<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1997
REGISTRATION STATEMENT NO. 333-39767
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HERLEY INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3679 23-2413500
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NUMBER)
</TABLE>
------------------------
<TABLE>
<S> <C>
LEE N. BLATT
CHIEF EXECUTIVE OFFICER
HERLEY INDUSTRIES, INC.
10 INDUSTRY DRIVE 10 INDUSTRY DRIVE
LANCASTER, PENNSYLVANIA 17603 LANCASTER, PENNSYLVANIA 17603
(717) 397-2777 (717) 397-2777
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR
OFFICES) SERVICE)
</TABLE>
Copies to:
<TABLE>
<S> <C>
DAVID H. LIEBERMAN, ESQ. TERRY M. SCHPOK, P.C.
BLAU, KRAMER, WACTLAR & LIEBERMAN, P.C. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
100 JERICHO QUADRANGLE, SUITE 225 1700 PACIFIC AVENUE, SUITE 4100
JERICHO, NEW YORK 11753 DALLAS, TEXAS 75201
(516) 822-4820 (214) 969-2870
(516) 822-4824 FAX (214) 969-4343 FAX
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective, and with
respect to the shares of Common Stock issuable upon the exercise of the
Warrants, from time to time thereafter.
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. [X]
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. [X]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SECURITY(2)(3) PRICE FEE(6)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.10 par value............. 1,610,000 $13.53 $21,783,300 $6,601
- -----------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants(4)........ 1,610,000 -- -- --
- -----------------------------------------------------------------------------------------------------------------
Common Stock, $.10 par value underlying
Common Stock Purchase Warrants(5)...... 1,610,000 $13.53 $21,783,300 $6,601
- -----------------------------------------------------------------------------------------------------------------
Total.................................... -- -- -- $13,202
=================================================================================================================
</TABLE>
(1) Includes up to 210,000 shares of Common Stock and 210,000 Common Stock
Purchase Warrants that may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
(3) Pursuant to Rule 457(c) under the Securities Act of 1933, as amended, the
proposed maximum offering price of each share of the Registrant's Common
Stock is estimated to be the average of the high and low sale prices of a
share as of a date not more than five business days before the filing of
this Registration Statement. Accordingly, the Registrant has used $13.53 as
such price per share, which is the average of the high sale price of $13 7/8
and the low sale price of $13 5/16 reported on the Nasdaq National Market
for a share on November 4, 1997.
(4) Pursuant to Rule 457(g), there is no separate registration fee for the
Common Stock Purchase Warrants because the Registrant also is registering
the issuance of the shares of Common Stock issuable upon exercise of the
Common Stock Purchase Warrants in this Registration Statement.
(5) Reserved for issuance upon exercise of the Common Stock Purchase Warrants.
(6) This total registration fee of $13,202 was previously paid upon the initial
filing of this registration statement on November 7, 1997.
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.
================================================================================
<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 DECEMBER 10, 1997
PRELIMINARY PROSPECTUS
HERLEY INDUSTRIES LOGO
HERLEY INDUSTRIES, INC.
1,400,000 SHARES OF COMMON STOCK AND
1,400,000 COMMON STOCK PURCHASE WARRANTS
Of the 1,400,000 shares (the "Shares") of Common Stock (the "Common Stock")
and 1,400,000 Common Stock Purchase Warrants (the "Warrants") offered hereby,
700,000 shares of Common Stock and 1,400,000 Warrants are being offered by
Herley Industries, Inc. ("Herley" or the "Company") and 700,000 shares of Common
Stock are being offered by certain selling stockholders (the "Selling
Stockholders"). The Shares and Warrants are sometimes hereinafter collectively
referred to as the "Securities." The Company will not receive any of the
proceeds from the sale of Shares sold by the Selling Stockholders. See
"Principal and Selling Stockholders." Each Warrant entitles the holder to
purchase one share of Common Stock at $ per share for thirteen months
from the date of issuance and thereafter at $ per share until
twenty-five months from the date of issuance. The Warrant exercise price and the
number of shares issuable upon exercise of the Warrants are subject to
adjustment under certain circumstances. One Warrant must be purchased for each
Share of Common Stock purchased, although the Warrants and the Shares will be
separately transferable immediately following the completion of this offering.
The Common Stock is traded on the Nasdaq National Market under the symbol
"HRLY." The Company has applied for inclusion of the Warrants on the Nasdaq
National Market. On December 10, 1997 the closing sale price of the Company's
Common Stock as reported by the Nasdaq National Market was $ per share. See
"Price Range of Common Stock."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN RISKS THAT
SHOULD
BE CONSIDERED PRIOR TO PURCHASING THE SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================
UNDERWRITING DISCOUNTS
AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) PROCEEDS TO
SELLING
STOCKHOLDERS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- -------------------------------------------------------------------------------------------------
Per Warrant............. $ $ $ $
- -------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
=================================================================================================
</TABLE>
(1) Does not include additional compensation to be received by Janney Montgomery
Scott Inc. (the "Representative") and Southwest Securities, Inc.
(collectively, with the Representative, the "Managing Underwriters") in the
form of a warrant (the "Managing Underwriters' Warrant") entitling the
Managing Underwriters to purchase additional Securities equal to 10% of the
Securities sold. In addition, the Company, the Selling Stockholders, and the
underwriters named herein (the "Underwriters") have agreed to indemnity and
contribution provisions regarding certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended. The Managing
Underwriters are the only Underwriters. See "Underwriting."
(2) Before deducting other offering expenses payable by the Company estimated at
$500,000. See "Use of Proceeds."
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 210,000
additional shares of Common Stock and 210,000 additional Warrants solely for
the purpose of covering over-allotments, if any. If the Underwriters
exercise such over-allotment option in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The Securities are offered by the Underwriters, subject to prior sale,
when, as and if accepted by the several Underwriters named herein and subject to
certain other conditions, including the right of the Underwriters to withdraw,
cancel, modify or reject any order, in whole or in part. It is expected that the
delivery of the certificates representing the Common Stock and the Warrants will
be made on or about December , 1997 at the offices of Janney Montgomery Scott
Inc., 26 Broadway, New York, New York.
JANNEY MONTGOMERY SCOTT INC. SOUTHWEST SECURITIES
The date of this Prospectus is December , 1997
<PAGE> 3
PHOTO
The MAGIC(2) System provides Command and Control of multiple vehicles to a range
of 400 nautical miles over the horizon with a Relay. The equipment set forth
herein represent the standard components utilized by the MAGIC(2) System,
including the Command Panels used for control, the Transponder located in the
airborne target, the Radio Frequency Module used to communicate to the
Transponder and the Operator Consoles showing the current status of the target.
The MAGIC(2) System components use Computers in the Controller Consoles running
standard software as the Operating System. High Performance Field Programmable
Gate Arrays are utilized in the Transponder and Radio Frequency Module to
perform the encoding and decoding of data. GPS based position information
provides precise location of the vehicle.
The TTCS, which utilizes a C-band tracking antenna for the control of a single
vehicle, is used by many customers who have an installed base of equipment
designed around C-band operation. These customers continue to update hardware as
their older components become obsolete and additional operating features are
desired. The Shelter is shown in a configuration used by most of the Company's
customers today. By providing the required environmental control, the shelter
allows either the TTCS or MAGIC(2) System to be operated in harsh environments.
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
THE WARRANTS, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
AND THE WARRANTS ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement"), pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Securities. This Prospectus does not contain all of
the information set forth in the Registration Statement, and the exhibits
thereto. For further information with respect to the Company and the Securities,
reference is made to the Registration Statement and its exhibits. The Company is
also subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy and information statements, and other information with the
Commission. The Registration Statement and such reports, proxy and information
statements, and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its following regional offices:
Suite 788, 1375 Peachtree St. N.E., Atlanta, Georgia 30367; Northwestern Atrium
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60621-2511; and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, or at the Commission's Web site located at http://www.sec.gov. In
addition, the Company's Common Stock is listed on the Nasdaq National Market and
copies of the foregoing materials and other information concerning the Company
can be inspected at the offices of the Nasdaq National Market at 1735 K Street,
N.W., Washington, D.C. 20006.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
Prospectus, including without limitation statements under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," regarding the Company's financial position, business
strategy and the plans and objectives of the Company's management for future
operations, are forward-looking statements. When used in this Prospectus, words
such as "anticipate," "believe," "estimate," "expect," "intend" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain factors, such as those disclosed under "Risk
Factors," including but not limited to, competitive factors and pricing
pressures, changes in legal and regulatory requirements, technological change or
difficulties, product development risks, commercialization and trade
difficulties and general economic conditions. Such statements reflect the
current views of the Company with respect to future events and are subject to
these and other risks, uncertainties and assumptions relating to the operations,
results of operations, growth strategy and liquidity of the Company. 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 this paragraph.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus does not give effect to the exercise of the over-allotment
option described under "Underwriting" or the exercise of any other options or
warrants. All references herein to the Company are to Herley Industries, Inc. on
a consolidated basis with its subsidiaries, and includes their predecessors,
unless the context otherwise requires. Except where otherwise indicated, this
Prospectus gives effect to the four-for-three stock split of the Common Stock,
effected as a stock dividend, on September 30, 1997. Certain technical and other
terms used in this Prospectus are defined in the Glossary appearing at the end
of this Prospectus.
THE COMPANY
Herley Industries, Inc. principally designs, manufactures and sells flight
instrumentation components and systems, primarily to the U.S. government,
foreign governments, and aerospace companies. Flight instrumentation products
include command and control systems, transponders, flight termination receivers,
telemetry transmitters and receivers, pulse code modulator ("PCM") encoders and
scoring systems. Flight instrumentation products are used to: (i) accurately
track the flight of space launch vehicles, targets, and unmanned airborne
vehicles ("UAVs"), (ii) communicate between ground systems and the airborne
vehicle, (iii) if necessary, destroy the vehicle if it is veering from its
planned trajectory, and (iv) train troops and test weapons.
The Company's command and control systems are used on training and test
ranges domestically and in foreign countries. The Company has an installed base
of approximately 100 command and control systems around the world, which are
either fixed installations, transportable units or portable units. Herley also
manufactures microwave devices used in its flight instrumentation systems and
products and in connection with the radar and defense electronic systems on
tactical fighter aircraft.
Herley believes that the demand for its systems and products should
continue to increase because of a number of important factors. The Department of
Defense has begun to place more emphasis on improved military readiness, using
advanced electronics for enhanced performance and extended life of its
equipment. The Company believes the electronic content of the military
procurement budget will grow at the expense of traditional armaments.
A modern military force must defend against multiple attacking aircraft,
cruise missiles, and short range ballistic missiles such as the Exocet and SCUD.
The Company's MAGIC(2) system, which uses Global Positioning Satellites ("GPS"),
and which the Company believes is the only commercially available command and
control system to control complex scenarios such as multiple targets attacking
from over the horizon, is being used by the U. S. Navy, the Company's largest
customer, to test and train against multiple simultaneous threats. The Company
also has supplied its command and control systems and other electronic products
to foreign countries worldwide, which historically have followed the lead of the
U.S. government in purchasing military electronic products. The Company
anticipates supplementing or replacing installed systems and establishing new
foreign country clients, through "teaming" arrangements with major domestic
military contractors and otherwise.
A rapidly growing component of the Company's business, representing 10% of
fiscal 1997 revenues, is the production of range safety transponders, which are
expendable devices used to track satellite space launches. The Company believes
that it is the only qualified supplier of space launch range safety transponders
in the U.S. The two factors expected to increase the number of commercial space
launches and the Company's space launch business are the growing number of
global mobile satellite telephone systems and the continued development of the
world's satellite communications infrastructure.
The Company has grown internally and through five strategic acquisitions.
As a result, the Company has experienced a compound annual growth rate of 41% in
its operating income before unusual items for the five fiscal years ended August
3, 1997. See "Selected Financial Data." With these acquisitions, the Company has
4
<PAGE> 6
evolved from a components manufacturer to a systems and service provider and has
leveraged its technical capabilities and expertise into domestic commercial and
foreign defense markets.
The new products and systems that the Company plans to design, manufacture
and sell are data link systems, which include telemetry data encoders. Data link
systems and data encoders are currently being sold by others to the Company's
existing customers. With its recent acquisition of Metraplex Corporation
("Metraplex"), the Company may now offer data link systems to its customers,
either directly or through teaming arrangements. Upon receipt of an order, the
Company will customize the design of a system for its customer for delivery
typically nine months after receipt of such order.
The Company's growth strategy is to:
- Design and manufacture new products and systems using its expertise in
digital, software and microwave technologies;
- Broaden existing markets for the Company's products through the
aggressive pursuit of large data link and command and control system
sales;
- Expand the sales of the Company's products and systems in international
markets;
- Extend the capabilities and uses of the Company's products in the rapidly
growing space launch industry and certain commercial industrial
applications;
- Implement cost saving measures through the continued vertical integration
of the Company's recent acquisitions; and
- Continue to capitalize on strategic acquisition opportunities.
The Company was incorporated in New York in 1965 and reincorporated in
Delaware in June 1986. The Company's executive offices are located at 10
Industry Drive, Lancaster, Pennsylvania 17603, and its telephone number is (717)
397-2777.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by:
The Company................................ 700,000 Shares of Common Stock and 1,400,000
Warrants.
Selling Stockholders....................... 700,000 Shares of Common Stock.
One Warrant must be purchased for each Share
of Common Stock purchased, although the
Warrants and the Shares will be separately
transferable immediately following the
completion of this offering.
Description of Warrants...................... Each Warrant is exercisable for 25 months and
entitles the registered holder to purchase one
share of Common Stock at an exercise price
of $ per share for thirteen months
from date of issuance and thereafter at
$ per share. The Warrant exercise
price and the number of shares issuable upon
exercise of the Warrants are subject to
adjustment under certain circumstances. See
"Description of Securities."
Common Stock Outstanding:
Before the Offering........................ 4,541,146 Shares(1)
After the Offering......................... 5,241,146 Shares(1)
Use of Proceeds.............................. The $ of net proceeds from the sale
by the Company of the Securities will be used
for general corporate purposes including
working capital and for possible
acquisitions. See "Use of Proceeds."
Nasdaq National Market Symbols:
Common Stock............................... HRLY
Warrants................................... HRLYW (Proposed)
Risk Factors................................. See "Risk Factors."
</TABLE>
- ---------------
(1) Assumes no exercise of: (i) the Underwriters' over-allotment option to
purchase up to 210,000 shares of Common Stock and 210,000 Warrants from the
Company, (ii) the 1,400,000 Warrants offered by the Company in this
offering, (iii) the 280,000 shares of Common Stock issuable upon exercise of
the Managing Underwriters' Warrant, including the exercise of the Warrants
underlying the Managing Underwriters' Warrant, (iv) the 916,327 shares of
Common Stock issuable upon the exercise of the outstanding options under the
Company's 1992, 1996 and 1997 stock option plans, and (v) the 320,000 shares
of Common Stock issuable upon the exercise of the outstanding warrants
issued to officers and directors. See "Management -- Stock Plans,"
"Description of Securities" and "Underwriting."
6
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The following summary financial information concerning the Company, other
than the as adjusted balance sheet data, has been derived from the consolidated
financial statements included elsewhere in this Prospectus and should be read in
conjunction with such consolidated financial statements and the notes thereto.
See "Financial Statements."
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS
----------------------- ENDED
JULY 30, JULY 28, AUGUST 3,
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 24,450 $ 29,001 $ 32,195
Cost and expenses......................................... 23,189 25,630 27,047
--------- --------- ---------
Operating income before unusual item...................... 1,261 3,371 5,148
Unusual item(1)........................................... (5,447) -- --
--------- --------- ---------
Operating income (loss)................................... (4,186) 3,371 5,148
Other income (expense).................................... (700) 400 136
--------- --------- ---------
Income (loss) before income taxes......................... (4,886) 3,771 5,284
Provision for income taxes................................ 4 102 480
--------- --------- ---------
Net income (loss)......................................... $ (4,890) $ 3,669 $ 4,804
========= ========= =========
Earnings (loss) per common and common equivalent
share(2)................................................ $ (0.98) $ 0.86 $ 1.01
========= ========= =========
Weighted average number of common and common equivalent
shares outstanding(2)................................... 4,978,868 4,253,785 4,733,682
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AUGUST 3,
JULY JULY 1997
30, 28, --------------------------
1995 1996 ACTUAL AS ADJUSTED(3)
------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................... $42,229 $42,509 $39,257
Current liabilities............................ 9,974 7,559 9,813
Long-term debt, net of current portion......... 10,525 11,021 2,890
Shareholders' equity........................... $18,988 $21,032 $23,371
</TABLE>
RECENT FINANCIAL PERFORMANCE:
For the quarter ended November 2, 1997, the Company's net sales were
approximately $10,573,000 as compared to approximately $7,508,000 for the
quarter ended November 3, 1996.
- ---------------
(1) The unusual item consists of settlement costs, legal fees, and related
expenses in connection with the settlement of certain legal claims.
(2) As adjusted to give effect to a four-for-three stock split on September 30,
1997.
(3) The pro forma balance sheet data reflects the anticipated receipt of the net
proceeds from this offering and the repayment of certain loans by the
Company's officers as if this offering and the repayment of such loans had
occurred as of August 3, 1997. See "Use of Proceeds."
7
<PAGE> 9
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the Securities offered hereby.
GOVERNMENT CONTRACTS SUBJECT TO TERMINATION
Approximately 71% and 77% of the Company's sales for fiscal 1997 and 1996,
respectively, were made to U. S. government agencies or prime contractors or
subcontractors on U.S. military and aerospace programs. Changes in government
policies, priorities or program funding levels, resulting from defense budget
cuts or otherwise, could adversely affect the Company's business or financial
performance. In accordance with Department of Defense procedures, all contracts
involving government programs may be terminated by the government, in whole or
in part, at the government's discretion. In the event of such termination, prime
contractors on such contracts are required to terminate their subcontracts on
the program, and the government or the prime contractor is obligated to pay the
costs incurred by the Company under the contract to the date of termination plus
a fee based upon work completed. All of the Company's contracts are fixed price
contracts, some of which require delivery over periods in excess of one year.
The Company agrees to deliver products at a fixed price except for costs
incurred because of change orders issued by the customer. Any cost overruns or
performance problems may have a material adverse effect on the Company's
business, operating results and financial condition. In addition, the
profitability of such contracts is subject to inherent uncertainties as to the
cost of completion. Failure of the Company to replace sales attributable to a
significant defense program or contract at the end of that program or contract,
whether due to cancellation, spending cuts, budgetary constraints or otherwise,
could have a material adverse effect upon the Company's business, operating
results and financial condition in subsequent periods. See
"Business -- Government Contracts."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
In fiscal 1997 and 1996, international sales comprised approximately 29%
and 23%, respectively, of the Company's total sales, and the Company expects its
international business to continue to account for an increasing part of its
revenues. International sales are subject to numerous risks, including political
and economic instability in foreign markets, including current currency and
economic difficulties in the Pacific Rim, restrictive trade policies of foreign
governments, inconsistent product regulation by foreign agencies or governments,
imposition of product tariffs and burdens and costs of complying with a wide
variety of international and U.S. export laws and regulatory requirements. The
governments of Japan, South Korea, Taiwan and the United Kingdom are all
significant customers of the Company. With respect to South Korea, the
International Monetary Fund and other world bodies have provided assistance and
may impose restraints on South Korea's economic policies and there is no
assurance that such policies will not adversely effect the Company's sales to
South Korea. The Company's international sales are subject to the Company
obtaining export licenses for certain products and systems. There can be no
assurance that the Company will be able to continue to compete successfully in
international markets or that its international sales will be profitable. All of
the Company's revenues in fiscal 1997 were denominated in U.S. dollars, and the
Company intends to continue to enter into U.S. dollar-denominated contracts.
Accordingly, the Company does not, and believes that in the future it will not,
have significant exposure to fluctuations in currency. Nevertheless,
fluctuations in currency could adversely affect the Company's customers, which
may lead to delays in the timing and execution of orders. See
"Business -- Business Strategy" and "-- Products."
TECHNOLOGICAL CHANGE
The flight instrumentation industry is characterized by technological
change. The Company's future success will depend upon its ability continually to
enhance its current products and systems and develop and introduce new products
and systems that keep pace with the increasingly sophisticated needs of its
customers and the technological advancements of its competitors. There can be no
assurance that the Company will be successful in developing and marketing
product enhancements, new products or totally new systems that will
8
<PAGE> 10
adequately meet the requirements of the marketplace. As a result, the Company
has expended substantial resources for system and product development and
intends to continue to expend such resources in the future. The development of
new or enhanced systems or products results in expenditures and costs that the
Company may not recover if the system or product is unsuccessful. See
"Business -- New Product Development and Applications."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success is dependent upon its proprietary technology. The
Company does not currently have any material patents and relies principally on
trade secret and copyright laws and certain employee and third-party
non-disclosure agreements, as well as limiting access to and distribution of
proprietary information, to protect its technology. Trade secret laws afford the
Company limited protection because they cannot be used to prevent third parties
from reverse engineering and reproducing the Company's products. Similarly,
copyright laws afford the Company limited protection because copyright
protection extends only to the expression of an idea and cannot be used to
protect the idea itself. Moreover, third parties could independently develop
technologies that compete with the Company's technologies. There can be no
assurance that the obligations to maintain the confidentiality of the Company's
proprietary technology will prevent disclosure of such information. Litigation
may be necessary for the Company to defend against claims of infringement or
protect its proprietary technology, which could result in substantial cost to
the Company and diversion of management's efforts. There can be no assurance
that the Company would prevail in any such litigation. The inability of the
Company to protect its proprietary technology could have a material adverse
effect on the Company's business, financial condition and results of operations.
