewhere in this Agreement) following acceptance
by Company, or if for resale, by Company's customer. Supplier also warrants to
Company and its customers that services will be performed in a first class,
workmanlike manner. In addition, if material furnished contains one or more
manufacturers' warranties, Supplier hereby assigns such warranties to Company
and its customers. All warranties shall survive inspection, acceptance and
payment. Material or services not meeting the warranties will be, at Company's
option, returned for or subject to refund, repair, replaced or reperformed by
Supplier at no cost to Company or its customers and with transportation costs
and risk of loss and damage in transit borne by Supplier. Repaired and
replacement material shall be warranted as set forth above in this clause.
27
<PAGE> 1
EXHIBIT 10.41
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made this 26th day of
September, 1996, between Robert F. Ellis ("Ellis") and Datum, Inc. ("Datum"), a
Delaware corporation.
R E C I T A L S
A. At the time of execution of the Agreement, Ellis has been an
employee and a vice President of Datum for many years; and
B. Datum and Ellis now desire to provide a consulting relationship
between the parties for a period after Ellis's retirement from Datum.
NOW THEREFORE, the parties agree as follows:
1. EMPLOYMENT - TERMINATION. In the event that Ellis's service with
Datum is severed for any reason between the time of the execution of this
Agreement and July 9, 1999, this Agreement becomes automatically null and void,
unless reaffirmed by agreement of both parties.
2. CONSULTING. Upon Ellis's retirement on July 9, 1999 or thereafter at
a mutually agreeable date, Datum shall engage Ellis as a business consultant and
Ellis shall serve Datum in such capacity.
3. CONSULTING TERM. The period of Ellis's engagement as a consultant
shall begin on Ellis's retirement and extend for a period of one year
thereafter. During this Consulting Term, Ellis shall, at the direction of Datum,
make himself available at mutually agreed upon times for consulting assistance.
Datum may, at its sole option, extend this Agreement for
successive additional twelve (12) month periods or any fraction thereof, subject
to the willingness of Ellis to continue to serve in the capacity as consultant.
Should this Agreement be in force at the time of a change in
control (defined in Paragraph 6), this Agreement shall automatically convert to
a five year consulting term commencing on Ellis's termination of employment,
with all terms and conditions as set forth herein.
4. DUTIES. During the Consulting Term, so long as Ellis is being
compensated hereunder, Ellis shall, form time to time as needed by Datum, render
such advice and consultation in such manner as Datum shall make known, including
without limitation, advice and consultation regarding business planning,
management, financial analysis and other corporate matters.
Subject to Paragraph 8 regarding non-competition, Ellis may
engage in other activities during the Consulting Term, provided he is able to
make himself reasonably available to Datum from time to time for consultation
assignments.
<PAGE> 2
5. COMPENSATION - CONSULTING TERM
(a) FEE. As compensation for Ellis's services as a consultant,
Datum shall pay Ellis a fee in the sum of $2,500 per day plus travel expenses,
if any, for each day Ellis is called upon to render such services. During the
Consulting Term, Ellis shall be guaranteed a minimum of twelve (12) days of
consulting services. In the event he is called upon for a lesser number of days,
he shall, nonetheless, be compensated for the minimum number of days set forth.
Payment shall be within five days of the first day of each month.
(b) BENEFITS. Ellis shall be entitled to those benefits provided for
any other retiree of Datum. This Agreement is limited to services, with
compensation thereof, and implies no further benefits not specifically set forth
herein.
6. CHANGE IN CONTROL. "Change in control" of Datum shall mean a change in
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended ("Exchange Act"); provided that, without limitation,
such a change in control shall be deemed to have occurred if (a) any "person"
[as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act] is or
becomes the beneficial owner, directly or indirectly, of securities of Datum
representation 30% or more of the combined voting power of Datum's then
outstanding securities ordinarily (apart from rights accruing under special
circumstances) having the right to vote at elections of directors, (b) the
persons who were directors of Datum immediately prior to any merger,
consolidation, sale of assets or securities, contested election, or any
combination of the foregoing, shall as a result thereof cease to constitute a
majority of the Board of Directors of Datum or its successor, or (c) the persons
who were directors of Datum immediately prior to a tender offer or exchange
offer for the voting stock of Datum (other than by Datum or a subsidiary) shall,
within two (2) years after the making of such tender offer or exchange offer,
cease to constitute a majority of the Board of Director of Datum or its
successor. However, no change of control shall be deemed to have occurred by
reason of the direct or indirect ownership by Ball Corporation of shares of
Datum's stock.
7. DEATH OR DISABILITY.
(a) In the event of the consultant's death or disability prior to a
change in control as set froth in Paragraph 6 above:
(i) If, during the course of the Consulting Term,
Ellis dies, the consulting provisions of this
Agreement, as applicable, shall terminate, and
Ellis's estate shall be paid, within fifteen (15)
days, a termination settlement of twelve (12)
months of fee as set forth in Paragraph 5(a).
(ii) If, during the course of the Consulting Term,
Ellis suffers a physical or mental disability due
to illness or incapacity such that, based on
competent medical evidence, Ellis is unable to
carry out the duties to be performed by him
hereunder, the consulting provisions of this
Agreement shall terminate, and Ellis's estate
shall be paid, within fifteen (15) days, a
termination settlement of twelve (12) months of
fee as set forth in paragraph 5(a).