Although the Company believes that its products and proprietary rights do not
infringe patents and proprietary rights of third parties, there can be no
assurance that infringement claims, regardless of merit, will not be asserted
against the Company. In addition, effective copyright and trade secret
protection of the Company's proprietary technology may be unavailable or limited
in certain foreign countries. In 2004, the Company's exclusive license to
manufacture, market, and sell the Multiple Aircraft GPS Integrated Command and
Control ("MAGIC(2)") system, including enhancements to such system, expires.
Thereafter, the Company and licensor each will have the non-exclusive right to
manufacture, market, license and sell the MAGIC(2) system without any payment to
the other. See "Business -- Intellectual Property."
RISKS ASSOCIATED WITH ENTERING NEW MARKETS AND EXPANSION
The Company has historically derived its revenues principally from the U.S.
Department of Defense and other government agencies. In addition to maintaining
current defense business, the Company intends to pursue a strategy that
leverages the technical capabilities and expertise derived from its defense
business into related commercial markets, both domestic and foreign. The
Company's efforts to expand its presence in the commercial market will require
significant resources, including capital and management time. There can be no
assurance that the Company will be successful in addressing these risks or in
developing these commercial business opportunities. In general, the failure to
manage growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operation. See
"Business -- Business Strategy" and "-- New Product Development and
Applications."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company's strategy includes pursuing additional acquisitions that will
complement its business. In attempting to make acquisitions, the Company often
competes with other potential acquirors, many of which have greater financial
and operational resources. Acquisitions involve significant risk, including (i)
the diversion of management's time and attention to the negotiation of the
acquisitions and the assimilation of the businesses acquired, (ii) the need to
modify financial and other systems and add management resources, (iii) the
potential liabilities of the acquired businesses, (iv) the unforeseen
difficulties in the acquired operations, (v) the possible adverse short-term
effects on the Company's results of operations and (vi) the financial reporting
effects of the amortization of goodwill and other intangible assets. There can
be no assurance that any business acquired in the future will achieve acceptable
levels of revenue and profitability or otherwise perform as expected or that the
Company will be able to consummate or successfully integrate any future
acquisitions or that any acquisition, when consummated, will not materially
adversely affect the
9
<PAGE> 11
Company's business, operating results or financial condition. In addition, in
connection with certain potential acquisitions and investments in the past and
future, the Company has entered or may enter into letters of intent and other
agreements. After performing due diligence on the acquisition or investment
candidate, the Company has determined or may determine that the acquisition or
investment is not in the Company's best interests. In such a case, the Company
may not proceed with such acquisition or investment. No assurance exists that
the Company's election not to proceed with any such acquisition or investment
would not have a material adverse effect upon the Company's business, financial
condition and operating results. While certain of the proceeds of this offering
may be used for acquisitions, the Company has no present arrangements or
understandings with any party with respect to any intended acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PRODUCT LIABILITY; RISK OF PRODUCT DEFECTS
As the Company expands into related commercial markets, the sale of
products and systems by the Company may entail the risk of product liability and
related claims. A product liability claim brought against the Company could have
a material adverse effect upon the Company's business, operating results and
financial condition. Complex products, such as those offered by the Company, may
contain defects or failures when introduced. There can be no assurance that,
despite testing by the Company, errors will not be found in new products after
commencement of commercial shipments, resulting in loss of market share or
failure to achieve market acceptance. Upon entering the commercial markets, the
Company intends to maintain product liability insurance in amounts it deems
adequate. Although the Company has not experienced any claims to date related to
its systems or products, the occurrence of such a claim could have a material
adverse effect upon the Company's business, operating results and financial
condition. See "Business -- Business Strategy" and "-- Manufacturing, Assembly
and Testing."
BACKLOG
The Company's order backlog is subject to fluctuations and is not
necessarily indicative of future sales. There can be no assurance that current
backlog will necessarily lead to sales in any future period. The Company's order
backlog as of August 3, 1997 was approximately $36,911,000. See
"Business -- Backlog."
BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company expects to use net proceeds from this offering for possible
acquisitions and for working capital and other general corporate purposes. The
Company's management will have broad discretion to allocate the proceeds of the
offering, and the amounts actually expended for acquisitions or working capital
may vary significantly depending on a number of factors, including the amount of
future revenues, the amount of cash generated or used by the Company's
operations and the availability of suitable acquisitions. Stockholders will not
vote upon any acquisition nor will stockholders have an opportunity to review
the financial status of any potential acquisition. See "Use of Proceeds."
COMPETITION
The flight instrumentation products that the Company manufactures are
subject to varied competition depending upon the product and market served.
Competition is generally based upon technology, design, price and past
performance. Many of the Company's competitors are larger and possess greater
financial resources than the Company. Competitors include Aydin Corporation, L-3
Communications Corporation, Microsystems, Inc., AMP, Inc. and Remec, Inc.
Competition in follow-on procurements is generally limited after an initial
award unless the original supplier has had performance difficulties. See
"Business -- Competition."
CONTROL BY MANAGEMENT
The Company's executive officers and their relatives beneficially own a
substantial portion of the outstanding shares of the Common Stock and currently
comprise three of the seven members of the Board of Directors. As a result, such
persons have had, and may in the future have, the ability to exercise influence
over
10
<PAGE> 12
significant matters regarding the Company, including transactions between such
persons and the Company. Such a high level of influence may discourage or
prevent unsolicited mergers, acquisitions, tender offers, proxy contests or
changes of incumbent management, even when the stockholders other than such
persons consider such a transaction or event to be in their best interests.
Accordingly, holders of the Common Stock may be deprived of an opportunity to
sell their shares at a premium over the trading price of the shares. See
"Management," "Management -- Certain Transactions" and "Principal and Selling
Stockholders."
DEPENDENCE UPON KEY PERSONNEL
The success of the Company depends upon the efforts of its executive
officers and other key personnel, including Lee N. Blatt, Chairman of the Board
and Chief Executive Officer, Myron Levy, President, and Gerald I. Klein, its
chief technologist, and in the event of an acquisition, its ability to attract
and retain other highly qualified management and technical personnel. Although
the Company has existing employment agreements with Messrs. Blatt, Levy and
Klein, the loss of the services of Mr. Blatt, Mr. Levy and Mr. Klein could have
an adverse effect on the Company's business and prospects. The Company does not
maintain key-man life insurance. There can be no assurance that the Company will
be successful in the event it needs to hire and retain additional key personnel.
See "Management."
FLUCTUATIONS IN QUARTERLY RESULTS; VOLATILITY OF TRADING PRICE
The Company's quarterly results have in the past been, and will continue to
be, subject to significant variations due to a number of factors, any one of
which could substantially affect the Company's results of operations for any
particular fiscal quarter. In particular, quarterly results of operations can
vary due to the timing, cancellation or rescheduling of customer orders and
shipments, the pricing and mix of systems and products sold, new system and
product introductions by the Company, the Company's ability to obtain components
and subassemblies from contract manufacturers and suppliers, and variations in
manufacturing efficiencies. Accordingly, the Company's performance in any one
fiscal quarter is not necessarily indicative of financial trends or future
performance.
The trading prices of the Common Stock and the Warrants could fluctuate
widely in response to variations in the Company's quarterly operating results,
changes in earnings estimates by securities analysts, changes in the Company's
business and changes in general market or economic conditions. In addition, in
recent years the stock market has experienced extreme price and volume
fluctuations. These fluctuations have significantly affected the trading prices
of the securities of many companies without regard to their specific operating
performance. Such market fluctuations could have a material adverse effect on
the trading prices of the Common Stock and the Warrants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market after this offering may have an adverse effect on the market price of the
Common Stock and the Warrants. Upon completion of this offering, the Company
will have outstanding 5,241,146 shares of Common Stock. The shares sold in this
offering generally will be freely transferable without restriction. Of the
remaining 4,541,146 shares, 3,806,363 shares are freely transferable, including
313,193 shares previously registered for approximately 85 former stockholders of
Metraplex, which shares were recently issued in connection with such
acquisition, and 734,783 shares may not be sold unless the sale is registered
under the Securities Act, or an exemption from registration is available,
including the exemption provided by Rule 144 under the Securities Act. Without
the prior written consent of the Representative, the Selling Stockholders, the
Company's directors and certain of the Company's officers and key employees have
agreed that they will not, directly or indirectly, offer, sell, contract to
sell, pledge, grant any option for the sale of or otherwise dispose of any
shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock for a period of 180 days after the
date of this offering with respect to the Selling Stockholders and 120 days
after the date of this offering with respect to the Company's directors and
certain of the Company's officers and key employees who are not Selling
Stockholders. After such periods, the 949,302 shares of Common Stock held by
such persons
11
<PAGE> 13
will be eligible for sale in the public market in reliance upon Rule 144 subject
to the restrictions contained therein. See "Underwriting" and "Description of
Securities -- Common Stock -- Shares Eligible for Future Sale."
POSSIBLE DILUTIVE EFFECT OF THE ISSUANCE OF SUBSTANTIAL ADDITIONAL SHARES
WITHOUT STOCKHOLDER APPROVAL
After this offering, the Company will have an aggregate of approximately
557,943 shares of Common Stock authorized but unissued and not reserved for
specific purposes. All of such shares may be issued without any action or
approval by the Company's stockholders. The Company intends to propose an
increase in its authorized shares of Common Stock from 10,000,000 to 20,000,000
shares at its next annual meeting of stockholders presently scheduled to be held
in January 1998. Any shares issued would further dilute the percentage ownership
of the Company held by the investors in this offering. Unissued but reserved
shares of Common Stock include shares of Common Stock reserved for issuance in
connection with the exercise of (i) the Warrants, (ii) the stock options issued
under the Company's stock option plans, (iii) the warrants held by officers and
directors, and (iv) the Managing Underwriters' Warrant, including the shares of
Common Stock issuable upon the exercise of the Warrants issuable upon exercise
of the Managing Underwriters' Warrant. The terms on which the Company could
obtain additional capital during the terms of these stock options and warrants
may be adversely affected because of such potential dilution and because the
holders thereof might be expected to convert or exercise them if the market
price of the Common Stock exceeds their conversion or exercise price. See
"Description of Securities" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
DETERMINATION OF THE WARRANT EXERCISE PRICE
The exercise price of the Warrants has been set at a premium to the
existing market price of the Common Stock and bears no relationship to any
objective criteria of future value. Accordingly, such exercise price should in
no event be regarded as an indication of any future market price of the Common
Stock. See "Price Range of Common Stock."
ABSENCE OF TRADING MARKET FOR THE WARRANTS
There currently is no trading market for the Warrants. Although the Company
has applied for inclusion of the Warrants in the Nasdaq National Market, there
can be no assurance that an active market will develop for the Warrants or if
such a market develops, that it will be maintained. The market price for the
Warrants is expected to be directly related to the market price of the Common
Stock. The market price of the Common Stock and thus the trading price of the
Warrants are likely to be subject to significant fluctuations in response to
variations in quarterly results of operations, general trends in the marketplace
and other factors, many of which are not within the Company's control. See
"-- Fluctuations in Quarterly Results; Volatility of Trading Price" and "Price
Range of Common Stock."
CURRENT REGISTRATION REQUIRED TO EXERCISE THE WARRANTS
Holders of the Warrants will be able to exercise their Warrants only if
this Registration Statement or another registration statement relating to the
sale of the shares of Common Stock underlying the Warrants is then in effect, or
the sale of such shares upon exercise of the Warrants is exempt from the
registration requirements of the Securities Act, and such shares are qualified
for sale or exemption from qualification under applicable laws of the states
where the holders of the Warrants reside. Although the Company is required to
maintain this Registration Statement in effect with respect to the sale of the
shares of Common Stock underlying the Warrants until the Warrants expire, there
can be no assurance that the Company will be able to maintain the effectiveness
of the Registration Statement during such period. Those persons desiring to
exercise their Warrants will be unable to purchase the underlying shares of
Common Stock if this Registration Statement or another registration statement
covering the sale of such shares is not effective, unless the sale of such
shares is exempt from the registration requirements of the Securities Act, or if
such shares are not qualified or exempt from qualification in the states where
the holders of the Warrants reside. The Warrant
12
<PAGE> 14
Agreement governing the terms of the Warrants, however, provides that the
expiration date for the Warrants will be extended if a registration statement
with respect to the sale of underlying shares of Common Stock has not been
continuously effective during the 90 days immediately preceding the expiration
date for the Warrants (or the Company has not maintained the registration or
qualification of such shares under applicable state securities laws during such
period). See "Description of Securities."
POTENTIAL ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTIFICATE OF INCORPORATION
Certain provisions of Delaware law and the Company's Certificate of
Incorporation and By-laws could make a merger, tender offer or proxy contest
involving the Company more difficult, even if such events could be beneficial to
the interests of the stockholders. These provisions include Section 203 of the
Delaware General Corporation Law, which prohibits certain business combinations
with interested stockholders, the classification of the Company's Board of
Directors into three classes and the requirement that stockholders owning at
least 66 2/3% of the outstanding shares of Common Stock approve certain
transactions, including mergers and sales or transfers of all or substantially
all of the assets of the Company. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of the Common
Stock and the Warrants. See "Description of Securities."
LIMITATIONS ON PERSONAL LIABILITY OF DIRECTORS
The Company's Certificate of Incorporation and By-laws contain provisions
that reduce the potential personal liability of directors for certain monetary
damages and provide for indemnity of directors and other persons. The Company is
unaware of any pending or threatened litigation against the Company or its
directors that would result in any liability for which a director would seek
indemnification or similar protection. The Company also maintains officers and
directors liability insurance and has entered into indemnification agreements
with certain of its officers and directors. The indemnification agreements
provide for reimbursement for all direct and indirect costs of any type or
nature whatsoever (including attorneys' fees and related disbursements)
reasonably incurred in connection with either the investigation, defense or
appeal of a covered legal proceeding, including amounts paid in settlement by or
on behalf of an indemnitee thereunder. See "Description of Securities -- Certain
Provisions of the Certificate of Incorporation."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered by
the Company hereby (after deducting underwriting commissions and discounts and
estimated offering expenses) are estimated to be $ , excluding the
proceeds from the exercise of any Warrants. See "Capitalization."
The Company intends to use the net proceeds of this offering for general
corporate purposes including working capital and for possible acquisitions.
Although the Company considers acquisitions from time to time as part of its
normal business operations and planning, it has no present commitments or
agreements with respect to any intended acquisition. See "Risk Factors -- Broad
Discretion of Management to Allocate Offering Proceeds" and "-- Risks Associated
with Acquisitions." If the Underwriters exercise the over-allotment option in
full, the Company will realize additional net proceeds of $ , which
will be added to the Company's working capital. The exercise price that the
Company receives upon the exercise of any Warrants will also be added to the
Company's working capital and used for general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Pending use of the proceeds from this offering as set forth above, the
Company may invest all or a portion of such proceeds in short-term,
interest-bearing securities, U.S. Government securities, money market
investments and short-term, interest-bearing deposits in major banks.
The Company will not receive any proceeds from the sale of the Shares sold
by the Selling Stockholders.
13
<PAGE> 15
PRICE RANGE OF COMMON STOCK
The Common Stock is traded in the Nasdaq National Market under the symbol
HRLY. The following table sets forth the high and low closing sales price as
reported by the Nasdaq National Market for the Common Stock for the periods
indicated and gives retroactive effect to the four-for-three stock split of the
Common Stock on September 30, 1997.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year 1996
First Quarter............................................................ $ 4.59 $ 3.66
Second Quarter........................................................... 6.19 3.84
Third Quarter............................................................ 7.97 5.25
Fourth Quarter........................................................... 9.19 6.00
Fiscal Year 1997
First Quarter............................................................ 7.97 6.19
Second Quarter........................................................... 10.69 7.31
Third Quarter............................................................ 8.91 6.09
Fourth Quarter........................................................... 10.69 6.19
Fiscal Year 1998
First Quarter............................................................ 15.00 10.13
Second Quarter (through December 10, 1997)...............................
</TABLE>
The closing price on December 10, 1997 was $ . As of December 10,
1997, there were approximately 360 record holders and approximately an
additional 1,100 beneficial holders of the Common Stock.
There have been no cash dividends declared or paid by the Company on its
Common Stock during the past two fiscal years or the current fiscal year.
DIVIDEND POLICY
Holders of the Common Stock are entitled to dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. The
Company has not declared or paid any dividends for the past two fiscal years, or
the current fiscal year, except for a four-for-three stock split effected as a
stock dividend on September 30, 1997. The Company does not intend to pay cash
dividends in the foreseeable future.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization and certain other items
of the Company as of August 3, 1997 and stock capitalization as adjusted to give
effect to the consummation of this offering as if it occurred on August 3, 1997.
This table should be read in conjunction with the financial statements and
related notes included elsewhere in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AUGUST 3, 1997
--------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS, EXCEPT
NUMBER OF SHARES)
<S> <C> <C>
Cash and cash equivalents........................................... $ 1,195
======= =======
Current portion of long-term debt................................... 335
Long-term debt...................................................... 2,890
Note payable to related party....................................... 846
Shareholders' equity:
Common stock, $.10 par value; 10,000,000 shares authorized,
4,209,365 shares issued and outstanding and shares,
as adjusted(2)(3).............................................. 421
Additional paid-in capital........................................ 8,857
-------
Retained earnings................................................. 14,093
------- -------
Total shareholders' equity..................................... 23,371
------- -------
Total capitalization...................................... $27,442
======= =======
</TABLE>
- ---------------
(1) Adjusted to give effect to the consummation of this offering as if it
occurred on August 3, 1997, including the repayment of notes receivable of
$2,100,913 at closing from certain officers of the Company. See
"Management -- Certain Transactions."
(2) Gives effect to the four-for-three stock split on September 30, 1997.
(3) Excludes: (i) the 210,000 shares of Common Stock and the 210,000 shares of
Common Stock issuable upon the exercise of the Warrants issuable upon
exercise of the Underwriters' over-allotment option, (ii) the 140,000 shares
of Common Stock and the 140,000 shares of Common Stock issuable upon the
exercise of the Warrants issuable upon exercise of the Managing
Underwriters' Warrant, (iii) the 1,400,000 shares of Common Stock issuable
upon the exercise of the Warrants in connection with this offering, (iv) the
916,327 shares of Common Stock issuable upon the exercise of the outstanding
options granted under the Company's 1992, 1996 and 1997 stock option plans,
and (v) the 320,000 shares of Common Stock issuable upon the exercise of
warrants issued to officers and directors. See "Underwriting,"
"Management -- Stock Plans" and "Description of Securities."
15
<PAGE> 17
SELECTED FINANCIAL DATA
The following selected consolidated financial data for each of the five
fiscal years ended August 3, 1997 are derived from the Company's audited
financial statements. This data should be read in conjunction with the
consolidated financial statements of the Company, related notes, and other
financial information included elsewhere in this Prospectus. See "Financial
Statements."
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS
--------------------------------------------------- ENDED
JULY JULY JULY AUGUST
AUGUST 1, 31, 30, 28, 3,
1993 1994 1995 1996 1997
--------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $21,335 $30,508 $24,450 $29,001 $32,195
Cost of products sold............ 15,129 19,625 18,118 19,798 20,754
Selling and administrative....... 4,909 7,743 5,071 5,832 6,293
------- ------- ------- ------- -------
Income before unusual items...... 1,297 3,140 1,261 3,371 5,148
Unusual items(1)................. -- (746) (5,447) -- --
------- ------- ------- ------- -------
Income (loss) from operations.... 1,297 2,394 (4,186) 3,371 5,148
Other income (expense)(2)........ 532 143 (700) 400 136
------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... 1,829 2,537 (4,886) 3,771 5,284
Provision for income taxes(5).... 438 676 4 102 480
------- ------- ------- ------- -------
Income (loss) from continuing
operations..................... 1,391 1,861 (4,890) 3,669 4,804
Discontinued operations(3)....... (2,464) -- -- -- --
Cumulative effect of accounting
change(4)...................... 2,081 -- -- -- --
------- ------- ------- ------- -------
Net income (loss)................ $ 1,008 $ 1,861 $(4,890) $ 3,669 $ 4,804
======= ======= ======= ======= =======
Earnings (loss) per Common Share:
(6)
Continuing operations....... $ 0.26 $ 0.33 $ (0.98) $ 0.86 $ 1.01
Discontinued
operations(3)............. (0.47) -- -- -- --
Change in accounting(4)..... 0.40 -- -- -- --
------- ------- ------- ------- -------
Net income (loss).............. $ 0.19 $ 0.33 $ (0.98) $ 0.86 $ 1.01
======= ======= ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding(6)................. 5,256,139 5,701,896 4,978,868 4,253,785 4,733,682
========= ========= ========= ========= =========
<CAPTION>
JULY JULY JULY AUGUST
AUGUST 1, 31, 30, 28, 3,
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................... $17,909 $15,971 $15,453 $16,263 $20,476
Current liabilities.............. 14,369 10,218 9,974 7,559 9,813
Working capital.................. 3,540 5,753 5,479 8,704 10,663
Total assets..................... 58,375 53,752 42,229 42,509 39,257
Long-term debt, less current
portion........................ 14,054 14,823 10,525 11,021 2,890
Total shareholders' equity....... $27,182 $28,281 $18,988 $21,032 $23,371
</TABLE>
- ---------------
(1) Represents settlement costs, legal fees, and related expenses in connection
with the settlement of certain legal claims in 1995; and charges in excess
of reserves for warranty claims in connection with an acquisition in 1994.
(2) Consists principally of interest expense offset by investment income as
detailed in the Company's consolidated statements of operations.
(3) Results from the sale of the Company's Marine Products division in 1993.
(4) Relates to the adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" in 1993.
(5) See Note "I" entitled "Income Taxes" in the Notes to Consolidated Financial
Statements.
(6) As adjusted to give effect to a four-for-three stock split on September 30,
1997.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
consolidated financial statements of the Company, related notes and other
financial information included elsewhere in this Prospectus.
OVERVIEW
The Company principally designs, manufactures and sells flight
instrumentation components and systems, primarily to the U.S. government,
foreign governments and aerospace companies. Flight instrumentation products
include command and control systems, transponders, flight termination receivers,
telemetry transmitters and receivers, PCM encoders, and scoring systems. Flight
instrumentation products are used to: (i) accurately track the flight of space
launch vehicles, targets, and UAVs, (ii) communicate between ground systems and
the airborne vehicle, (iii) if necessary, destroy the vehicle if it is veering
from its planned trajectory, and (iv) train troops and test weapons.
Of the Company's total backlog of $36,911,000 at August 3, 1997,
$26,135,000 is attributable to domestic orders and $10,776,000 is attributable
to foreign orders. Management anticipates that approximately $30,330,000 of its
backlog will be shipped during the fiscal year ending August 2, 1998. The
Company includes in its backlog only firm orders for which it has accepted a
written purchase order. However, backlog is not necessarily indicative of future
sales. A substantial amount of the Company's backlog can be cancelled at any
time without penalty, except in most cases, for the recovery of the Company's
actual committed costs and profit on work performed up to the date of
cancellation.
Substantially all of the Company's contracts are fixed price contracts,
wherein sales and related costs are generally recorded as deliveries are made.
Many of these contracts include options exercisable by the customer for
additional products or systems at a fixed price. Certain costs under long-term
fixed price contracts, principally directly or indirectly with the U.S.
Government, which include non-recurring engineering, are deferred until these
costs are contractually billable. The failure to anticipate technical problems,
estimate costs accurately or control costs during a fixed price contract,
including with respect to any option for additional products or systems, may
reduce the Company's profitability or cause a loss under the contract. Revenue
under certain long-term, fixed price contracts, principally command and control
shelters, is recognized using the percentage of completion method of accounting.
Revenues recognized on these contracts are based on estimated completion to
date, which is the total contract amount multiplied by percent of performance,
based on total costs incurred in relation to total estimated costs. Losses, if
any, on contracts are recorded when first reasonably determined. While certain
revenues were recognized under the percentage of completion method on a
quarterly basis during fiscal 1997, there were no long-term contracts of this
nature during fiscal 1996 and 1995 nor as of August 3, 1997.
The Company believes that its growth depends on its ability to renew and
expand its technology, products, and design and manufacturing processes with an
emphasis on cost effectiveness. The Company's primary efforts are focused on
engineering design and product development activities, rather than pure
research. The cost of these development activities, including employees' time
and prototype development, net of amounts paid by customers, was approximately
$1,828,000, $1,453,000 and $970,000 in fiscal 1997, 1996 and 1995, respectively.
Costs of the Company's internally funded product development efforts are
included in the Company's operating expenses as cost of products sold. Revenue
from customer funded product development is included in net sales and the
related product development costs also are included in cost of products sold.
The Company's effective income tax rate for fiscal 1996 and 1997 was 2.7%
and 9.1%, respectively, reflecting the utilization of prior year net operating
loss ("NOL") carryforwards and the reversal of a valuation allowance for the NOL
carryforwards established in 1995. The valuation allowance was established based
on management's uncertainty that past performance would be indicative of future
earnings. In August 1997, the Company established a foreign sales corporation as
part of an overall domestic tax strategy to reduce
17
<PAGE> 19
its effective income tax rate. The Company anticipates that its effective income
tax rate for fiscal 1998 will be approximately 34%.
RECENT FINANCIAL PERFORMANCE
For the quarter ended November 2, 1997, the Company's net sales were
approximately $10,573,000 as compared to approximately $7,508,000 for the
quarter ended November 3, 1996.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
information derived from the Company's consolidated statements of operations
expressed as a percentage of net sales. There can be no assurance that trends in
sales growth or operating results will continue in the future.
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS
----------------------- ENDED
JULY 30, JULY 28, AUGUST 3,
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Net sales..................................................... 100.0% 100.0% 100.0%
Cost of products sold......................................... 74.1 68.3 64.5
----- ----- -----
Gross profit.................................................. 25.9 31.7 35.5
----- ----- -----
Selling and administrative expenses........................... 20.7 20.1 19.5
Income before unusual item.................................... 5.2 11.6 16.0
Unusual item.................................................. (22.3) -- --
----- ----- -----
Operating income (loss)....................................... (17.1) 11.6 16.0
----- ----- -----
Other income (expense):
Net gain (loss) on available-for-sale securities and other
investments.............................................. (1.5) 3.1 1.3
Dividend and interest income................................ 2.5 1.3 0.8
Interest expense............................................ (3.9) (3.0) (1.7)
----- ----- -----
(2.9) 1.4 0.4
----- ----- -----
Income (loss) before income taxes............................. (20.0) 13.0 16.4
Provision for income taxes.................................... 0.0 0.4 1.5
----- ----- -----
Net income (loss)............................................. (20.0)% 12.7% 14.9%
===== ===== =====
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for the 53 weeks ended August 3, 1997 were approximately
$32,195,000 compared to $29,001,000 for fiscal 1996. The sales increase of
$3,194,000 (11%) is primarily attributable to an increase in the sales of flight
instrumentation products, including a Target Tracking Control System for the
Republic of Korea.
Gross profit of 35.5% for the 53 weeks ended August 3, 1997 exceeded the
prior year of 31.7% due to an increase of $2,842,000 in higher margin foreign
sales from $6,556,000 in 1996 to $9,398,000 in 1997, as well as an increase in
absorption of fixed costs due to the higher sales volume.
Selling and administrative expenses for the 53 weeks ended August 3, 1997
were $6,293,000 compared to $5,832,000 for fiscal 1996, an increase of $461,000
of which $360,000 was attributable to settlement and litigation costs involving
two class action lawsuits, $325,000 to performance incentives, and $48,000 to
additional travel costs. These increases were offset by a reduction in
representative fees on foreign sales of $205,000 (partially due to a negotiated
decrease in the rate paid), and a reduction of $75,000 in personnel and related
expenses. As a percentage of net sales, selling and administrative expenses
decreased from 20.1% in 1996 to 19.5% in 1997.
Other income (expense) for the 53 weeks ended August 3, 1997 decreased
$265,000 from the prior year due to decreases in gains on the sale of
investments and dividend and interest income of $488,000 and $118,000,
respectively, offset by a decrease in interest expense of $341,000.
18
<PAGE> 20
The effective income tax rate in 1997 was 9.1%. The 1997 and 1996 tax
provisions reflect the utilization of prior year NOL carryforwards. In 1995 a
valuation allowance had been provided to reduce deferred tax assets to their net
realizable value primarily based on management's uncertainty that past
performance would be indicative of future earnings. In 1997 the valuation
allowance was reversed through the deferred tax provision. A determining factor
in assessing the change was the cumulative income in recent years. See Note I
entitled "Income Taxes" to the Consolidated Financial Statements.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for the 52 weeks ended July 28, 1996 were approximately
$29,001,000 compared to $24,450,000 for fiscal 1995. The sales increase of
$4,551,000 (18.6%) is attributable to an increase of approximately $5,845,000 in
flight instrumentation products, of which Stewart Warner Electronics Co.,
acquired in July 1995, contributed $4,321,000, offset by a decrease of
$1,294,000 in microwave components.
Gross profit of 31.7% for the 52 weeks ended July 28, 1996 exceeded the
prior year of 25.9% due to an increase of $2,648,000 in higher margin foreign
sales from $3,908,000 in 1995 to $6,556,000 in 1996, as well as an increase in
absorption of fixed costs due to the higher sales volume.
Selling and administrative expenses for the 52 weeks ended July 28, 1996
were $5,832,000 compared to $5,072,000 for fiscal 1995, an increase of $760,000
of which $388,000 is attributable to increased representative fees on foreign
sales, an increase of $233,000 in personnel and related expenses and other
expenses of $46,000, offset by a reduction of $150,000 in the provision for
customer disputed charges, and decreases in group insurance of $90,000,
depreciation of $69,000 and outside services of $48,000. The addition of Stewart
Warner Electronics Co. added $450,000 in selling and administrative expenses in
fiscal 1996, the specific expenses of which are included in the above numbers.
As a percentage of net sales, selling and administrative expenses decreased from
20.7% in 1995 to 20.1% in 1996.
Included in unusual items in 1995 are settlement costs in connection with
certain legal actions of $4,310,000, legal fees of $829,000, and related
expenses of $308,000.
Other income (expense) for the 52 weeks ended July 28, 1996 increased
$1,100,000 from the prior year due to net gains on available-for-sale securities
and other long-term investments of $898,000 as compared to losses of $356,000 in
1995, and a decrease in interest expense of $88,000, offset by decreased
dividend and interest income of $242,000.
The effective income tax rate in 1996 was 2.7%. The 1996 tax provision
reflects the utilization of prior year NOL carryforwards. No income tax benefit
was recorded in 1995 due to an increase in the valuation allowance. The
valuation allowance was provided relating to that portion of NOL carryforwards
that management believed might expire unutilized.
19
<PAGE> 21
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly consolidated
financial data for each of the eight consecutive quarters in fiscal 1996 and
1997. This information is derived from unaudited consolidated financial
statements that include, in the opinion of the Company, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
when read in conjunction with the consolidated financial statements of the
Company and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
14 WEEKS 13 WEEKS ENDED
13 WEEKS ENDED ENDED ----------------------------
----------------------------------------------- -------- FEB. AUG.
OCT. 29, JAN. 28, APR. 28, JUL. 28, NOV. 3, 2, MAY 4, 3,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $7,063 $7,197 $7,236 $ 7,505 $7,508 $7,146 $8,426 $9,115
Cost of products sold...... 4,888 5,028 4,929 4,953 5,171 4,916 5,278 5,388
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............... 2,175 2,169 2,307 2,552 2,337 2,230 3,148 3,727
Selling and administrative
expenses................. 1,415 1,541 1,357 1,519 1,399 1,352 1,532 2,010
------ ------ ------ ------ ------ ------ ------ ------
Operating income*.......... 760 628 950 1,033 938 878 1,616 1,717
------ ------ ------ ------ ------ ------ ------ ------
Other income (expense):
Gain (loss) on sale of
available-for-sale
securities............. 55 1,109 (131) (136) 15 -- 81 313
Dividend and interest
income................. 63 100 126 87 48 90 62 58
Interest expense......... (227) (219) (168) (260) (129) (188) (126) (89)
------ ------ ------ ------ ------ ------ ------ ------
(109) 990 (173) (309) (66) (98) 17 282
------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes.................... 651 1,618 777 724 872 780 1,633 1,999
Provision for income taxes
(benefit)................ 135 81 -- (114) -- -- 182 298
------ ------ ------ ------ ------ ------ ------ ------
Net income................. $ 516 $1,537 $ 777 $ 838 $ 872 $ 780 $1,451 $1,701
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
20
<PAGE> 22
The following table sets forth, for the periods indicated, the percentage
of net sales represented by the indicated items:
<TABLE>
<CAPTION>
14 WEEKS 13 WEEKS ENDED
13 WEEKS ENDED ENDED ----------------------------
----------------------------------------------- -------- FEB. AUG.
OCT. 29, JAN. 28, APR. 28, JUL. 28, NOV. 3, 2, MAY 4, 3,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold...... 69.2 69.9 68.1 66.0 68.9 68.8 62.6 59.1
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............... 30.8 30.1 31.9 34.0 31.1 31.2 37.4 40.9
Selling and administrative
expenses................. 20.0 21.4 18.8 20.2 18.6 18.9 18.2 22.1
----- ----- ----- ----- ----- ----- ----- -----
Operating income*.......... 10.8 8.7 13.1 13.8 12.5 12.3 19.2 18.8
----- ----- ----- ----- ----- ----- ----- -----
Other income (expense):
Gain (loss) on sale of
available-for-sale
securities............. 0.8 15.4 (1.8) (1.8) 0.2 -- 1.0 3.4
Dividend and interest
income................. 0.9 1.4 1.7 1.2 0.6 1.3 0.7 0.6
Interest expense......... (3.2) (3.0) (2.3) (3.5) (1.7) (2.6) (1.5) (1.0)
----- ----- ----- ----- ----- ----- ----- -----
(1.5) 13.8 (2.4) (4.1) (0.9) (1.4) 0.2 3.1
----- ----- ----- ----- ----- ----- ----- -----
Income before income
taxes.................... 9.2 22.5 10.7 9.6 11.6 10.9 19.4 21.9
Provision for income taxes
(benefit)................ 1.9 1.1 -- (1.5) -- -- 2.2 3.3
----- ----- ----- ----- ----- ----- ----- -----
Net income................. 7.3% 21.4% 10.7% 11.2% 11.6% 10.9% 17.2% 18.7%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
* There were no unusual items in fiscal 1996 and 1997.
The Company has experienced in the past and will experience in the future
quarterly variations in net sales and net income. Thus, operating results for
any particular quarter are not necessarily indicative of results for any future
period. Factors that have affected quarterly operating results include the
timing, execution or delay of contract awards, the relative mix of foreign and
domestic shipments, the relative mix of flight instrumentation products and
microwave components, the timing and integration of acquisitions, and the level
of selling and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of August 3, 1997 and July 28, 1996, working capital was approximately
$10,662,000 and $8,704,000, respectively, and the ratio of current assets to
current liabilities was 2.09 to 1.00 and 2.15 to 1.00, respectively. At August
3, 1997, the Company had cash and cash equivalents of approximately $1,195,000.
As is customary in the defense industry, inventory is partially financed by
advance payments. The unliquidated balance of these advance payments was
approximately $3,091,000 at the end of fiscal 1997, and $1,480,000 at the end of
fiscal 1996.
Net cash provided from operations and investing activities in 1997 was
approximately $3,647,000, and $6,159,000, respectively. Cash provided by
investing activities resulted primarily from the liquidation of all the
available-for-sale securities, and the sale of the Company's interest in the M.
D. Sass Re/Enterprise-II, L.P., limited partnership. The Company used
approximately $9,715,000 of these funds in financing activities primarily for
the net payment of outstanding bank debt of $7,250,000, and the purchase of
treasury stock for $2,783,000.
The Company maintains a revolving credit facility with a bank for an
aggregate of $11,000,000, which expires January 31, 1999. No borrowings were
outstanding on this line at August 3, 1997. As of July 28, 1996, the Company had
borrowings outstanding of $6,950,000.
21
<PAGE> 23
During the fiscal year ended August 3, 1997 the Company acquired 244,519
shares of its outstanding common stock for $2,782,686 through open market
purchases, pursuant to a stock purchase plan to acquire up to 400,000 post-split
shares of Common Stock, which was terminated in June 1997. The Company also
acquired 463,639 shares, valued at $6,429,124 in connection with certain
"stock-for-stock" exercises of stock options by which certain employees elected
to surrender "mature" shares owned in settlement of the option price. Such
exercises are treated as an exercise of a stock option and the acquisition of
treasury shares by the Company. See "Management -- Stock Plans."
The Company believes that presently anticipated future cash requirements
will be provided by internally generated funds, existing credit facilities, and
the Company's net proceeds from this offering.
22
<PAGE> 24
BUSINESS
GENERAL
The Company principally designs, manufactures and sells flight
instrumentation components and systems, primarily to the U.S. government,
foreign governments, and aerospace companies. Flight instrumentation products
include command and control systems, transponders, flight termination receivers,
telemetry transmitters and receivers, PCM encoders and scoring systems. Flight
instrumentation products are used to: (i) accurately track the flight of space
launch vehicles, targets, and UAVs, (ii) communicate between ground systems and
the airborne vehicle, (iii) if necessary, destroy the vehicle if it is veering
from its planned trajectory, and (iv) train troops and test weapons.
The Company's command and control systems are used on training and test
ranges domestically and in foreign countries. The Company has an installed base
of approximately 100 command and control systems around the world, which are
either fixed installations, transportable units or portable units. Herley also
manufactures microwave devices used in its flight instrumentation systems and
products and in connection with the radar and defense electronic systems on
tactical fighter aircraft.
The Company has grown internally and through five strategic acquisitions.
As a result, the Company has experienced a compound annual growth rate of 41% in
its operating income before unusual items for the five fiscal years ended August
3, 1997. See "Selected Financial Data." With these acquisitions, the Company has
evolved from a components manufacturer to a systems and service provider and has
leveraged its technical capabilities and expertise into domestic commercial and
foreign defense markets.
Since its inception in 1965, the Company has designed and manufactured
microwave devices for use in various tactical military programs. In June 1986,
the Company acquired a small engineering company, Mission Design, Inc., engaged
in the design and development of transponders. This acquisition enabled the
Company to enter the flight instrumentation business beginning with the design
and manufacture of range safety transponders. In September 1992, the Company
acquired substantially all of the assets of Micro-Dynamics, Inc. ("MDI") of
Woburn, Massachusetts, a microwave subsystem designer and manufacturer. In June
1993, the Company acquired Vega Precision Laboratories, Inc. ("Vega") of Vienna,
Virginia, a manufacturer of flight instrumentation products and command and
control systems for sale in domestic and foreign markets. In October 1993, the
Company moved the Vega operations to Lancaster, Pennsylvania. In March 1994, the
Company entered into a license agreement granting the Company the right to
manufacture, market, license and sell the MAGIC(2) system. In July 1995, the
Company acquired certain assets and the business of Stewart Warner Electronics
Corp. of Chicago, Illinois, a manufacturer of high frequency radio and IFF
interrogator systems. In August 1997, the Company acquired Metraplex of
Frederick, Maryland, enabling the Company to enter the airborne PCM and FM
telemetry and data acquisition systems market.
INDUSTRY OVERVIEW AND ACTIVITIES
United States Defense Market. The U. S. defense industry has undergone
significant changes resulting from federal budget pressures. These changes
include attrition in the number of military equipment suppliers and industry
consolidation among survivors. Also, new tactical threats have created new
objectives and roles for defense contractors. The Department of Defense and the
industry has begun to place more emphasis on improved military readiness and
using advanced electronics for enhanced performance and extended life of its
equipment. The focus is now on quick reaction to military and political
incidents, rather than all out nuclear war. The electronic content of the
military procurement budget is expected to grow at the expense of traditional
armaments such as tanks and ships.
The Company serves the test and training ranges established by the
government to test and develop new weapons and train troops in their use. The
government procures airborne target vehicles that simulate aggressor aircraft
during the training exercise. The function of the command and control system is
to "fly" the unmanned target through its pre-planned mission as it simulates its
attack on a ship or a ground target. The defenders will fire an instrumented
defense weapon, such as a missile, at the target as it is commanded through
23
<PAGE> 25
its attack plan. The Company believes that it has been a principal supplier of
command and control systems to the training ranges in the United States. Until
recently, the Company's command and control system was the transportable 6104
TTCS and the portable 6157 TTCS. These systems could control a single target,
generally from up to 100 miles away. With the limited range of defensive weapons
then available, and prior to the widespread use of GPS, the single attacking
target was an acceptable training scenario. With the weaponry available today,
such military exercises are no longer acceptable for realistic training. A
modern military force must defend against multiple attacking aircraft, cruise
missiles, and short range ballistic missiles such as the Exocet and SCUD. The
Company's MAGIC(2) system has been designed to control complex scenarios such as
multiple targets attacking from over the horizon.
The Company's largest customer is the Navy. For more than 20 years the Navy
has been developing the Aegis fire control radar, which is installed on
destroyers and cruisers in connection with the protection of a battle fleet. The
Aegis is a long range radar that is used in conjunction with the Standard
missile to defend the battle fleet against aggressors. The Standard missile has
recently been improved with an extended range that permits it to attack hostile
forces over the horizon. Prior to the development of the extended range Standard
missile, the Navy was able to train its naval forces by simulating an attack by
a single UAV at relatively close range. Recently Congress and the Department of
Defense have instructed the Navy to: (i) change its training methods to present
multiple UAVs acting as aggressor aircraft, (ii) detect and defend against them
at long ranges, taking advantage of the new range of the Standard missile and
(iii) otherwise prepare for the naval engagement of the future. Those future
naval engagements are expected to be conducted in a "littoral" warfare scenario,
meaning "along the shore," such as the Persian Gulf.
With this new directive calling for realistic training against multiple
threats at extended ranges in a littoral warfare scenario, the Navy has used the
Company's MAGIC(2) system. This system was tested and qualified by the Navy in
1995 and has been installed at the Navy range at Patuxent River, Maryland.
The primary ranges using the Company's instrumentation products are: Naval
Air Warfare Center, Weapons Division, Pt. Mugu, California; Naval Air Warfare
Center, Weapons Division, China Lake, California; Naval Air Warfare Center
Aircraft Division, Atlantic Ranges and Facilities, Patuxent River, Maryland;
U.S. Army White Sands Missile Range, New Mexico; Eglin Air Force Base, Florida;
Edwards Air Force Base, California; Pacific Missile Range Facility, Barking
Sands, Hawaii; and Atlantic Fleet Weapons Training Facility, Roosevelt Roads,
Puerto Rico.
International Defense Market. The Company believes that the training range
market is a niche market for the sale of command and control systems, test
equipment and flight instrumentation products. The highest profit margins
experienced by the Company have been from sales to foreign customers in this
niche market. Approximately 29% of the Company's backlog is from foreign
customers, especially customers in the Pacific Rim and Europe. The governments
of Japan, South Korea, Taiwan and the United Kingdom are all significant
customers of the Company and have the potential to become larger customers. With
respect to South Korea, the International Monetary Fund and other world bodies
have provided assistance and may impose restraints on South Korea's economic
policies and there is no assurance that such policies will not adversely effect
the Company's sales to South Korea. The governments of Egypt, France, Singapore
and Australia are also customers of the Company. These countries purchase the
Company's products to train their forces to defend themselves against enemies.