2
<PAGE> 3
(b) In the event of Consultant's death or disability following a
change in control, the Consultant or his estate shall continue to receive
payments as set forth in Section 5 for the remainder of the term of the
Agreement, as defined in Section 3.
8. NON-COMPETITION. During the Consulting Term, Ellis shall refrain from
directly or indirectly, for his account or as agent, servant, employee or member
of any firm (a) engaging in any business which is in competition with any
business then being carried on by Datum (including for purposes of this Section
8 Datum's subsidiaries), (b) disclosing to any other person or entity any
confidential information or trade secrets of Datum, without Datum's written
consent, and (c) engaging, hiring, employing or soliciting the employment of any
of Datum's then employees or of the then employees of any of Datum's affiliates
or subsidiaries. The violation of any of these provisions shall provide just
cause for the full and unconditional release without liability to Datum, of all
of Datum's obligations hereunder.
9. MISCELLANEOUS.
(a) Assignment. The performance of Ellis contemplated hereunder is
personal in nature and, accordingly, neither this Agreement nor any part thereof
may be assigned by either party hereto.
(b) Successors and Affiliates. Except as otherwise provided herein,
this Agreement is binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives, and, in the case of Datum, any successor by operation of law or
otherwise. Datum shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Datum, by agreement in form satisfactory to Ellis, to
expressly assume and perform this Agreement in the same manner and to the same
extent that Datum would be required to perform and if no such succession had
taken place.
(c) Waiver and Amendment. A party's failure to enforce any of its
rights hereunder shall not be deemed to be a waiver of such rights, unless such
waiver is in writing and signed by the waiving party. Waiver of any one breach
shall not be deemed to be a waiver of any other breach of the same or any other
provision hereof. This Agreement may be amended only by a written agreement
executed by either party hereto.
(d) Governing Law. The validity of this Agreement, the construction of
its terms and the determination of the rights and duties of the parties hereto
shall all be governed by the laws of the State of California.
(e) Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the subject matter
hereof, and any and all prior discussions, negotiations, commitments, letters of
intent, memoranda, writings and understandings related hereto, are hereby
superseded. No representations oral or otherwise, express or implied, other than
those contained herein, have been made by any party hereto.
3
<PAGE> 4
(f) Severability. This Agreement is severable to the extent that if
any of its provisions should be declared invalid by a court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not thereby be adversely affected.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
DATUM INC.,
a Delaware corporation
By /s/ Louis B. Horwitz
---------------------------------
Louis B. Horwitz
President
/s/ Robert F. Ellis /s/ Dan L. McGurk
- --------------------------------- ---------------------------------
Robert F. Ellis Dan L. McGurk
Compensation Committee
4
<PAGE> 1
EXHIBIT 11
DATUM INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Primary earnings:
Net income............................................. $ 1,974 $ 60 $ 936
---------- ---------- ----------
Weighted average number of common shares outstanding... 4,061,014 3,713,710 2,628,727
Effect of common stock equivalents..................... 192,005 240,597 104,085
---------- ---------- ----------
Weighted average common shares outstanding as
adjusted............................................. 4,253,019 3,954,307 2,732,812
---------- ---------- ----------
Primary earnings per common share...................... $ .46 $ .02 $ .34
========== ========== ==========
Assuming full dilution:
Net income............................................. $ 1,974 $ 60 $ 936
---------- ---------- ----------
Weighted average number of common shares outstanding... 4,061,014 3,713,710 2,628,727
Effect of common stock equivalents..................... 232,817 253,157 126,706
---------- ---------- ----------
Weighted average common shares outstanding as
adjusted............................................. 4,293,831 3,966,867 2,755,433
---------- ---------- ----------
Earnings per common share assuming full dilution....... $ .46 $ .02 $ .34
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-2 of our report dated February 17, 1997
relating to the financial statements of Datum Inc., which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedule for the three years ended December 31, 1996 appearing on page
S-1 of this Registration Statement when such schedule is read in conjunction
with the financial statements referred to in our report. The audits referred to
in such report also included these Financial Statement Schedules. We also
consent to the references to us under the headings "Experts" and "Selected
Consolidated Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected
Consolidated Financial Data."
PRICE WATERHOUSE LLP
Costa Mesa, California
February 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,389
<SECURITIES> 0
<RECEIVABLES> 16,923
<ALLOWANCES> 107
<INVENTORY> 19,270
<CURRENT-ASSETS> 39,907
<PP&E> 23,149
<DEPRECIATION> 7,894
<TOTAL-ASSETS> 68,688
<CURRENT-LIABILITIES> 13,878
<BONDS> 17,318
0
0
<COMMON> 1,023
<OTHER-SE> 33,600
<TOTAL-LIABILITY-AND-EQUITY> 68,688
<SALES> 91,854
<TOTAL-REVENUES> 91,854
<CGS> 56,285
<TOTAL-COSTS> 86,254
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,255
<INCOME-PRETAX> 3,345
<INCOME-TAX> 1,371
<INCOME-CONTINUING> 1,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,974
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