The Company's intent is to build its business based on these long-term
relationships. This growth is intended to be fueled by the Company's
newly-developed command and control systems, including MAGIC(2), which has
already been sold to the governments of Australia and Singapore.
The Company has approximately 20 technical representative agencies around
the world, which are experienced in selling within their markets. In addition,
the Company's products are supported by qualified service and field engineering
personnel, who are available on short notice to service the Company's systems
and products abroad.
Space Launch Systems and Satellites. In the 1950s, the development of
space launch systems and satellites was funded primarily by government agencies
responsible for national security and scientific exploration. Beginning in the
1960s government expenditures for space programs were supplemented with
commercial investments as the advantages of using satellites for relaying
television and telephone conversa-
24
<PAGE> 26
tions over long distances were recognized. Organizations such as the
Communications Satellite Corporation ("COMSAT") and the International
Telecommunications Satellite Organization ("INTELSAT") were formed to promote
and regulate the use of satellites for commercial communications in the United
States and abroad. Major contractors such as TRW Inc., Space Systems/Loral Inc.,
Hughes Electronics Corporation, and Lockheed-Martin Corp. invested private funds
in developing satellites for commercial communications. Other major
corporations, such as Boeing Co., Lockheed-Martin and Orbital Sciences Corp.
developed expendable launch vehicles that could place the satellites in orbit
around the globe. The Company believes that the satellite communications
business today represents the largest commercial market in the space industry.
More recently, advances in microprocessors, antennas and power systems and
other electronic technologies have made it possible to manufacture smaller, less
expensive and higher performance launch vehicles and communication and
observation satellites. These improvements permit space-based systems to be
applied to a much broader range of commercial, research and educational
applications, including global personal communications, environmental monitoring
and vehicle navigation and position reporting. In addition to the large number
of satellites now in use that have been placed in geosynchronous orbit (fixed
position in space) at high altitudes, a less expensive market for low earth
orbit ("LEO") satellites is developing. Space launch vehicles capable of
launching clusters of small satellites in geosynchronous orbit are increasingly
being used for satellite-based communications services.
A rapidly growing commercial portion of the Company's business is the
production of range safety transponders for the placement of satellites in
orbit. These transponders are expendable devices used to track a satellite space
launch. The Company believes that for the past ten years, it has been the only
qualified supplier of range safety transponders for all space launches conducted
in the United States. The Company's primary vehicle customers are
Lockheed-Martin Corp. for the Atlas, Atlas-Centaur and Titan, Boeing Co. for the
Delta II, III and IV, and Orbital Sciences Corp. for the Taurus and Pegasus. The
Company has expended over $5 million in engineering funds during the past ten
years in development of a series of Herley range safety transponders, some of
which expenses have been borne by the Company's customers.
At present, the space business represents approximately 10% of the
Company's annual revenues. The frequency of space launches has been growing
steadily during the past few years. Two factors are expected to increase the
number of space launches, and the Company's space launch business, in the next
few years.
The first factor is the growing number of global mobile satellite telephone
systems, headed by the Motorola Iridium, that are being placed in orbit around
the world. Motorola's Iridium system requires a constellation of 66 satellites.
A competitive system, the Orbcomm, developed by Orbital Sciences Corp., will use
34 satellites. Another competitive system, the Loral Globalstar currently is
being manufactured, and is planned for a 1998 space installation. The Globalstar
will use 48 satellites. In addition, a satellite network called Teledesic
manufactured by Boeing Co. received an FCC license to build 288 LEO satellites
which is scheduled to be in operation by the year 2002. Motorola also has plans
to build a 63 LEO network called Celestri by the year 2002.
The second factor working to increase the number of space launches is that
the boundaries of space are now being used for innovative applications of new
technologies. Examples of the applications of new systems include high-speed
data delivery, broadcasting interactive television and games, video
conferencing, Internet access, "intranets" for business, telemedicine,
television on demand, connecting cellular phone networks, software distribution
and training. The main target market is interactive broadband services. Leading
these applications are a joint venture of Alcatel of France with their Skybridge
network, and Loral Space and Communication with their Cyberstar system.
25
<PAGE> 27
BUSINESS STRATEGY
The Company's growth strategy to achieve its objectives involves the
following key elements:
- DESIGN AND MANUFACTURE NEW PRODUCTS AND SYSTEMS USING ITS EXPERTISE IN
DIGITAL, SOFTWARE AND MICROWAVE TECHNOLOGIES. The Company has experience
in microwave technologies and in the use of software technology in
designing and manufacturing its systems and products. With the 1997
acquisition of Metraplex, the Company has acquired the digital expertise
necessary to manufacture and design additional products for both military
and commercial use.
- BROADEN EXISTING MARKETS FOR THE COMPANY'S PRODUCTS THROUGH THE
AGGRESSIVE PURSUIT OF LARGE DATA LINK AND COMMAND AND CONTROL SYSTEM
SALES. Through its recent acquisition of Metraplex, which offers a
comprehensive product line of PCM and FM products, the Company now has
the capability of expanding sales to its existing customers through the
sale of complete data link systems for aerospace and missile
applications. Previously, the Company only could offer products
comprising part of the data link system, such as transponders, because
the Company did not sell PCM encoders, which are important components of
the data link system. In contrast to the sale of individual products,
contracts for a complete data link system are generally multi-year,
multi-million dollar projects. The ability to sell a complete data link
system also affords the Company the opportunity to expand its customer
base for its command and control systems through the introduction and
sale of command and control systems to new customers purchasing a
complete data link system.
- EXPAND THE SALES OF THE COMPANY'S PRODUCTS AND SYSTEMS IN THE
INTERNATIONAL MARKETS. In January 1996, the Company formed Global
Security Systems ("GSS"), a marketing group, to pursue additional
opportunities and service components and systems in the international
marketplace. The Company's products have been installed in a number of
training ranges throughout the world, as countries continue to train
armed forces to defend against enemies. This is a niche market served by
the Company. The Company intends to increase sales in this high margin
business through the sale of its newly developed command and control
systems, including MAGIC(2), and the ancillary business created in test
equipment and the replenishing of expendable products.
- EXTEND THE CAPABILITIES AND POTENTIAL USES OF THE COMPANY'S PRODUCTS IN
THE RAPIDLY GROWING SPACE LAUNCH INDUSTRY AND IN CERTAIN COMMERCIAL
INDUSTRIAL APPLICATIONS. The Company believes that for the past ten
years, it has been the only qualified supplier of range safety
transponders for any military or commercial space launches conducted in
the United States. The Company intends to capitalize on changes in
government policy that has enabled private industry to launch satellites,
and new technology providing for use of satellites, by selling its
transponders and systems for use on the numerous space launches to be
conducted in the next few years. The Company also intends to expand the
sale of its products and systems into new commercial areas.
- IMPLEMENT COST SAVING MEASURES THROUGH THE CONTINUED VERTICAL INTEGRATION
OF THE COMPANY'S RECENT ACQUISITIONS. The Company believes that
additional cost saving measures can be achieved through consolidating the
manufacturing operations of its various recent acquisitions. These cost
savings include reducing corporate, administrative and facilities
expenses and from certain operating performance improvements.
- CONTINUE TO CAPITALIZE ON STRATEGIC ACQUISITION OPPORTUNITIES. The
Company intends to continue to consider potential acquisitions in related
areas that offer opportunities to increase market share and expand the
Company's line of systems and products.
26
<PAGE> 28
PRODUCTS
Command and Control Systems. For over thirty years, Vega (a division of
the Company) has been manufacturing products in the radar enhancement field. The
Company's command and control systems have been used to fly remotely a large
variety of unmanned aerial vehicles, typically aircraft used as target drones or
Remotely Piloted Vehicles ("RPVs") and some surface targets. Operations have
been conducted by users on the open ocean, remote land masses, and instrumented
test and training ranges.
The Company's command and control systems are currently in service
throughout the world. The Company's pulse-positioned-coded ("PPC") concept
enables the use of standard radar technology to track and control unmanned
vehicles. Using the radar beacon mode, PPC pulse groups are transmitted and
received for transfer of command and telemetry data while employing the location
precision and advantages of radar techniques.
Command and control systems permit a ground operator to fly a target or a
UAV through a pre-planned mission. That mission may be for reconnaissance, where
the vehicle is equipped with high definition TV sensors and the necessary data
links to send information back to its command and control systems ground
station. The UAV may also be used as a decoy, since the operator can direct the
flight operations that will make the small drone appear to be a larger combat
aircraft.
With the 1994 licensing of the MAGIC(2) system, the Company increased the
selection of command and control systems. The 6104 TTCS (Target Tracking and
Control System) unit is a line-of-sight command and control system with an
installed base of equipment worldwide. The Company's engineers and marketers are
now able to offer the MAGIC(2) system as a supplement to, or replacement for,
this installed base of equipment. The MAGIC(2) system affords over-the-horizon
command and control using GPS guidance and control of multiple targets from a
single ground station. The ability to control multiple targets at increased
distances represents a significant product improvement. The increasing demand
for enhanced performance by the U.S. Navy as well as foreign navies in littoral
warfare scenarios can be satisfied by the use of the MAGIC(2) system.
The new Model 6104 TTCS is a highly flexible, multiple processor design
with high resolution graphics, which can be field configured within minutes to
fly or control any selected vehicle for which it is equipped. The system is
designed to operate with a large variety of vehicles. A basic TTCS configuration
is normally supplied with a standard Company command panel and the software
peculiar to one vehicle. Telemetry display software is embedded for the
specified vehicle, and a magnetic hard drive is supplied with a mission map
prepared in accordance with a customer supplied detailed map of the area.
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<PAGE> 29
The MAGIC(2) system provides control of multiple targets from a single
ground control system, it utilizes GPS to provide accurate position information.
The MAGIC(2) system meets a growing requirement to test against multiple threats
and the automated defense capabilities of ships like the AEGIS cruiser and the
E-2C aircraft.
MAGIC(2)
MULTIPLE AIRCRAFT GPS INTEGRATED
COMMAND & CONTROL
[DIAGRAM OF USE OF MAGIC2 SYSTEM CONTROLLING MULTIPLE TARGETS OVER THE HORIZON
IN THE TESTING OF AN AEGIS CRUISER]
- --------------------------------------------------------------------------------
The TTCS provides reliable control of a single target, it has been utilized
for over 20 years. The TTCS is used in support of missile, aircraft and other
weapons systems development and testing. Herley continues to provide this system
to customers to support their requirements.
TTCS 6104
[DIAGRAM OF THE USE OF TTCS TO CONTROL A SINGLE TARGET]
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<PAGE> 30
Military surveillance operations typically use UAVs, RPVs, or drones to
avoid the cost and risk of manned surveillance vehicles in the event of an
accident or if the vehicle is shot down. These inexpensive drones are controlled
in flight by a Company command and control system, which may be mounted in a
trailer that may be moved from place to place by helicopter or truck. The
Company also manufactures portable command and control systems that are mounted
on tripods that can be easily transported by an operational team. The portable
units permit ready deployment in rugged terrain and may also be used on ships
during open ocean exercises.
In recent years, teaming arrangements between prime military contractors
and the Company have increased. Large companies bidding on major programs seek
to align themselves with parts and systems manufacturers such as the Company for
economic reasons as well as for the technical expertise afforded by such
alliances. Teaming arrangements with Tracor Corporation and Northrop Grumman
Corporation have resulted in recent awards to the Company for command and
control systems in Australia and Singapore, and the Company is presently
negotiating additional teaming arrangements.
Telemetry Systems. Missile, UAV, or target testing on domestic and
international test ranges requires flight safety and performance data
transmission to maximize flight safety during the test operation. Surveillance
and intelligence gathering UAVs also require a data transmission downlink and a
command and control systems uplink to accomplish their mission. The Company has
developed a telemetry system capability that can be configured to meet
individual customers' needs. Various components of the system include data
encoders, transmitters and flight termination receivers. Each has a distinctive
role and each is key to the success of the mission.
In 1972, Metraplex began developing data encoding and acquisition, and
signal conditioning equipment. The Company believes that Metraplex is now a
leading manufacturer of PCM and FM telemetry and data acquisition systems for
severe environment applications. Metraplex products are used worldwide for
testing space launch vehicle instrumentation, aircraft flight testing, and
amphibian, industrial and automotive vehicle testing. A product portfolio ranges
in size and complexity from miniature encoders to completely programmable data
acquisition systems.
The Company's recent acquisition of Metraplex will allow the Company to
offer a complete airborne data link system. With the digital capability of
Metraplex in data encoding and acquisition elements combined with the radio
frequency capability of the Company in providing its telemetry transmitters and
flight termination receivers, the Company can offer a full line of narrow or
wide band airborne telemetry systems to meet a wide variety of industrial needs,
both domestically and internationally.
Transponders. The Company manufactures a variety of expendable
transponders, including range safety, identification friend or foe ("IFF"),
command and control, and scoring systems.
Transponders are small, expendable, electronic systems consisting of a
transmitter, sensitive receiver and internal signal processing equipment
comprised of active and passive components, including microwave subassemblies
such as amplifiers, oscillators and circulators. The transponder receives
signals from radars, changes and amplifies the frequency of the signals, and
sends back a reply on a different frequency and signal level. This reply will be
a strong, noise free signal upon which the tracking radar can "lock," and one
which is far superior to skin reflection tracking, particularly under adverse
weather conditions after the launch.
In range safety applications, transponders enable accurate tracking of
space launch and unmanned aerial vehicles, missiles, and target drones so that
position and direction are known throughout its flight. In the case of several
defense and commercial space launch vehicles (i.e., Delta, Atlas, Titan and
Pegasus), the Herley transponder is tracked by the ground launch team all the
way to space orbit, and in certain instances through several orbits, as a
reference location point in space to assure that the launch payload has been
properly placed in orbit.
IFF transponders, which are used in conjunction with the FAA Air Traffic
Control System, enable ground controllers to identify the unmanned targets,
drones and cruise missiles on which these units fly and to vector other manned
aircraft safely away from the flight path of the unmanned aerial vehicle.
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<PAGE> 31
Command and control transponders provide the link through the telemetry
system for relaying ground signals to direct the vehicle's flight. The uplink
from the ground control station, a series of coded pulse groups, carries the
signals that command the flight control guidance system of the vehicle. The
downlink to the ground provides both tracking signals for range safety, as well
as acknowledgment and status of the uplink commands and their implementation in
the vehicle. The transponder is therefore the means to fly the vehicle.
Scoring systems are mounted on both airborne and sea targets. Scoring
systems enable test and evaluation engineers to determine the "miss-distance"
between a projectile and the target at which it has been launched.
Flight Termination Receiver. A flight termination receiver ("FTR") is
installed in a test missile, a UAV, a target or a space launch vehicle as a
safety device. The FTR has a built-in decoder that enables it to receive a
complex series of audio tones which, when appropriate, will set off an explosive
charge that will destroy the vehicle. A Range Safety Officer ("RSO") using the
range safety transponder will track the vehicle in flight to determine if it is
performing as required. If the RSO detects a malfunction in the test or launch
vehicle that causes it to veer from a planned trajectory in a manner that may
endanger personnel or facilities, the RSO will transmit a coded signal to the
onboard FTR to explode the vehicle harmlessly.
Microwave Devices. Herley manufactures solid state microwave devices in
both Lancaster, Pennsylvania and at its MDI facility in Woburn, Massachusetts
for use in its transponders and existing long-term military programs, both as
part of new production and for spare parts and repair services. These microwave
devices are used in a variety of radar, communications and missile applications,
including airborne and shipboard navigation and missile guidance systems.
In Woburn, the Company designs and manufactures complex microwave
integrated circuits ("MICs"), which consist of sophisticated assemblies that
perform many functions, primarily involving switching of microwave signals. MICs
manufactured by the Company are employed in many defense electronics military
systems as well as missile programs. The Company also manufactures magnetrons,
which are the power source utilized in the production of the Company's
transponders.
The Company produces receiver protector devices. These high power devices
protect a radar receiver from transient bursts of microwave energy and are
employed in almost every military and commercial radar system. With the
contraction of the defense business, the Company believes that it has only one
competitor in this market.
In its Chicago facility, the Company designs and manufactures high
frequency radio and IFF interrogators. This high frequency communications
equipment is used by the U.S. Navy and foreign navies that conduct joint
military exercises with the U.S. Navy. The IFF interrogators are used as part of
shipboard equipment and are also placed on coastlines, where they are employed
as silent sentries.
NEW PRODUCT DEVELOPMENT AND APPLICATIONS
The Company believes that its growth depends, in part, on its ability to
renew and expand its technology, products, and design and manufacturing
processes with an emphasis on cost effectiveness. The Company's primary efforts
are focused on engineering design and product development activities rather than
pure research. A substantial portion of the Company's development activities
have been funded by the Company's customers. Certain of the Company's officers
and engineers are involved at various times and in varying degrees in these
activities. The Company's policy is to assign the required engineering and
support people, on an ad hoc basis, to new product development as needs require
and budgets permit. The cost of these development activities, including
employees' time and prototype development, net of amounts paid by customers,
were approximately $1,828,000, $1,453,000, and $970,000 in fiscal 1997, 1996,
and 1995, respectively.
The new products and systems that the Company plans to design, manufacture
and sell are data link systems, which include telemetry data encoders. Data link
systems and data encoders are currently being sold by others to the Company's
existing customers. With its recent acquisition of Metraplex, the Company may
now offer data link systems to its customers, either directly or through teaming
arrangements. Upon receipt of
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an order, the Company will customize the design of a system for its customer for
delivery typically nine months after receipt of such order.
Data Link Systems. Data link systems contain transmitters, amplifiers,
receivers and other components, and provide the means of communication between
the control tower, the ground station and the test or launch vehicle. Data link
systems are the equivalent of telephone links between the air and ground
portions of launch vehicles or test and training ranges. The uplink
communication to the airborne vehicle is transmitted via a telemetry signal from
the ground to the vehicle. The telemetry signals are used to command the
airborne vehicle through its command control transponder. The transponder will
then change the flight control guidance system as directed. The downlink signals
from the airborne telemetry transmitter to the ground telemetry receiver provide
tracking signals for range safety, confirmation of the uplink command and their
implementation by the vehicle and compilation of the data from on-board sensors
gathered by the telemetry data encoder.
Through the application of technology acquired from the Metraplex
acquisition, the Company now has the ability to manufacture data encoders.
Airborne targets and flight test missiles must have many critical parameters
simultaneously monitored from the ground to gain the data required for
verification of satisfactory performance or for identification of details of
hardware requiring design improvements. On-board sensors may measure
temperature, strain levels, vibration level and frequency, acoustic noise
levels, air pressure, air velocity, humidity and other parameters of interest.
The function of the encoder system is to convert the output of each of these
sensors to a signal form that may be sequentially sampled by an electronic
switch (multiplexer) produced by the Company in a known sequence and rate so as
to create a data stream that may be transmitted to the ground by the telemetry
system.
Commercial Lighting. Over the past two years, the Company has been seeking
commercial applications for the magnetron tubes produced by the Company's MDI
division. In 1995, the Company signed agreements to develop miniature
cost-effective magnetron tubes, using electrode-less high density ("EHD")
techniques, for medical and industrial lighting applications. The Company
believes that the other company in this joint engineering program is one of the
largest lighting companies in the world. Based on initial engineering results,
prototype tubes were designed, manufactured and tested satisfactorily to the
specifications required. The Company and this other company are currently
planning limited production of magnetron tubes to be used in an EHD industrial
lighting application.
GOVERNMENT CONTRACTS
A substantial part of the Company's sales are made to U.S. government
agencies, prime contractors or subcontractors on military or aerospace programs.
Government contracts are awarded either on a competitive bid basis or on a
negotiated sole source procurement basis. Contracts awarded on a bid basis
involve several competitors bidding on the same program with the contract being
awarded based upon price and ability to perform. Negotiated sole source
procurement is utilized if the Company is deemed by the customer to have
developed proprietary equipment not available from other parties or where there
is a very stringent delivery schedule.
All of the Company's government contracts are fixed price contracts, some
of which require delivery over time periods in excess of one year. With this
type of contract, the Company agrees to deliver products at a fixed price except
for costs incurred because of change orders issued by the customer.
In accordance with Department of Defense procedures, all contracts
involving government programs may be terminated by the government, in whole or
in part, at the government's discretion. In the event of such a termination,
prime contractors on such contracts are required to terminate their subcontracts
on the program and the government or the prime contractor is obligated to pay
the costs incurred by the Company under the contract to the date of termination
plus a fee based on the work completed.
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MARKETING AND DISTRIBUTION
The Company's marketing approach is to determine customer requirements in
the developmental stages of a program. Marketing and engineering personnel work
directly with the customer's engineering group to develop product
specifications. The Company receives its awards based upon an evaluation of a
number of factors, including technical ranking, price, overall capability and
past performance. Follow-up contracts (including options) on the same program
are normally negotiated with customers rather than being subject to a
competitive bidding process.
BACKLOG
The Company's backlog of firm orders was approximately $36,911,000 on
August 3, 1997 ($26,135,000 in domestic orders and $10,776,000 in foreign
orders) as compared to approximately $23,770,000 on July 28, 1996 ($13,632,000
in domestic orders and $10,138,000 in foreign orders). Management anticipates
that approximately $30,330,000 of the backlog will be shipped during the fiscal
year ending August 2, 1998. There can be no assurance that the Company's backlog
will result in sales in any particular period or at all, or that the contracts
included in backlog that result in sales will be profitable.
MANUFACTURING, ASSEMBLY AND TESTING
Flight instrumentation devices manufactured by the Company for military and
space launch applications are subject to testing procedures based upon customer
requests. All of such testing is performed by the Company at its facilities.
All electronic parts are procured in controlled lots that are subjected to
physical inspection and screening at Herley before use in products. Physical
inspection requires the use of high power microscopes and laser scanned optical
comparators, which match the characteristics of the part under inspection to
previously stored images.
The testing of high reliability space equipment is performed by complex
computer controlled consoles that continuously monitor, analyze and measure
operating parameters. Flight instrumentation products are tested over their full
operating temperature range, after which the equipment is evaluated under
combined vibration and temperature cycling. For initial design qualification,
this testing may extend for several months and include evaluation of
electromagnetic interference behavior ("EMI"), ability to survive pyrotechnic
shock (simulating explosive charge detonation for space vehicle stage
separation) and the combined effects of external vacuum with heating and
cooling.
Electronic components and other raw materials used in the Company's
products are purchased by the Company from a large number of suppliers and all
of such materials are readily available from alternate sources, with the
exception of one component part which, if unavailable, can be manufactured by
the Company.
The Company does not maintain any significant level of finished products
inventory. Raw materials are generally purchased for specific contracts and
common components are purchased for stock based on the Company's firm fixed
backlog.
There are no significant environmental control procedures required
concerning the discharge of materials into the environment that would require
the Company to invest in any significant capital equipment or that would have a
material effect on the earnings of the Company or its competitive position.
COMPETITION
The flight instrumentation products that the Company manufactures are
subject to varied competition depending on the product and market served.
Competition is generally based upon technology, design, price and past
performance. The Company's ability to compete for defense contracts depends, in
part, on its ability to offer better design and performance than its competitors
and its readiness in facilities, equipment and personnel to undertake to
complete the programs. In certain products or programs, the Company believes it
is
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sole source, which means that all work is directed to a single manufacturer. In
other cases, there may be other suppliers that have the capability to compete
for the programs involved, but they can only enter or reenter the market if the
government should choose to reopen the particular program to competition.
Competition in follow-on procurements is generally limited after an initial
award unless the original supplier has had performance problems. Many of
Herley's competitors are larger and may have greater financial resources than
the Company. Competitors include Aydin Corporation, L-3 Communications
Corporation, Microsystems, Inc., AMP, Inc. and Remec, Inc.
EMPLOYEES
As of December 1, 1997, the Company employed 292 full-time persons. A total
of 208 employees were engaged in manufacturing, 36 in engineering, 22 in
marketing, contract administration and field services and the balance in general
and administrative functions. None of the Company's employees are covered by
collective bargaining agreements and the Company considers its employee
relations to be satisfactory.
The Company believes that its future success will depend, in part, on its
continued ability to recruit and retain highly skilled technical, managerial and
marketing personnel. To assist in recruiting and retaining such personnel, the
Company has established competitive benefits programs, including stock option
plans.
INTELLECTUAL PROPERTY
The Company does not presently hold any significant patents applicable to
its products. In order to protect its intellectual property rights, the Company
relies on a combination of trade secret, copyright and trademark laws and
certain employee and third-party nondisclosure agreements, as well as limiting
access to and distribution of proprietary information. There can be no assurance
that the steps taken by the Company to protect its intellectual property rights
will be adequate to prevent misappropriation of the Company's technology or to
preclude competitors from independently developing such technology. Trade secret
and copyright laws afford the Company limited protection. Furthermore, there can
be no assurance that, in the future, third parties will not assert infringement
claims against the Company or with respect to its products for which the Company
has indemnified certain of its customers. Asserting the Company's rights or
defending against third party claims could involve substantial costs and
diversion of resources, thus materially and adversely affecting the Company's
business, results of operations and financial condition. In the event a third
party were successful in a claim that one of the Company's products infringed
its proprietary rights, the Company would have to pay substantial royalties or
damages, remove that product from the marketplace or expend substantial amounts
to modify the product so that it no longer infringed such proprietary rights,
any of which could have a material adverse effect on the Company's business,
results of operations and financial condition.
PROPERTIES
The Company's properties are as follows:
<TABLE>
<CAPTION>
AREA OWNED
OCCUPIED OR
LOCATION PURPOSE OF FACILITY (SQ. FT.) LEASED
- --------------------------------- ------------------------------------------- --------- -------
<S> <C> <C> <C>
Lancaster, PA(1)................. Production, engineering, administrative and 71,200 Owned
executive offices
Woburn, MA....................... Production, engineering and administration 60,000 Owned
Chicago, IL...................... Production, engineering and administration 9,500 Leased
Frederick, MD.................... Production, engineering and administration 14,700 Leased
Lancaster, PA(2)................. Land held for expansion 21 acres Owned
</TABLE>
- ---------------
(1) The Company's executive offices occupy approximately 4,000 sq. ft. of space
at this facility with engineering and administrative offices occupying
10,000 sq. ft. each.
(2) See "Management -- Certain Transactions."
The Company believes that its facilities are adequate for its current and
presently anticipated future needs.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- ----------------------------------- --- --------------------------------------------------
<S> <C> <C>
Lee N. Blatt....................... 69 Chairman of the Board and Chief Executive Officer
Myron Levy......................... 57 President and Director
Anello C. Garefino................. 50 Vice President -- Finance, Treasurer and Chief
Financial Officer
Allan Coon......................... 61 Vice President
Adam J. Bottenfield................ 37 Vice President -- Engineering
Ray Umbarger....................... 50 Vice President -- Domestic Marketing
George Hopp........................ 59 Vice President -- International Marketing
Glenn Rosenthal.................... 38 Vice President
David H. Lieberman................. 52 Secretary and Director
Adm. Thomas J. Allshouse (Ret.).... 72 Director, Member of Compensation and Audit
Committees
Alvin M. Silver.................... 66 Director, Member of Compensation and Audit
Committees
John A. Thonet..................... 47 Director
Adm. Edward K. Walker, Jr. Director, Member of Compensation and Audit
(Ret.)........................... 64 Committees
</TABLE>
Mr. Lee N. Blatt is a co-founder of the Company and has been Chairman of
the Board of the Company since its organization in 1965. Mr. Blatt holds a
Bachelors Degree in Electrical Engineering from Syracuse University and a
Masters Degree in Business Administration from City College of New York. Mr.
Blatt's term as a director expires at the 1997 annual meeting of stockholders to
be held in January 1998.
Mr. Myron Levy has been President of the Company since June 1993 and served
as Executive Vice President and Treasurer since May 1991, and prior thereto as
Vice President for Business Operations and Treasurer since October 1988. For
more than ten years prior to joining the Company, Mr. Levy, a certified public
accountant, was employed in various executive capacities, including
Vice-President, by Griffon Corporation (formerly Instrument Systems
Corporation). Mr. Levy's term as a director expires at the 1998 annual meeting
of stockholders. Mr. Levy is a director of Mike's Original, Inc., a manufacturer
and distributor of premium ice cream products.
Mr. Anello C. Garefino has been employed by the Company in various
executive capacities for more than the past five years. Mr. Garefino, a
certified public accountant, was appointed Vice President -- Finance, Treasurer
and Chief Financial Officer in June 1993. From January 1990 to June 1993, Mr.
Garefino was Finance Manager of the Company. From 1987 to January 1990, Mr.
Garefino was Corporate Controller of Exide Corporation.
Mr. Allan Coon joined the Company in 1992 and was appointed Vice President
in December 1995. Prior to joining the Company, Mr. Coon was Senior Vice
President and Chief Financial Officer of Alpha Industries, Inc., a publicly
traded company engaged in military and commercial electronic programs.
Mr. Adam J. Bottenfield was appointed Vice President -- Engineering in July
1997. Mr. Bottenfield has been employed by the Company as Systems Engineering
Manager of Herley-Vega Systems since the Company's acquisition of Vega in 1993.
From 1984 to 1993, Mr. Bottenfield was Manager of Digital and Software
Engineering of Vega.
Mr. Ray Umbarger was appointed Vice President -- Domestic Marketing in July
1997, having been employed by the Company since June 1995. For more than ten
years prior to that, Mr. Umbarger served in the U.S. Navy where he was a
Captain. His responsibilities in the Navy included the design, development
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<PAGE> 36
production, deployment and life cycle support of all Navy, and in some cases,
all Department of Defense target systems. Mr. Umbarger received a Bachelors
Degree in Aeronautical Engineering from the U.S. Naval Academy, a Masters Degree
in Aeronautical Engineering from Princeton University and a Masters Degree in
Business Administration from Monmouth College.
Mr. George Hopp was appointed Vice President -- International Marketing in
July 1997. Mr. Hopp has been employed by the Company in a sales and marketing
position since 1995 and directs the operations of the Company's GSS division.
For more than ten years prior to joining the Company, Mr. Hopp was Director of
International Programs for Northrop Grumman, Military Aircraft Division.
Mr. Glenn Rosenthal was appointed Vice President of the Company in August
1997. From June 1988 until its acquisition by the Company in August 1997, Mr.
Rosenthal was employed by Metraplex Corporation, holding the positions of
President (from June 1996) and Chief Operations Officer (from 1995). Mr.
Rosenthal holds a Bachelors Degree in Engineering from Carnegie Mellon
University.
Mr. David H. Lieberman has been a director of the Company since 1985 and
Secretary of the Company since 1994. Mr. Lieberman has been a practicing
attorney in the State of New York for more than the past ten years and is a
member of the firm of Blau, Kramer, Wactlar & Lieberman, P.C., general counsel
to the Company. Mr. Lieberman's term as a director expires at the 1999 annual
meeting of stockholders.
Admiral Thomas J. Allshouse (Ret.) has been a director of the Company since
September 1983. Prior to 1981, when he retired from the United States Navy,
Admiral Allshouse served for 34 years in various naval officer positions,
including acting as commanding officer of the United States Naval Ships Parts
Control Center. Admiral Allshouse holds a Bachelors Degree in Engineering from
the United States Naval Academy and a Masters Degree in Business Administration
from Harvard University. Admiral Allshouse's term as a director expires at the
1999 annual meeting of stockholders.
Mr. John A. Thonet has been a director of the Company since 1991 and
President of Thonet Associates, an environmental consulting firm specializing in
land planning and zoning matters for the past ten years. Mr. Thonet is the
son-in-law of Mr. Blatt. Mr. Thonet's term as a director expires at the 1998
annual meeting of stockholders.
Dr. Alvin M. Silver has been a director of the Company since October 1997.
Since 1977, Dr. Silver has been Executive Vice President of the Ademco Division
of Pittway Corporation. Dr. Silver holds a Bachelors Degree in Industrial
Engineering from Columbia University, a Masters Degree in Industrial Engineering
from Stevens Institute of Technology and a Doctor of Engineering Science Degree
in Industrial Engineering/ Operations Research from Columbia University. Dr.
Silver is a Professor at the Frank G. Zarb School of Business of Hofstra
University. Mr. Silver's term as a director expires at the 1998 annual meeting
of stockholders.
Admiral Edward K. Walker, Jr. (Ret.) has been a director of the Company
since October 1997. Since his retirement from the United States Navy in 1988,
Admiral Walker has been Vice President, Administration for Resource Consultants,
Inc., a member of Gilbert Associates, Inc. which is a professional services
company providing services to the Department of Defense, particularly the Navy,
in a wide range of technical, engineering and management disciplines. Prior to
his retirement from the United States Navy, Admiral Walker served for 34 years
in various naval officer positions, including Commander of the Naval Supply
Systems Command, and Chief of Supply Corps. Admiral Walker holds a Bachelors
Degree from the United States Naval Academy and Masters Degree in Business
Administration from The George Washington University. Admiral Walker's term as a
director expires at the 1997 annual meeting of stockholders, to be held in
January 1998.
Mr. Gerald Klein, Chief Technologist for the Company since March 1994, has
been employed by the Company since 1988, serving as Chief Operating Officer and
Executive Vice President from July 1988 until December 1996 and was a director
of the Company from 1991 until December 1996.
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CORPORATE GOVERNANCE
In November, 1997, the Board of Directors of the Company amended the
Company's By-laws to add a new article, which concerns certain corporate
governance matters. This article may only be amended or repealed with the
approval of the holders of 66 2/3% of the outstanding shares of the Common
Stock. In addition, in the Underwriting Agreement the Company agreed to certain
compensation restrictions during the two years immediately after the closing of
this offering.
By-laws. The new article requires that any corporate opportunity presented
to any director or officer of the Company (or any director or officer of any
subsidiary of the Company), including any affiliates of such director or
officer, concerning a business transaction involving the type of business
conducted by the Company or any of its subsidiaries, to be defined therein, be
submitted to the Company's Board of Directors for its approval. Such director or
officer may not take any action with respect to such opportunity until the
earlier of: (i) the decision by the Board of Directors of the Company not to
pursue the opportunity or (ii) the expiration of 30 days after submission of
such opportunity to the Board of Directors.
The new article prohibits the Company, and requires the Company to prohibit
any of its subsidiaries, from entering into any transaction with any director or
officer of the Company or any of its subsidiaries, or any affiliate of such
director or officer, unless such transaction has been unanimously approved by
the disinterested directors of the Company's Board of Directors.
The new article provides that both the Audit Committee and the Compensation
Committee of the Board of Directors must contain only independent directors. As
described above, in November 1997, the Board of Directors expanded the number of
directors comprising the Board of Directors to seven members and elected Mr.
Silver and Admiral Walker to fill the two vacancies created. Mr. Silver and
Admiral Walker will serve on the Audit Committee and the Compensation Committee
with Admiral Allshouse.
The new article requires the Company to invest any cash not necessary for
the Company's current needs in certain high quality short-term securities.
Underwriting Agreement. In the Underwriting Agreement, the Company agreed
that for the two years immediately after the closing of this offering, the
Company would not issue or sell any shares of Common Stock (except with respect
to outstanding options or warrants), or securities convertible into,
exchangeable for, or options or other rights to acquire shares of Common Stock
to Lee N. Blatt, Myron Levy, or Gerald I. Klein, or any relative or affiliate of
such individuals (collectively, the "Executives") or increase any compensation
payable to any Executive unless such issuance or sale of securities or increase
in compensation is unanimously approved by the members of the Compensation
Committee. During such two year period, the Company also agreed that it would
not re-price any outstanding stock options.
In addition, the Company agreed that during such two year period the
compensation to the Company's directors and executive officers would be based
upon standards established with the assistance of an outside compensation
specialist. In furtherance of certain of these new policies, Messrs. Blatt, Levy
and Klein amended certain aspects of their employment agreements with the
Company and will repay the loans that the Company previously made to them, at
the closing of this offering.
36
<PAGE> 38
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation with
respect to the Chairman/Chief Executive Officer, the Company's four most highly
compensated executive officers other than the Chief Executive Officer and one
individual who served as an executive officer for a portion of fiscal year 1997
and all of fiscal years 1996 and 1995 (the "named executive officers") for
services rendered for the fiscal years ended August 3, 1997, July 28, 1996 and
July 30, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) --------------------------------
--------------------------------- SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY(2) BONUS(3) OPTIONS/SARS(4) COMPENSATION
- -------------------------------- ------ --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Lee N. Blatt.................... 1997 $ 531,629 $302,432 599,999(5) $4,500(6)
Chairman of 1996 483,028 203,068 133,333(7) 4,500
the Board 1995 503,842 -- 133,333 4,620
Myron Levy...................... 1997 $ 307,764 $181,460 400,000(5) $9,000(6)
President 1996 288,726 121,841 66,667(7) 7,380
1995 295,331 27,500 66,666 6,636
Allan Coon...................... 1997 $ 110,011 -- 73,332(5) $5,751(6)
Vice President 1996 110,011 $ 30,000 13,333(7) 4,569
1995 99,008 15,000 -- 4,245
Anello C. Garefino.............. 1997 $ 101,914 -- 59,999(5) $3,579(6)
Vice President 1996 97,885 $ 15,000 13,333(7) 3,424
Finance-Treasurer 1995 90,620 -- 13,333 3,173
George Hopp..................... 1997 $ 107,615 -- 18,666(5) $1,422(6)
Vice President 1996 104,000 -- -- 1,185
1995 44,000 -- 6,667 --
Gerald I. Klein(8).............. 1997 $ 307,764 $181,460 99,999(5) $4,500(6)
1996 288,726 121,841 66,667(7) 4,500
1995 295,328 -- 66,666 4,620
</TABLE>
- ---------------
(1) Does not include Other Annual Compensation because amounts of certain
perquisites and other non-cash benefits provided by the Company do not
exceed the lesser of $50,000 or 10% of the total annual base salary and
bonus disclosed in this table for the respective officer.
(2) Amounts set forth herein include cost of living adjustments under employment
contracts.
(3) Represents for Messrs. Blatt, Levy and Klein incentive compensation under
employment agreements. No incentive compensation was earned under the
employment agreements in fiscal 1995. Mr. Levy was awarded a bonus by the
Board of Directors for fiscal 1995. See "Management -- Employment
Agreements."
(4) Adjusted to give effect to a four-for-three stock split on September 30,
1997. This table includes warrants issued to these individuals outside the
stock option plans.
(5) Consisting of the following options issued in October 1996 for the right to
purchase Common Stock of the Company at a price of $6.9375: Lee N.
Blatt - 133,333; Myron Levy - 100,000, Allan Coon - 26,666, Anello C.
Garefino - 13,333; options granted in February 1997 at a price of $8.3438
and repriced to $6.0938 in April 1997: Lee N. Blatt 133,333, Myron
Levy - 100,000, Allan Coon - 20,000, Anello C. Garefino - 20,000, Gerald I.
Klein - 33,333 and George Hopp - 5,333; and options granted in May 1997 at a
price of $6.4688: Lee N. Blatt - 333,333, Myron Levy - 200,000, Allan
Coon - 26,666, Anello C. Garefino - 26,666, Gerald I. Klein - 66,666 and
George Hopp - 13,333.
(6) All Other Compensation includes: (a) group term life insurance as follows:
$4,500 for Mr. Levy, $2,387 for Mr. Coon, $522 for Mr. Garefino, and $1,422
for Mr. Hopp, and (b) contributions to the Company's 401(k) Plan as a
pre-tax salary deferral as follows: $4,500 for each of Messrs. Blatt, Levy
and Klein, $3,364 for Mr. Coon, and $3,057 for Mr. Garefino.
(7) Represents warrants issued in December 1995 for the right to purchase Common
Stock of the Company at a price of $4.6425.
(8) Effective December 1996, Mr. Klein ceased to serve as an executive officer
of the Company.
37
<PAGE> 39
The following table sets forth certain information concerning the stock
options granted to the named executive officers during fiscal 1997. Since the
end of fiscal 1997, the Company has not granted any stock options or warrants to
any of these individuals.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
--------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS ISSUED STOCK PRICE APPRECIATION
UNDERLYING TO EMPLOYEES EXERCISE FOR OPTION TERM(4)
OPTIONS IN PRICE EXPIRATION -----------------------------------
NAME GRANTED(2) FISCAL YEAR(3) ($/SH) DATE 0% 5% 10%
- ------------------- ---------- -------------- -------- ---------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Lee N. Blatt....... 133,333 9 $ 6.9375 10/08/06 $0.00 $ 255,559 $ 564,720
133,333 9 $ 6.0938 04/04/07 $0.00 $ 224,480 $ 496,042
333,333 24 $ 6.4688 05/01/07 $0.00 $1,356,063 $3,436,530
Myron Levy......... 100,000 7 $ 6.9375 10/08/06 $0.00 $ 191,670 $ 423,541
100,000 7 $ 6.0938 04/04/07 $0.00 $ 168,360 $ 372,032
200,000 14 $ 6.4688 05/01/07 $0.00 $ 813,638 $2,061,920
Allan Coon......... 26,666 2 $ 6.9375 10/08/06 $0.00 $ 51,111 $ 112,942
20,000 1 $ 6.0938 04/04/07 $0.00 $ 33,672 $ 74,406
26,666 2 $ 6.4688 05/01/07 $0.00 $ 108,482 $ 274,916
Anello C.
Garefino......... 13,333 1 $ 6.9375 10/08/06 $0.00 $ 25,555 $ 56,470
20,000 1 $ 6.0938 04/04/07 $0.00 $ 33,672 $ 74,406
26,666 2 $ 6.4688 05/01/07 $0.00 $ 108,482 $ 274,916
George Hopp........ 5,333 -- $ 6.0938 04/04/07 $0.00 $ 8,979 $ 19,840
13,333 1 $ 6.4688 05/01/07 $0.00 $ 54,241 $ 137,458
Gerald I. Klein.... 33,333 2 $ 6.0938 04/04/07 $0.00 $ 56,120 $ 124,009
66,666 5 $ 6.4688 05/01/07 $0.00 $ 271,210 $ 687,301
</TABLE>
- ---------------
(1) Adjusted to give effect to a four-for-three stock split on September 30,
1997. During fiscal 1997, no warrants were issued to these individuals
outside the stock option plans.
(2) Options were issued in fiscal 1997 at 100% of the closing price of the
Company's Common Stock on dates of issue and vest as follows: Lee N.
Blatt - all options vest at date of grant; Myron Levy, Allan Coon, Anello C.
Garefino and Gerald I. Klein - one third of the options vest at date of
grant, one-third vest one year from date of grant and the balance vest two
years from date of grant; George Hopp - one fifth of the options vest one
year from date of grant and one fifth each year thereafter.
(3) Total options issued to employees and directors in fiscal 1997 were for
1,465,649 shares of Common Stock.
(4) The amounts under the columns labeled "5%" and "10%" are included by the
Company pursuant to certain rules promulgated by the Commission and are not
intended to forecast future appreciation, if any, in the price of the Common
Stock. Such amounts are based on the assumption that the named persons hold
the options for the full term of the options. The actual value of the
options will vary in accordance with the market price of the Common Stock.
The column headed "0%" is included to demonstrate that the options were
issued with an exercise price equal to the trading price of the Common Stock
so that the holders of the options will not recognize any gain without an
increase in the stock price, which increase benefits all stockholders
commensurately.
38
<PAGE> 40
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table sets forth stock options and warrants exercised during
fiscal 1997 and all unexercised stock options and warrants held by the named
executive officers as of August 3, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AND WARRANTS AT OPTIONS AND WARRANTS AT
SHARES FISCAL YEAR-END(2) FISCAL YEAR-END(3)
ACQUIRED ON VALUE ---------------------------- ------------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lee N. Blatt....... 688,886 $3,203,301 133,333 177,779 $ 706,532 $ 785,698
Myron Levy......... 264,441 1,255,128 66,667 255,558 353,293 969,833
Allan Coon......... 10,000 70,625 32,222 41,110 109,350 140,202
Anello Garefino.... 41,109 200,659 13,333 38,889 70,657 153,102
George Hopp........ 4,443 22,442 2,667 18,222 10,261 72,993
Gerald Klein....... 163,330 854,708 66,667 83,335 353,293 382,947
</TABLE>
- ---------------
(1) Values are calculated by subtracting the exercise price from the trading
price of the Common Stock as of the exercise date.
(2) Adjusted to give effect to a four-for-three stock split on September 30,
1997.
(3) Based upon the trading price of the Common Stock of $9.94 on August 3, 1997,
as adjusted to give effect to the four-for-three stock split on September
30, 1997.
EMPLOYMENT AGREEMENTS
Lee N. Blatt has entered into a new employment agreement with the Company,
dated as of November 1, 1997, which provides for a three year term, terminating
on October 31, 2000. Pursuant to the agreement, Mr. Blatt receives compensation
consisting of a base salary of $375,000, with an annual cost of living increase
and an incentive bonus. Mr. Blatt's incentive bonus is 5% of the pretax income
of the Company in excess of 10% of the Company's stockholders' equity for
specific periods, as adjusted for stock issuances. Mr. Blatt's incentive bonus
cannot exceed his base salary.
Myron Levy has entered into a new employment agreement with the Company,
dated as of November 1, 1997, which provides for a five year term, terminating
on October 31, 2002, and a five year consulting period commencing at the end of
the employment period. Pursuant to the agreement, Mr. Levy receives compensation
consisting of a base salary of $275,000, with an annual cost of living increase
and an incentive bonus. Mr. Levy's incentive bonus is 4% of the pretax income of
the Company in excess of 10% of the Company's stockholders' equity for specific
periods, as adjusted for stock issuances. Mr. Levy's incentive bonus cannot
exceed his base salary. Mr. Levy's compensation during the consulting period is
at the annual rate of $60,000.
Gerald Klein has entered into a new employment agreement with the Company,
dated as of November 1, 1997, which provides for a four year term, terminating
on October 31, 2001, and a consulting period commencing at the end of the
employment period and terminating on December 31, 2010. Pursuant to the
agreement, Mr. Klein receives compensation consisting of a base salary of
$275,000, with an annual cost of living increase and an incentive bonus. Mr.
Klein's incentive bonus is 3% of the pretax income of the Company in excess of
10% of the Company's stockholders' equity for specific periods, as adjusted for
stock issuances. Mr. Klein's incentive bonus cannot exceed his base salary. Mr.
Klein has the right at any time during his full time employment to terminate
such employment and commence his consulting arrangement. Mr. Klein's
compensation during his consulting period is at the annual rate of $100,000.
The employment agreements with Messrs. Blatt, Levy and Klein provide for
certain payments following death or disability. The employment agreements also
provide, in the event of a change in control of the Company, as defined therein,
the right, at their election, to terminate the agreement and receive a lump sum
payment of approximately twice their annual salary.
Glenn Rosenthal entered into an employment agreement with the Company and
Metraplex, dated as of August 4, 1997, which provides for a three year term,
terminating on August 4, 2000. Pursuant to this
39
<PAGE> 41
agreement, Mr. Rosenthal receives annual compensation consisting of a base
salary of $130,000 and an incentive bonus based on 3% of the pre-tax income of
Metraplex. The employment agreement also provides that if Mr. Rosenthal is
relocated out of Frederick, Maryland, he shall receive $260,000 if during the
first year of the employment agreement, $195,000 if during the second year, and
$130,000 if during the third year or beyond.
In addition, Allan Coon has entered into a severance agreement with the
Company, dated June 11, 1997, which provides that in the event Mr. Coon is
terminated other than for cause prior to June 11, 1999, he is entitled to two
years' base salary and in the event he is so terminated after June 11, 1999 and
before June 11, 2002, he is entitled to one year's base salary. Mr. Coon's
present base salary is $110,000.
INDEMNIFICATION AGREEMENTS
The Company has entered into separate indemnification agreements with the
officers and directors of the Company. The Company has agreed to provide
indemnification with regard to certain legal proceedings so long as the
indemnified officer or director has acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interests of the
Company and with respect to any criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The Company will only provide
indemnification for expenses, judgments, fines and amounts paid in settlement
actually incurred by the relevant officer or director, or on his or her behalf,
arising out of proceedings brought against such officer or director by reason of
his or her corporate status.
TABLE OF TEN-YEAR OPTION REPRICINGS
The following table sets forth information concerning options of the named
executive officers that were repriced during fiscal 1997.
<TABLE>
<CAPTION>
MARKET PRICE EXERCISE LENGTH OF ORIGINAL
NUMBER OF SECURITIES OF STOCK AT PRICE NEW OPTION TERM
UNDERLYING OPTIONS TIME OF AT TIME OF EXERCISE REMAINING AT DATE OF
REPRICED OR REPRICING OR REPRICING OR PRICE REPRICING OR
NAME DATE AMENDED(#) AMENDMENT($) AMENDMENT($) ($) AMENDMENT
- --------------------- ------- -------------------- ------------ ------------ ------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Lee N. Blatt......... 4/8/97 133,333 $ 6.0938 $ 8.3438 $6.0938 9 years, 10 months
Myron Levy........... 4/8/97 100,000 $ 6.0938 $ 8.3438 $6.0938 9 years, 10 months
Gerald I. Klein...... 4/8/97 33,333 $ 6.0938 $ 8.3438 $6.0938 9 years, 10 months
Anello C. Garefino... 4/8/97 20,000 $ 6.0938 $ 8.3438 $6.0938 9 years, 10 months
Allan Coon........... 4/8/97 20,000 $ 6.0938 $ 8.3438 $6.0938 9 years, 10 months
</TABLE>
The Board of Directors determined to reprice the above described stock
options to strengthen the link that the Company believes exists between
executive compensation and corporate objectives.
CERTAIN TRANSACTIONS
In November 1995 and March 1996, the Company loaned $1,400,000, $300,000
and $300,000, to Messrs. Blatt, Levy and Klein, respectively, as authorized by
the Board of Directors, pursuant to the terms of non-negotiable promissory
notes. The loans are secured by 315,774, 50,000, and 80,000 shares of Common
Stock, respectively. The notes were initially due November 1996, March 1997 and
March 1997, respectively. The notes were extended by the Company and are now due
April 30, 1998, January 31, 1998 and January 31, 1998, respectively. Interest is
payable at maturity at the average rate of interest paid by the Company on
borrowed funds during the fiscal year. The pledge agreement also provides for
the Company to have the right of first refusal to purchase the pledged
securities, based on a formula as defined, in the event of the death or
disability of the officer. Upon completion of this offering, the loans will be
repaid.
On March 6, 1996, the Board of Directors, by action of the disinterested
directors, approved the purchase of an industrial parcel of land from the
Chairman of the Company for $940,000. A deposit of $94,000 was paid on execution
of the contract, and the balance of $846,000 will be paid at settlement on or
before March 31, 1998. The Company intends to use this land for possible future
expansion.
40
<PAGE> 42
STOCK PLANS
Certain officers and directors of the Company hold options or warrants to
purchase Common Stock under the Company's 1992 Non-Qualified Stock Option Plan,
1996 Stock Option Plan, 1997 Stock Option Plan (collectively, the "Stock Plans")
and warrant agreements.
1992 Non-Qualified Stock Option Plan. The 1992 Non-Qualified Stock Option
Plan covers 1,333,333 shares of Common Stock. Under the terms of the plan, the
purchase price of the shares, subject to each option granted, is 100% of the
fair market value at the date of grant. The date of exercise is determined at
the time of grant by the Compensation Committee or the Board of Directors. If
not specified, 50% of the shares can be exercised each year beginning one year
after the date of grant. The options expire ten years from the date of grant. In
December 1995, this plan was terminated except for outstanding options
thereunder. At August 3, 1997, non-qualified options to purchase 151,127 shares
of Common Stock were outstanding under this plan.
1996 Stock Option Plan. The 1996 Stock Option Plan covers 666,667 shares
of Common Stock. Options granted under the plan may be incentive stock options
qualified under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code") or non-qualified stock options. Under the terms of
the plan, the exercise price of options granted under the plan will be the fair
market value at the date of grant. The nature and terms of the options to be
granted are determined at the time of grant by the Compensation Committee or the
Board of Directors. If not specified, 100% of the shares can be exercised one
year after the date of grant. The options expire ten years from the date of
grant. Options for 663,997 shares of Common Stock were granted during the fiscal
year ended August 3, 1997. At August 3, 1997, non-qualified options to purchase
394,662 shares of Common Stock were outstanding under this plan.
1997 Stock Option Plan. The 1997 Stock Option Plan covers 1,666,667 shares
of Common Stock. Options granted under the plan may be incentive stock options
qualified under Section 422 of the Internal Revenue Code or non-qualified stock
options. Under the terms of the plan, the exercise price of options granted
under the plan will be the fair market value at the date of grant. The nature
and terms of the options to be granted are determined at the time of grant by
the Compensation Committee or the Board of Directors. If not specified, 100% of
the shares can be exercised one year after the date of grant. The options expire
ten years from the date of grant. Options for 800,665 shares of Common Stock
were granted during the fiscal year ended August 3, 1997. At August 3, 1997,
options to purchase 369,553 shares of Common Stock were outstanding under this
plan.
Warrant Agreements. In April 1993, common stock warrants were issued to
certain officers and directors for the right to acquire 573,333 shares of Common
Stock at an exercise price of $5.3475 per share, which was the closing price of
the Common Stock on the date of issue. In December 1995, warrants with respect
to 533,333 of these shares were canceled. The warrants expire April 30, 1998. In
December 1995, warrants were issued to certain officers for the right to acquire
293,333 shares of Common Stock at an exercise price of $4.6425 per share, which
was the closing price of the Common Stock on the date of issue. These warrants
expire December 13, 2005.
EMPLOYEE SAVINGS PLAN
The Company maintains an Employee Savings Plan that qualifies as a thrift
plan under Section 401(k) of the Internal Revenue Code. This plan allows
employees to contribute between 2% and 15% of their salaries to the plan. The
Company, at its discretion, can contribute 100% of the first 2% of the
employees' salary so contributed and 25% of the next 4% of salary. Additional
Company contributions can be made, depending on profits. The aggregate benefit
payable to an employee depends upon the employee's rate of contribution, the
earnings of the fund, and the length of time such employee continues as a
participant. The Company accrued approximately $178,000 for the fiscal year
ended August 3, 1997 and contributed approximately $159,000 and $151,000 to this
plan for the years ended July 28, 1996 and July 30, 1995, respectively. For the
year ended August 3, 1997, $4,500, $4,500, $3,364, and $3,057 was contributed by
the Company to this plan for Messrs. Blatt, Levy, Coon and Garefino,
respectively, and $20,452 was contributed for all executive officers and
directors as a group.
41
<PAGE> 43
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the indicated information as of the date of
this Prospectus with respect to the beneficial ownership of the Company's
securities by: (i) all persons known to the Company to be beneficial owners of
more than 5% of the outstanding shares of Common Stock, (ii) each director and
named executive officer of the Company, and (iii) by all executive officers and
directors as a group:
<TABLE>
<CAPTION>
SHARES TO BE
SOLD IN THIS
OFFERING
------------
SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY STOCK BENEFICIALLY
OWNED PRIOR TO THIS OWNED AFTER
OFFERING(1)(5) THIS OFFERING
------------------- ---------------------
NAME SHARES PERCENT SHARES(6) PERCENT(6)
- --------------------------------------------- --------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Lee N. Blatt(2)(4)(5)........................ 913,065 19.3% 550,000 363,065 6.7%
Myron Levy(4)(5)(7).......................... 396,687 8.5% -- 396,687 8.5%
Gerald I. Klein(4)(5)........................ 356,186 7.7% 75,000 281,186 5.3%
Anello C. Garefino(4)(5)..................... 47,440 1.0% -- 47,440 1.0%
Allan Coon(4)................................ 45,555 1.0% -- 45,555 1.0%
Adam J. Bottenfield(4)....................... 18,442 -- -- 18,442 --
Ray Umbarger(4).............................. 7,953 -- -- 7,953 --
George Hopp(4)............................... 7,111 -- -- 7,111 --
Glenn Rosenthal.............................. 262 -- -- 262 --
Adm. Thomas J. Allshouse (Ret.)(4)(5)........ 32,798 -- -- 32,798 --
David H. Lieberman(4)(5)..................... 20,799 -- -- 20,799 --
John A. Thonet(3)(4)(5)...................... 28,359 -- -- 28,359 --
Alvin M. Silver.............................. -- -- -- -- --
Adm. Edward K. Walker, Jr. (Ret.)............ -- -- -- -- --
Kathi Thonet................................. 156,309 3.4% 75,000 81,309 1.6%
Directors and executive officers as a group
(11 persons)............................... 1,518,471 30.3% 550,000 968,471 17.0%
</TABLE>
- ---------------
(1) No executive officer or director owns more than one percent of the
outstanding shares of Common Stock unless otherwise indicated. Ownership
represents sole voting and investment power.
(2) Does not include an aggregate of 562,259 shares owned by family members,
including Hannah Thonet, Rebecca Thonet, Kathi Thonet, Randi Rossignol, Max
Rossignol, Henry Rossignol, Patrick Rossignol and Allyson Gerber, certain of
which are to be sold in this offering, of which Mr. Blatt disclaims
beneficial ownership.
(3) Does not include 153,332 shares, owned by Mr. Thonet's children, Hannah and
Rebecca Thonet, and 156,309 shares owned by his wife, Kathi Thonet, certain
of which are to be sold in this offering. Mr. Thonet disclaims beneficial
ownership of these shares.
(4) Includes shares subject to options exercisable within the 60 days after the
date of this Prospectus at prices ranging from $2.535 to $6.9375 per share
pursuant to the Company's Stock Plans: Lee N. Blatt - 66,667, Myron Levy -
50,002, Anello C. Garefino - 6,667, Allan Coon - 45,555, George
Hopp - 2,667, Adm. Thomas J. Allshouse - 6,665, David H. Lieberman - 6,666,
John A. Thonet - 6,666, Ray Umbarger - 7,000, Adam J. Bottenfield - 16,442.
(5) Includes shares subject to outstanding warrants exercisable within 60 days
after the date of this Prospectus at a price of $4.6425: Lee N.
Blatt - 133,333, Myron Levy - 66,667, Gerald I. Klein - 66,667, Anello C.
Garefino - 13,333, and the following at a price of $5.3475: Adm. Thomas J.
Allshouse - 13,333, David H. Lieberman 13,333, John A. Thonet - 13,333.
(6) Does not assume exercise of the Underwriters' over-allotment option for
210,000 shares of Common Stock and 210,000 Warrants, nor exercise of any of
the Warrants sold in this offering.
(7) Does not include 12,666 shares owned by Mr. Levy's children, Stephanie Levy
and Ronnie Roth, of which Mr. Levy disclaims beneficial ownership.
42
<PAGE> 44
DESCRIPTION OF SECURITIES
CAPITAL STOCK
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, $.10 par value per share.
COMMON STOCK
General. The Company has 10,000,000 authorized shares of Common Stock,
4,541,146 of which were issued and outstanding as of December 7, 1997. The
Company intends to propose an increase in its authorized shares of Common Stock
to 20,000,000 shares at its next annual meeting of stockholders presently
scheduled to be held in January 1998. All shares of Common Stock currently
outstanding are validly issued, fully paid and non-assessable, and all shares
which are the subject of this Prospectus (when issued and paid for pursuant to
this offering with respect to the Shares that the Company will issue) will be
validly issued, fully paid and non-assessable.
Voting Rights. Each share of Common Stock entitles the holder thereof to
one vote, either in person or by proxy, at meetings of the stockholders. The
Company's Board of Directors consists of three classes, each of which serves for
a term of three years. At each annual meeting of the stockholders the directors
in only one class will be elected. The holders are not permitted to vote their
shares cumulatively. Accordingly, the holders of more than 50% of the
outstanding shares of Common Stock can elect all of the directors of the Company
standing for election at a stockholders' meeting.
Dividend Policy. All shares of Common Stock are entitled to participate
ratably in dividends when and as declared by the Company's Board of Directors
out of the funds legally available therefor. Any such dividends may be paid in
cash, property or additional shares of Common Stock. The Company has not paid
any cash dividends in the past two fiscal years or the current fiscal year and
anticipates that no cash dividends on the shares of Common Stock will be
declared in the foreseeable future. While the Company declared a four-for-three
stock split effected as a stock dividend effective September 30, 1997, payment
of future dividends will be subject to the discretion of the Company's Board of
Directors and will depend upon, among other things, future earnings, the
operating and financial condition of the Company, its capital requirements,
general business conditions and other pertinent facts. Therefore there can be no
assurance that any dividends on the Common Stock will be paid in the future. See
"Dividend Policy."
Miscellaneous Rights and Provisions. Holders of Common Stock have no
preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of the liquidation or dissolution, whether
voluntary or involuntary, of the Company, each share of Common Stock is entitled
to share ratably in any assets available for distribution to holders of the
equity of the Company after satisfaction of all liabilities.
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have 5,241,146 shares of Common Stock outstanding. Of these shares,
4,506,363, including the 1,400,000 shares sold in this offering (1,610,000
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an "affiliate" of the Company
(in general, a person who has a control relationship with the Company), which
will be subject to the limitations of Rule 144 adopted under the Securities Act.
The remaining shares are deemed to be "restricted securities," as that term is
defined under Rule 144. The freely tradeable shares include 313,193 shares
issued to the former stockholders of Metraplex in connection with the Metraplex
acquisition. In August 2000 and for two years thereafter, each former Metraplex
stockholder has the right to put such stockholder's shares of Common Stock
received in connection with the acquisition to the Company at certain guaranteed
prices.
In addition, the Company will have issued 1,400,000 Warrants (1,610,000
Warrants if the Underwriters' over-allotment option is exercised in full) that
will be exercisable for 1,400,000 newly issued shares of Common Stock (1,610,000
shares if the Underwriters' over-allotment option is exercised in full). Upon
43
<PAGE> 45
exercise of those Warrants, all of these shares of Common Stock will also be
freely tradeable without restriction or future registration under the Securities
Act.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, who owns restricted
securities for at least one year is entitled to sell, within any three-month
period, a number of such securities that does not exceed the greater of 1% of
the total number of securities outstanding of the same class or the average
weekly trading volume of the securities on all exchanges and/or reported through
the automated quotation system of a registered securities association during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the issuer. In addition, an affiliate of the issuer is subject
to such volume limitations when selling both restricted and unrestricted
securities. A person who has not been an affiliate of the Company for at least
the three months immediately preceding the sale and who has beneficially owned
the securities for at least two years, however, is entitled to sell such
securities under Rule 144 without regard to any of the limitations described
above. Of the 734,783 shares of Common Stock that constitute restricted
securities, 474,733 shares have been held for more than one year. Persons who
have agreed not to sell their shares of Common Stock for a period ranging
between 120 days and 180 days after the closing of this offering, however, own
all of these shares of Common Stock.
No predictions can be made as to the effect, if any, that sales of shares
of Common Stock under Rule 144 or otherwise or the availability of shares for
sale will have on the market, if any, prevailing from time to time. Sales of a
substantial number of shares of the Common Stock pursuant to Rule 144 or
otherwise may adversely affect the market price of the Common Stock or the
Warrants.
DESCRIPTION OF WARRANTS
The following is a brief summary of certain provisions of the Warrants.
Such summary does not purport to be complete and is qualified in all respects by
reference to the Warrant Agreement (the "Warrant Agreement") between the Company
and American Stock Transfer & Trust Company (the "Warrant Agent"). A copy of the
Warrant Agreement has been filed as an exhibit to the Registration Statement.
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase one share of Common Stock at an exercise price of
$ per share for thirteen months from date of issuance and thereafter at
$ per share until twenty-five months from date of issuance, subject to
adjustment in accordance with the anti-dilution and other provisions referred to
below. The holder of any Warrant may exercise such Warrant by surrendering the
certificate representing the Warrant to the Warrant Agent, with the subscription
form thereon properly completed and executed, together with payment of the
exercise price. The Warrants may be exercised at any time in whole or in part at
the exercise price then in effect until expiration of the Warrants. No
fractional shares will be issued upon the exercise of the Warrants.
The exercise price of the Warrants has been set at a premium to the
existing trading price of the Common Stock and bears no relationship to any
objective criteria of future value. Accordingly, such exercise price should in
no event be regarded as an indication of any future trading price.
Adjustments. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock, or certain sales by the
Company of shares of its Common Stock or other securities convertible into
Common Stock (excluding sales of shares upon certain events, such as the
exercise or conversion of outstanding options, warrants and convertible
securities the exercise of stock options granted under the Stock Plans in the
future, and the exercise of the Managing Underwriters' Warrant, as defined
herein) at a price below the market price of the Common Stock as defined in the
Warrant Agreement. Additionally, an adjustment would be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or merger
in which the Company is the continuing corporation) or sale of all or
substantially all of the assets of the Company followed by a related
distribution to
44
<PAGE> 46
stockholders in order to enable Warrant holders to acquire the kind and number
of shares of stock or other securities or property receivable in such event by a
holder of the number of shares of Common Stock that might otherwise have been
purchased upon the exercise of the Warrant.
Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time on or prior to their expiration date twenty-five months from the closing of
this offering, at which time the Warrants become wholly void and of no value. If
a market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
Warrant Holder Not a Stockholder. The Warrants do not confer upon holders
any voting, dividend or other rights as stockholders of the Company.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the Warrant holders. The Company may, in its
sole discretion, at any time and from time to time, lower the exercise price of
the Warrants for a period of not less than 30 days on not less than 30 days
prior written notice to the Warrant holders and the Managing Underwriters.
Except as described above, modification of the number of securities purchasable
upon the exercise of any Warrant, the exercise price and the expiration date
with respect to any Warrant or any other modification to the Warrant requires
the consent of the holders of 66 2/3% of the outstanding Warrants.
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a registration statement in effect under the Securities Act covering
the shares of Common Stock issuable upon exercise of the Warrants, or the sale
of such shares upon exercise of the Warrants is exempt from the registration
requirements of the Securities Act, and such shares have been registered,
qualified or are deemed to be exempt under the securities laws of the state of
residence of the exercising holder of the Warrants. Although the Company will
use its best efforts to have all the shares of Common Stock issuable upon
exercise of the Warrants registered or qualified on or before the exercise date
and to maintain a registration statement relating thereto until the expiration
of the Warrants, there can be no assurance that it will be able to do so.
Notwithstanding the stated expiration date of the Warrants, however, such
expiration date will be extended if the Company has not maintained a
registration statement in effect with respect to the shares of Common Stock
underlying the Warrants during the 90 days immediately preceding such stated
expiration date (or the Company has not maintained the registration or
qualification of such shares under applicable state securities laws during such
period). The extended expiration date will be the first date thereafter for
which the Company has maintained such a registration statement for such 90-day
period.
The Warrants are separately transferable immediately upon issuance.
Although the Warrants will not knowingly be sold to purchasers in jurisdictions
in which the Warrants are not registered or otherwise qualified for sale,
purchasers may buy Warrants in the aftermarket in, or may move to, jurisdictions
in which the shares underlying the Warrants are not so registered or qualified
during the period that the Warrants are exercisable. In this event, the Company
would be unable to issue shares to those persons desiring to exercise their
Warrants, and holders of Warrants would have no choice but to attempt to sell
the Warrants in a jurisdiction where such sale is permissible or allow them to
expire unexercised.
45
<PAGE> 47
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation and By-laws contain certain
provisions, including a prohibition against removal of directors other than for
cause, that are intended to enhance the continuity and stability of management
by making it more difficult for stockholders to remove or change the incumbent
members of the Board of Directors. The Certificate of Incorporation includes
additional provisions that are intended to discourage certain types of
transactions that involve an actual or threatened change of control of the
Company. The Certificate of Incorporation provides for a Board of Directors
classified into three groups, each of which group's term of office expires in
successive years. The Certificate of Incorporation also provides that written
notice of the intent to make a nomination at a meeting of stockholders must be
received by the Company at least 90 days in advance of such meeting.
The Certificate of Incorporation further requires that stockholders
entitled to vote 80% of the outstanding shares of the Common Stock approve
certain business combinations with interested stockholders. These business
combinations include mergers, sales of assets in excess of $5,000,000, issuance
of certain securities having an aggregate fair market value of $5,000,000 or
more, adoption of any plan of liquidation or dissolution and any
reclassification of securities unless approved by the disinterested members of
the Board of Directors or the transaction complies with certain provisions
relating to the fair valuation and consummation of such business combination.
The Certificate of Incorporation further provides that stockholders of the
Company are not permitted to call a special meeting of stockholders or to
require the Board of Directors to call such a special meeting. Thus, a
stockholder could not force stockholder consideration of a proposal over the
opposition of the Board of Directors by calling a special meeting of the
stockholders.
The foregoing provisions may adversely affect the ability of potential
acquirers to obtain control of the Company in any transaction that is not
approved by the Company's Board of Directors. The use of these provisions as
anti-takeover devices might preclude stockholders from taking advantage of
certain situations that they believe could be favorable to their interests.
DELAWARE GENERAL CORPORATION LAW
The Delaware General Corporation Law further contains certain anti-takeover
provisions. Section 203 of the Delaware General Corporation Law provides, with
certain exceptions, that a Delaware corporation may not engage in any of a broad
range of business combinations with a person who owns 15% or more of the
corporation's outstanding voting stock (an "interested stockholder") for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation (excluding shares owned by persons
who are both officers and directors of the corporation and shares held by
certain employee stock ownership plans), or (iii) the business combination is
approved by the corporation's board of directors and by the holders of at least
66 2/3% of the corporation's outstanding voting stock at an annual or special
meeting, excluding shares owned by the interested stockholder.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The transfer agent and registrar for the Common Stock and Warrant Agent for
the Warrants is American Stock Transfer & Trust Company, 6201 15th Avenue,
Brooklyn, New York 11219.
46
<PAGE> 48
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, each of the Underwriters has severally agreed to purchase, and the
Company and the Selling Stockholders have agreed to sell to each such
Underwriter, the respective number of Securities set forth opposite the name of
such Underwriter below at the price to public less the underwriting discounts
and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF
UNDERWRITERS OF COMMON STOCK WARRANTS
--------------------------------------------------------------- --------------- ---------
<S> <C> <C>
Janney Montgomery Scott Inc. .................................. 700,000 700,000
Southwest Securities, Inc. .................................... 700,000 700,000
--------- ---------
Total................................................ 1,400,000 1,400,000
========= =========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Securities offered hereby are
subject to certain conditions. The Underwriters are obligated to take and pay
for all of the Securities offered hereby (other than those Securities covered by
the over-allotment option described below), if any such Securities are to be
purchased.
The Underwriters, for whom Janney Montgomery Scott Inc. is acting as
Representative, propose to initially offer the Securities directly to the public
at the initial offering price set forth on the cover page hereof and to certain
dealers (who may be Underwriters) at a price that represents a concession not in
excess of $ per Share and $ per Warrant under the initial
offering price. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per Share and $ per Warrant to
other dealers. After the commencement of the offering, the public offering
prices, such concessions and other selling terms may be changed by the
Representative. The Representative has informed the Company and the Selling
Stockholders that the Underwriters do not intend to confirm sales to any account
over which the Underwriters exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 210,000 additional
Shares and 210,000 additional Warrants at the offering prices set forth on the
cover page hereof, less the underwriting discounts and commissions. The
Underwriters may exercise such option to purchase additional Shares and Warrants
solely for the purpose of covering over-allotments, if any, incurred in
connection with the sale of the Securities offered hereby. If purchased, the
Underwriters will sell such additional Shares and Warrants on the same terms as
those on which the Shares and the Warrants that the Underwriters have agreed to
purchase from the Company and the Shares that the Underwriters have agreed to
purchase from the Selling Stockholders are being offered.
This offering is made for delivery when, as and if accepted by the
Underwriters and subject to prior sale and withdrawal, cancellation or
modification of this offering without notice. The Underwriters reserve the right
to reject any order for the purchase of any Shares or Warrants, in whole or in
part.
Southwest Securities, Inc. currently makes a market in the Common Stock,
and although it has no obligation to do so, intends to make a market in the
Warrants. Although it has no obligation to do so, the Representative currently
intends to make a market in the Common Stock and the Warrants and may otherwise
effect transactions in such Securities. Such market-making activity may be
discontinued at any time. During the period beginning at the close of the market
on December 3, 1997 and ending upon the completion of each Underwriter's
distribution of the Shares and the Warrants in this offering (including the
distribution of any Shares and Warrants received upon the exercise of the
Underwriters' over-allotment option), rules of the Commission will limit the
ability of such Underwriter to bid for and purchase shares of Common Stock and
Warrants. During this period, any market making by such Underwriter will be
limited to passive market making on the Nasdaq National Market. Passive market
making consists of displaying bids and effecting transactions in a security at a
price that is not in excess of the highest bid price for the security that is
displayed by a market maker who is not an Underwriter or affiliated purchaser.
New purchases on each
47
<PAGE> 49
day by a passive market maker are limited to 30% of the average daily trading
volume in the security during a certain period.
In addition, the Representative may engage in certain transactions that
stabilize the price of the Common Stock and the Warrants. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock and the Warrants.
If the Underwriters create a short position in the Common Stock or the
Warrants in connection with this offering, i.e, if they sell more Shares or
Warrants than are set forth on the cover page of this Prospectus, the Managing
Underwriters may reduce the short position by purchasing Common Stock or
Warrants in the open market. The Managing Underwriters may then impose a penalty
bid on certain Underwriters and selling group members. This means that if the
Managing Underwriters purchase shares of Common Stock or Warrants in the open
market to reduce the short position or stabilize the price of the Common Stock
or the Warrants, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those Shares or Warrants as part
of this offering.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it
discourages resales. Neither the Company, the Selling Stockholders, nor any of
the Underwriters make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
trading price of the Common Stock or the Warrants. In addition, neither the
Company, the Selling Stockholders, nor any of the Underwriters make any
representation that the Representative or the Managing Underwriters will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without further notice.
The Selling Stockholders have agreed that they will not, without the prior
written consent of the Representative, sell, offer to sell, contract to sell or
otherwise transfer or dispose of any shares of Common Stock, options, rights or
warrants to acquire shares of Common Stock (other than the Shares offered by
them in this offering) during the period beginning on the date of the
Underwriting Agreement and ending 180 days after the date hereof, except that
the Company may issue shares of Common Stock upon the exercise of outstanding
stock options and warrants previously issued to them. In addition, the Company's
directors, executive officers, and certain key employees who are not Selling
Stockholders have agreed to similar restrictions with respect to their shares of
Common Stock for the period beginning on the date of the Underwriting Agreement
and ending 120 days after the date hereof.
The price to the public for the Shares offered hereby was based
approximately upon the closing bid price for a share of Common Stock on the
Nasdaq National Market on the date of the Underwriting Agreement. The price to
the public for each Warrant was based upon negotiations between the Company and
the Managing Underwriters.
The Company, the Selling Stockholders and the Underwriters have agreed to
certain indemnity and contribution provisions regarding certain civil
liabilities that may be incurred in connection with this offering, including
liability that may be incurred under the Securities Act.
Pursuant to a letter of intent between the Representative and the Company
(the "Letter of Intent"), the Company has agreed to pay the Managing
Underwriters a financial advisory fee equal to 1.33% of the gross proceeds
received by the Company in this offering. Such financial advisory fee relates to
financial advisory services provided by the Managing Underwriters to the Company
in connection with this offering and related matters. In addition, in the Letter
of Intent the Company agreed that if the Company or any of its subsidiaries were
sold during the six months following the offering, the Company would retain the
Managing Underwriters as the Company's joint investment bankers in such
transaction and pay them an aggregate cash fee equal to 1.0% of the
transaction's value. In addition, if such transaction value exceeds $10.0
million, the Company will retain the Representative to render an opinion
concerning whether the transaction is fair to the Company and its stockholders
from a financial point of view for an additional fee of $200,000. If such
transaction value is less
48
<PAGE> 50
than $10.0 million and the Company's Board of Directors seeks a fairness
opinion, the Company will also retain the Representative to render such an
opinion for a mutually agreed upon additional fee, which will not be less than
$100,000.
The Letter of Intent also provides that if during the first year following
the completion of this offering either Managing Underwriter is instrumental in
introducing an acquisition candidate to the Company and the Company consummates
a transaction with such acquisition candidate within two years following the
completion of this offering, the introducing Managing Underwriter will receive a
fee from the Company equal to 1.0% of the transaction's value. If the
transaction value exceeds $10.0 million, the Company will retain the other
Managing Underwriter to render a fairness opinion for a mutually agreed upon
fee, which shall not be less than $100,000. If the transaction value is less
than $10.0 million and the Company's Board of Directors seeks a fairness
opinion, the Company will also retain the other Managing Underwriter to render
such fairness opinion for a fee upon which they mutually agree.
If this offering is not consummated for certain reasons, the Company has
agreed to pay certain expenses of the Managing Underwriters.
In connection with this offering, for $10 the Company has agreed to sell to
the Managing Underwriters a warrant to purchase from the Company 140,000 shares
of Common Stock at an exercise price of $ per share and 140,000
Warrants at an exercise price of $ per Warrant. The Managing
Underwriters' Warrant is exercisable with respect to the Common Stock for a
period of four years commencing one year after the closing of this offering and
with respect to the Warrants, for a period of thirteen months following such one
year period. The Managing Underwriters' Warrant provides for adjustment in the
number of shares of Common Stock and the number of Warrants issuable upon the
exercise thereof as a result of events similar to the events providing for an
adjustment of the number of shares of Common Stock issuable upon the exercise of
the Warrants. The Managing Underwriters' Warrant has no anti-dilution terms
designed to provide for the receipt or accrual of cash dividends prior to the
receipt of the shares of Common Stock underlying the Managing Underwriters'
Warrant. The Managing Underwriters' Warrant may not be sold, transferred,
assigned or hypothecated for a period of one year after the effective date of
this offering, except to the officers of either of the Managing Underwriters.
A new registration statement will be required to be filed and declared
effective by the Commission before a public sale or distribution of: (i) the
Managing Underwriters' Warrant, (ii) the shares of Common Stock issuable upon
exercise of the Managing Underwriters' Warrant, (iii) the Warrants issuable upon
exercise of the Managing Underwriters' Warrant, and (iv) the shares of Common
Stock issuable upon exercise of the Warrants issued upon exercise of the
Managing Underwriters' Warrant (collectively, the "Registrable Securities"). In
addition, before a public sale or distribution of the Registrable Securities
occurs, the Registrable Securities must also be registered or qualified under
the applicable state securities laws. Pursuant to a Registration Rights
Agreement, the Company has granted the Managing Underwriters one demand
registration right with respect to the Registrable Securities. Either Managing
Underwriter may exercise this right during the period beginning on the first
anniversary of the closing of this offering and ending on the fifth anniversary
of the closing of this offering. Upon such demand, the Company will make the
required filings for the Registrable Securities (including all divisible
portions thereof) at the Company's expense (subject to a maximum expense of
$10,000 for the reimbursement of the Managing Underwriters' legal fees). The
Company will then use its best efforts to cause such filings to become effective
and remain effective for at least four years. After such four year period, each
Managing Underwriter may make one additional demand registration for such
securities on terms identical to the demand registration rights described above
for such securities, provided that the demanding Managing Underwriter pay all of
the Company's fees and expenses, including reasonable legal fees, in connection
with such filings. In addition, the Company has granted the holders of the
Managing Underwriters' Warrant (and the holders of any other Registrable
Securities not issued, sold, or distributed in a transaction registered under
the Securities Act and applicable state securities laws) unlimited piggy-back
registration rights during the period beginning on the first anniversary of the
closing of this offering and ending on the fifth anniversary of the closing of
this offering with respect to the Registrable Securities. In connection with
such rights, the Company will notify such holders if the Company intends to file
certain registration statements. Such holders will then have the right to
require the Company to
49
<PAGE> 51
include such holder's Registrable Securities in such registration statement and
maintain the effectiveness of such registration statement for at least one year.
There is no current agreement with any person concerning the payment of any
solicitation fee upon the exercise of the Warrants.
The foregoing includes a summary of the principal terms of the Underwriting
Agreement, the Letter of Intent, the Managing Underwriters' Warrant, and the
Registration Rights Agreement and does not purport to be complete. Reference is
made to the form of Underwriting Agreement, the copy of the Letter of Intent,
the form of the Managing Underwriters' Warrant Agreement, and the form of the
Registration Rights Agreement that are on file as exhibits to the Registration
Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by the law firm of Blau, Kramer, Wactlar &
Lieberman, P.C., Jericho, New York. The law firm of Akin, Gump, Strauss, Hauer &
Feld, L.L.P, Dallas, Texas will pass on certain aspects of this offering on
behalf of the Underwriters. Employees of Blau, Kramer, Wactlar & Lieberman, P.
C. own an aggregate of 800 shares of Common Stock, none of which are registered
for resale hereunder, 13,333 options to purchase shares of Common Stock and
13,333 warrants to purchase shares of Common Stock.
EXPERTS
The financial statements of the Company as of August 3, 1997 and July 28,
1996 and for the 53 weeks ended August 3, 1997, and the 52 weeks ended July 28,
1996 and July 30, 1995, included herein and in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
50
<PAGE> 52
HERLEY INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS............................................ F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets, August 3, 1997 and July 28, 1996..................... F-3
Consolidated Statements of Operations for the 53 Weeks Ended August 3, 1997, and
the 52 Weeks Ended July 28, 1996 and July 30, 1995............................. F-4
Consolidated Statements of Shareholders' Equity for the 53 Weeks Ended August 3,
1997, and the 52 Weeks Ended July 28, 1996 and July 30, 1995................... F-5
Consolidated Statements of Cash Flows for the 53 Weeks Ended August 3, 1997, and
the 52 Weeks Ended July 28, 1996 and July 30, 1995............................. F-6
Notes to Consolidated Financial Statements........................................ F-7
</TABLE>
Schedules have been omitted as not applicable.
F-1
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Herley Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Herley
Industries, Inc. and Subsidiaries as of August 3, 1997 and July 28, 1996, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the 53 weeks ended August 3, 1997 , and the 52 weeks ended July 28,
1996 and July 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Herley
Industries, Inc. and Subsidiaries as of August 3, 1997 and July 28, 1996, and
the consolidated results of their operations and their cash flows for the 53
weeks ended August 3, 1997, and the 52 weeks ended July 28, 1996, and July 30,
1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Lancaster, PA
September 19, 1997
F-2
<PAGE> 54
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 3, JULY 28,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 1,194,650 $ 1,104,445
Accounts receivable............................................. 5,176,523 3,249,225
Notes receivable-officers....................................... 2,100,913 2,083,543
Other receivables............................................... 152,148 124,992
Inventories..................................................... 9,790,382 8,010,687
Deferred taxes and other........................................ 2,061,066 1,689,988
----------- -----------
Total Current Assets.................................... 20,475,682 16,262,880
Property, Plant and Equipment, net................................ 11,704,755 12,579,044
Intangibles, net of amortization of $1,133,750 in 1997 and
$861,650 in 1996................................................ 4,308,136 4,580,236
Available-for-sale Securities..................................... -- 4,912,387
Other Investments................................................. 1,313,502 3,000,000
Other Assets...................................................... 1,455,111 1,174,395
----------- -----------
$39,257,186 $42,508,942
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............................... $ 335,000 $ 300,000
Note payable to related party................................... 846,000 --
Accounts payable and accrued expenses........................... 4,986,740 5,123,868
Income taxes payable............................................ 76,635 166,295
Reserve for contract losses..................................... 478,000 489,110
Advance payments on contracts................................... 3,091,001 1,480,033
----------- -----------
Total Current Liabilities............................... 9,813,376 7,559,306
Long-term Debt.................................................... 2,890,000 11,021,000
Deferred Income Taxes............................................. 2,696,394 1,923,058
Excess of fair value of net assets of business acquired over cost,
net of amortization of $973,667 in 1997 and $486,833 in 1996.... 486,833 973,667
----------- -----------
15,886,603 21,477,031
----------- -----------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.10 par value; authorized 10,000,000 shares;
issued and outstanding 4,209,365 in 1997 and 2,936,122 in
1996......................................................... 420,936 293,612
Additional paid-in capital...................................... 8,856,516 11,448,827
Retained earnings............................................... 14,093,131 9,289,472
----------- -----------
Total Shareholders' Equity.............................. 23,370,583 21,031,911
----------- -----------
$39,257,186 $42,508,942
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 55
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS ENDED
ENDED -------------------------------
AUGUST 3, 1997 JULY 28, 1996 JULY 30, 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Net sales.......................................... $ 32,195,168 $ 29,001,404 $ 24,450,267
----------- ----------- -----------
Cost and expenses:
Cost of products sold............................ 20,753,707 19,798,692 18,117,874
Selling and administrative expenses.............. 6,293,199 5,831,830 5,071,840
Unusual item..................................... -- -- 5,447,005
----------- ----------- -----------
27,046,906 25,630,522 28,636,719
----------- ----------- -----------
Operating income (loss).................. 5,148,262 3,370,882 (4,186,452)
----------- ----------- -----------
Other income (expense):
Net gain (loss) on available-for-sale securities
and other investments......................... 409,399 897,919 (355,709)
Dividend and interest income..................... 257,676 376,007 617,645
Interest expense................................. (531,678) (873,452) (961,650)
----------- ----------- -----------
135,397 400,474 (699,714)
----------- ----------- -----------
Income (loss) before income taxes........ 5,283,659 3,771,356 (4,886,166)
Provision for income taxes......................... 480,000 102,400 4,000
----------- ----------- -----------
Net income (loss)........................ $ 4,803,659 $ 3,668,956 $ (4,890,166)
=========== =========== ===========
Earnings (loss) per common and common equivalent
share............................................ $ 1.01 $ .86 $ (.98)
=========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding.................... 4,733,682 4,253,785 4,978,868
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 56
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
53 WEEKS ENDED AUGUST 3, 1997, AND 52 WEEKS ENDED JULY 28, 1996 AND JULY 30,
1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON
COMMON STOCK ADDITIONAL AVAILABLE
------------------------ PAID-IN RETAINED FOR-SALE TREASURY
SHARES AMOUNT CAPITAL EARNINGS SECURITIES STOCK TOTAL
---------- --------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31,
1994.................. 4,278,189 $ 427,819 $17,989,374 $10,510,682 $(201,117) $ (445,620) $28,281,138
Net (loss).............. (4,890,166) (4,890,166)
Issuance of common
stock................. 35,000 3,500 99,313 102,813
Unrealized gain on
available-for-sale
securities............ 226,117 226,117
Purchase of 1,194,701
shares of treasury
stock................. (4,732,165) (4,732,165)
Retirement of 1,297,201
shares of treasury
stock................. (1,297,201) (129,720) (5,048,065) 5,177,785 --
--------- -------- ---------- ---------- --------- --------- -----------
Balance at July 30,
1995.................. 3,015,988 301,599 13,040,622 5,620,516 25,000 -- 18,987,737
Net income.............. 3,668,956 3,668,956
Exercise of stock
options............... 406,432 40,643 2,577,360 (2,483,552) 134,451
Unrealized loss on
available-for-sale
securities............ (25,000) (25,000)
Purchase of 270,339
shares of treasury
stock................. (1,734,233) (1,734,233)
Retirement of treasury
shares................ (486,298) (48,630) (4,169,155) 4,217,785 --
--------- -------- ---------- ---------- --------- --------- -----------
Balance at July 28,
1996.................. 2,936,122 293,612 11,448,827 9,289,472 -- -- 21,031,911
Net income.............. 4,803,659 4,803,659
Exercise of stock
options and
warrants.............. 929,060 92,906 6,653,917 (6,429,124) 317,699
Four-for-three stock
split................. 1,052,341 105,234 (105,234) --
Purchase of 244,519
shares of treasury
stock................. (2,782,686) (2,782,686)
Retirement of treasury
shares................ (708,158) (70,816) (9,140,994) 9,211,810 --
--------- -------- ---------- ---------- --------- --------- -----------
Balance at August 3,
1997.................. 4,209,365 $ 420,936 $ 8,856,516 $14,093,131 -- -- $23,370,583
========= ======== ========== ========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 57
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS ENDED
ENDED --------------------------
AUGUST 3, JULY 28, JULY 30,
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $4,803,659 $ 3,668,956 $(4,890,166)
---------- ---------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Depreciation and amortization.................. 1,538,283 1,563,354 2,116,233
(Gain) loss on sale of available-for-sale
securities and other investments............. (409,572) (1,018,643) 355,709
Decrease (increase) in deferred tax assets..... -- (393,389) 596,055
Increase in deferred tax liabilities........... 773,336 376,723 255,240
Unrealized loss on available-for-sale
securities................................... -- 121,550 --
Unusual item................................... -- -- 5,447,005
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable... (1,927,298) 1,430,692 1,285,694
(Increase) in notes receivable-officers...... (17,370) (2,083,543) --
Decrease (increase) in other receivables..... (27,156) 38,410 136,635
Decrease (increase) in inventories........... (1,779,695) 1,319,366 2,208,137
(Increase) in prepaid expenses and other..... (371,078) (25,940) (753,838)
(Decrease) in accounts payable and accrued
expenses.................................. (137,128) (513,649) (3,879,974)
Increase (decrease) in income taxes
payable................................... (89,660) 166,295 (162,543)
(Decrease) in reserve for contract losses.... (11,110) (6,890) (4,000)
Increase (decrease) in advance payments on
contracts................................. 1,610,968 3,393 (1,397,334)
Other, net................................... (309,500) 40,000 153,335
---------- ---------- -----------
Total adjustments......................... (1,156,980) 1,017,729 6,356,354
---------- ---------- -----------
Net cash provided by operations................ 3,646,679 4,686,685 1,466,188
---------- ---------- -----------
Cash flows from investing activities:
Purchase of available-for-sale securities and
other investments.............................. (159,364) (11,077,331) (22,766,138)
Proceeds from sale of fixed assets................ 15,468 -- --
Proceeds from sale of available-for-sale
securities and other investments............... 7,164,538 11,879,157 30,417,016
Capital expenditures.............................. (862,129) (643,330) (182,241)
---------- ---------- -----------
Net cash provided by investing activities...... 6,158,513 158,496 7,468,637
---------- ---------- -----------
Cash flows from financing activities:
Borrowings under bank line of credit.............. 2,825,000 9,875,000 4,044,668
Proceeds from exercise of stock options........... 317,699 134,451 --
Payments under lines of credit.................... (9,775,000) (9,925,000) (8,025,000)
Payments under litigation settlement.............. -- (2,000,000) (2,000,000)
Payments of long-term debt........................ (300,000) (363,709) (512,735)
Purchase of treasury stock........................ (2,782,686) (1,734,233) (2,708,732)
---------- ---------- -----------
Net cash (used in) financing activities........ (9,714,987) (4,013,491) (9,201,799)
---------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents.................................. 90,205 831,690 (266,974)
Cash and cash equivalents at beginning of period.... 1,104,445 272,755 539,729
---------- ---------- -----------
Cash and cash equivalents at end of period.......... $1,194,650 $ 1,104,445 $ 272,755
========== ========== ===========
Supplemental cash flow information:
Cashless exercise of stock options................ $6,429,124 $ 2,483,552
========== ==========
Liabilities assumed in connection with
acquisition.................................... $ 915,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Operations
The Company principally designs, manufactures and sells flight
instrumentation and microwave products, primarily to aerospace companies, the
U.S. government, and several foreign governments. The Company's main products
include a variety of transponders which are used to enhance radar signals to
accurately track the flight of space launch vehicles and aircraft, as well as
microwave devices and command and control systems.
2. Fiscal Year
The Company's fiscal year ends on the Sunday closest to July 31. Normally
each fiscal year consists of 52 weeks, but every five or six years the fiscal
year will consist of 53 weeks. Fiscal year 1997 consisted of 53 weeks, and
fiscal years 1996 and 1995 consisted of 52 weeks.
3. Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Herley
Industries, Inc. and its subsidiaries, all of which are wholly-owned. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The presentation 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 as of the date of the financial
statements as well as revenues and expenses during the period. Actual results
could differ from those estimates.
4. Revenue and Cost Recognition
Under fixed-price contracts, sales and related costs are recorded primarily
as deliveries are made. Certain costs under long-term, fixed-price contracts
(principally either directly or indirectly with the U.S. Government), which
include non-recurring billable engineering, are deferred until these costs are
contractually billable. Revenue under certain long-term, fixed price contracts,
principally shelters, is recognized using the percentage of completion method of
accounting. Revenue recognized on these contracts is based on estimated
completion to date (the total contract amount multiplied by percent of
performance, based on total costs incurred in relation to total estimated
costs). Losses on contracts are recorded when first reasonably determined.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance. Selling, general and
administrative costs are charged to expense as incurred.
5. Inventories
Inventories, other than inventory costs relating to long-term contracts and
programs, are stated at lower of cost (principally first-in, first-out) or
market. Inventory costs relating to long-term contracts and programs are stated
at the actual production costs, including factory overhead, reduced by amounts
identified with revenue recognized on units delivered or progress completed.
Inventory costs relating to long-term contracts and programs are reduced by
any amounts in excess of estimated realizable value. The costs attributed to
units delivered under long-term contracts and programs are based on the average
costs of all units produced.
6. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided principally by the straight-line method over the
estimated useful lives of the related assets. Gains and losses arising from the
sale or disposition of property, plant and equipment are recorded in income.
F-7
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Intangibles
Intangibles are comprised of customer lists, installed products base,
drawings, patents, licenses, certain government qualifications and technology
and goodwill in connection with the acquisition of Vega Precision Laboratories,
Inc. in 1993. Intangibles are being amortized over twenty years.
The carrying amount of intangibles is evaluated on a recurring basis.
Current and future profitability as well as current and future undiscounted cash
flows of the acquired businesses are primary indicators of recoverability. For
the three fiscal years ended August 3, 1997, there were no adjustments to the
carrying amount of the cost in excess of net assets acquired resulting from
these evaluations.
8. Marketable Securities
The Company accounts for its investments in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity. Marketable
equity securities and debt securities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported as a
separate component of shareholders' equity. Realized gains and losses and
declines in value judged to be other-than-temporary are included in other income
(expense). The cost of securities sold is based on the specific identification
method. Interest and dividends on securities are included in other income
(expense).
9. Other Investments
The Company is a limited partner in certain nonmarketable limited
partnerships in which it owns approximately a 10% interest. Beginning in 1997
other investments are accounted for under the equity method. Previously, the
cost method was utilized as the amount was not significantly different from the
equity method.
10. Income Taxes
Income taxes are accounted for by the asset/liability approach in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred taxes represent the expected future tax consequences
when the reported amounts of assets and liabilities are recovered or paid. They
arise from temporary differences between the financial reporting and tax bases
of assets and liabilities and are adjusted for changes in tax laws and tax rates
when those changes are enacted. The provision for income taxes represents the
total of income taxes paid or payable for the current year, plus the change in
deferred taxes during the year.
11. Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
F-8
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Earnings Per Common Share
Earnings per common share and common equivalent share is based on the
weighted average number of outstanding shares of common stock (reflective of a
4-for-3 stock split on September 30, 1997), including common stock equivalents
(options and warrants) as determined under the treasury stock method as follows:
4,733,682 shares in 1997; 4,253,785 shares in 1996; and 4,978,868 shares in
1995.
13. Cash and Cash Equivalents
For purposes of the statement of cash flows, short-term investments which
have a maturity of ninety days or less at the date of acquisition are considered
cash equivalents.
14. Product Development
The Company's primary efforts are focused on engineering design and product
development activities rather than pure research. The cost of these development
activities, including employees' time and prototype development, net of amounts
paid by customers, was approximately $1,828,000, $1,453,000, and $970,000 in
fiscal 1997, 1996, and 1995, respectively.
15. New Accounting Standards
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which
is effective for both interim and annual periods ending after December 15, 1997.
SFAS 128 supersedes APB No. 15 to conform earnings per share with international
standards as well as to simplify the complexity of the computation under APB No.
15. The previous primary earnings per share ("EPS") calculation is replaced with
a basic EPS calculation. The basic EPS differs from the primary EPS calculation
in that the basic EPS does not include any potentially dilutive securities.
Fully dilutive EPS is replaced with diluted EPS and should be disclosed
regardless of dilutive impact to basic EPS. Earlier application of this
Statement is not permitted. Therefore, the EPS in the Consolidated Statements of
Operations are presented under APB No. 15.
NOTE B -- ACQUISITIONS
In July 1995, the Company entered into an agreement effective as of the
close of business June 30, 1995, to acquire certain assets and the business
(consisting principally of inventories and trade receivables) of Stewart Warner
Electronics Corporation, a Delaware corporation. The transaction, which closed
on July 28, 1995, provided for the payment of $250,000 in cash and the
assumption of approximately $915,000 in liabilities and has been accounted for
by the purchase method. The acquisition resulted in excess of fair value over
cost of net assets acquired of $1,460,500 which is being amortized over a
three-year period.
NOTE C -- NOTES RECEIVABLE-OFFICERS
In fiscal 1996 the Company loaned $1,400,000, $300,000, and $300,000 to
certain officers, as authorized by the Board of Directors, pursuant to the terms
of nonnegotiable promissory notes. The notes were initially due November 1996,
November 1996 and March 1997, respectively. The notes may be renewed by the
Company from year to year. The notes were extended by the Company in fiscal 1997
and are now due April 30, 1998, January 31, 1998, and January 31, 1998,
respectively. The loans are secured by 594,365 shares of common stock of the
Company. Interest is payable at maturity at the average rate of interest paid by
the Company on borrowed funds during the fiscal year. The pledge agreement also
provides for the Company to have the right of first refusal to purchase the
pledged securities, based on a formula as defined, in the event of the death or
disability of the officer.
F-9
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D -- INVENTORIES
The major components of inventories are as follows:
<TABLE>
<CAPTION>
AUGUST 3, JULY 28,
1997 1996
-------------- -------------
<S> <C> <C>
Purchased parts and raw materials................. $4,780,336 $ 3,358,256
Work in process................................... 4,899,551 4,580,538
Finished products................................. 110,495 71,893
---------- ----------
$9,790,382 $ 8,010,687
========== ==========
</TABLE>
NOTE E -- AVAILABLE-FOR-SALE SECURITIES
In September 1996, the Company liquidated all of its available-for-sale
securities for approximately $4,912,000 and used the proceeds to reduce its
long-term bank debt. A provision for unrealized losses of $121,550 is included
in the statement of operations for fiscal year 1996. The fair value of
available-for-sale securities at July 28, 1996 was $4,912,387.
NOTE F -- OTHER INVESTMENTS
In April 1996, the Company acquired a limited partnership interest in M.D.
Sass Re/Enterprise-II, L.P., a Delaware limited partnership for $2,000,000. The
objective of the partnership is to achieve superior long-term capital
appreciation through investments consisting primarily of securities of companies
that are experiencing significant financial or business difficulties. In April
1997, the Company sold its investment and terminated its limited partnership
interest for $2,080,630 realizing a gain of $80,630.
In December 1995, the Company sold its investment and terminated its
limited partnership interest in M.D. Sass Re/Enterprise Partners, L.P., a
Delaware limited partnership for $3,823,233 realizing a gain of $1,095,727.
In July 1994, the Company invested $1,000,000 for a limited partnership
interest in M.D. Sass Municipal Finance Partners-I, a Delaware limited
partnership. The objectives of the partnership are the preservation and
protection of its capital and the earning of income through the purchase of
certificates or other documentation that evidence liens for unpaid local taxes
on parcels of real property. At August 3, 1997 and July 28, 1996 the percentage
of ownership was approximately 10%. The Company's interest in the partnership
may be transferred to a substitute limited partner, upon written notice to the
managing general partners, only with the unanimous consent of both general
partners at their sole discretion.
NOTE G -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
AUGUST 3, JULY 28, ESTIMATED
1997 1996 USEFUL LIFE
-------------- ------------- -----------
<S> <C> <C> <C>
Land........................................ $ 880,270 $ 880,270
Building and building improvements.......... 5,438,663 5,362,409 10-40 years
Machinery and equipment..................... 17,515,954 16,788,901 5-8 years
Furniture and fixtures...................... 494,056 494,056 5-10 years
Tools....................................... 24,869 24,869 5 years
Leasehold improvements...................... 288,757 288,757 5-10 years
----------- -----------
24,642,569 23,839,262
Less accumulated depreciation............... 12,937,814 11,260,218
----------- -----------
$ 11,704,755 $ 12,579,044
=========== ===========
</TABLE>
F-10
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H -- COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office, production and warehouse space as well as
computer equipment and automobiles under noncancellable operating leases.
Rent expense for the 53 weeks ended August 3, 1997, and the 52 weeks ended
July 28, 1996 and July 30, 1995 was approximately $229,900, $284,600, and
$158,000, respectively.
Minimum annual rentals under noncancellable leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Year ending fiscal 1998........................................... $204,800
1999........................................... 153,900
2000........................................... 97,400
</TABLE>
Employment Agreements
The Company has employment agreements with various executives and employees
of the Company, which, as amended, expire at various dates through December 31,
2002, subject to extension each January 1 for six years from that date not to
extend, in any event, beyond December 31, 2006. These agreements provide for
aggregate annual salaries of $1,185,000. Certain agreements provide for an
annual increment equal to the greater of a cost of living adjustment based on
the consumer price index or 10%, and also provide for incentive compensation
related to pretax income. Incentive compensation in the amount of $665,352 was
expensed in fiscal year ended August 3, 1997. Incentive compensation of $446,750
was expensed in fiscal 1996. No incentive compensation was due for the fiscal
year ended July 30, 1995.
Certain agreements also provide that, in the event there is a change in
control of the Company, as defined, the executives have the option to terminate
the agreements and receive a lump-sum payment. As of August 3, 1997, the amount
payable in the event of such termination would be approximately $2,050,000.
One of the employment contracts provides for a consulting agreement
commencing January 1, 2002 and terminating December 31, 2010 at the annual rate
of $100,000. Another one of the employment contracts, as amended January 1,
1997, provides for a consulting period commencing at the end of the period of
active employment and continuing for a period of five years at the annual rate
of $60,000. One officer of the Company has a severance agreement providing for a
lump-sum payment of $220,000 through June 1999, adjusted to $110,000 through
June 2002.
Litigation
In November 1996, the Company settled all claims in connection with two
class action complaints, related to the Company's acquisition of Carlton
Industries, Inc. and its subsidiary, Vega Precision Laboratories, Inc. for
$450,000.
In August 1997, the Company settled all claims in connection with a class
action complaint filed in 1995 for $170,000. The claim related to the Company's
settlement of the Litton Action in the Essex Superior Court of Massachusetts
which alleged, inter alia, that there was insufficient disclosure by the Company
of its true potential exposure in that claim.
In July 1996, the Company was notified by the American Arbitration
Association of the decision of the arbitrators in an action commenced in March
1994 by the principal selling shareholders of Carlton Industries, Inc. and its
subsidiary, Vega Precision Laboratories, Inc. According to the award, the
Company was to pay to the claimants the sum of $1,052,900, inclusive of
interest. Correspondingly, the claimants were to pay the Company the sum of
$277,719, inclusive of interest. The Company paid $775,181 to claimants,
representing
F-11
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the difference between the award to the claimants and the award to the Company,
in August, 1996. The award to the claimants was offset by $593,162 otherwise
payable to one of the selling shareholders.
The Company is also involved in other legal proceedings and claims which
arise in the ordinary course of its business. While any litigation contains an
element of uncertainty, management believes that the outcome of such litigation
will not have a material adverse effect on the Company's financial position or
results of operations.
Stand-by Letters of Credit
The Company maintains a letter of credit facility with a bank that provides
for the issuance of stand-by letters of credit and requires the payment of a fee
of 1.0% per annum of the amounts outstanding under the facility. The facility
expires January 31, 1999. At August 3, 1997 stand-by letters of credit
aggregating $3,241,392 were outstanding under this facility.
NOTE I -- INCOME TAXES
Income tax provision consisted of the following:
<TABLE>
<CAPTION>
52 WEEKS ENDED
53 WEEKS ENDED -------------------------------
AUGUST 3, 1997 JULY 28, 1996 JULY 30, 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Current......................................
Federal.................................... $ (52,000) $ 90,000 $ --
State...................................... 89,000 12,400 --
--------- -------- ------
37,000 102,400 --
--------- -------- ------
Deferred.....................................
Federal.................................... (142,000) -- 4,000
State...................................... 585,000 -- --
--------- -------- ------
443,000 -- 4,000
--------- -------- ------
$ 480,000 $ 102,400 $ 4,000
========= ======== ======
</TABLE>
The Company paid income taxes of approximately $178,000 in 1997, $19,000 in
1996, and $122,000 in 1995. The following is a reconciliation of the U. S.
statutory income tax rate and the effective tax rate on pretax income:
<TABLE>
<CAPTION>
52 WEEKS ENDED
53 WEEKS ENDED -------------------------------
AUGUST 3, 1997 JULY 28, 1996 JULY 30, 1995
-------------- ------------- -------------
<S> <C> <C> <C>
U.S. Federal statutory rate.................. 34.0% 34.0% (34.0)%
State taxes, net of federal tax benefit...... 12.2 0.2 --
Alternative minimum tax...................... -- 2.4 --
Benefit of net operating loss carryforward... (30.8) (35.2) --
Non-deductible expenses...................... .3 1.3 --
Increase (decrease) in valuation allowance... (9.4) -- 34.0
Other, net................................... 2.8 -- --
----- ----- -----
Effective tax rate........................... 9.1% 2.7% --%
===== ===== =====
</TABLE>
The 1997 and 1996 tax provisions reflect the utilization of prior year net
operating loss carryforwards. In 1995 a valuation allowance had been provided to
reduce deferred tax assets to their net realizable value primarily based on
management's uncertainty that past performance would be indicative of future
earnings. In 1997 the valuation allowance was reversed through the deferred tax
provision. A determining factor in assessing the change was the cumulative
income in recent years.
F-12
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes.
As of August 3, 1997, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $2,000,000 which expire in 2010.
Components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
AUGUST 3, 1997 JULY 28, 1996
----------------------- -----------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Intangibles............................. $ -- $1,681,375 $ 807,537 $ --
Alternative minimum tax................. 265,906 -- 176,707 --
Accrued vacation pay.................... 123,644 -- 118,104 --
Accrued bonus........................... 343,398 -- 243,760 --
Warranty costs.......................... 220,000 -- 220,000 --
Inventory............................... 985,703 -- 910,081 --
Depreciation............................ -- 2,006,038 -- 1,923,058
Net operating loss carryforwards........ 725,113 -- 2,781,480 --
Litigation settlement................... -- -- 495,080 --
Contract losses......................... 275,635 -- 215,208 --
Other................................... 71,917 78,967 97,645 --
---------- ---------- ---------- ----------
3,011,316 3,766,380 6,065,602 1,923,058
Valuation allowance..................... -- -- 4,454,627 --
---------- ---------- ---------- ----------
$3,011,316 $3,766,380 $1,610,975 $1,923,058
========== ========== ========== ==========
</TABLE>
NOTE J -- LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
AUGUST 3, JULY 28,
RATE 1997 1996
----------- -------------- -------------
<S> <C> <C> <C>
Note payable bank(a)....................... 6.22%-8.50% $ -- $ 6,950,000
Mortgage note(b)........................... 10.4% 3,225,000 3,525,000
Long-term liability(c)..................... -- -- 846,000
---------- -----------
3,225,000 11,321,000
Less current portion....................... 335,000 300,000
---------- -----------
$2,890,000 $ 11,021,000
========== ===========
</TABLE>
(a) In January 1997, the Company renewed the revolving credit agreement
with its bank that provides for the extension of credit in the aggregate
principal amount of $11,000,000 and may be used for general corporate purposes,
including business acquisitions. The facility requires the payment of interest
only on a monthly basis and payment of the outstanding principal balance on
January 31, 1999. Interest is set biweekly at 1% over the FOMC Target Rate
applied to outstanding balances up to 80% of the net equity value of
available-for-sale securities, and at the bank's Base Rate for outstanding
balances in excess of this limit. There were no borrowings outstanding at August
3, 1997. The premium rate portion of the facility would be secured by any
available-for-sale securities.
The agreement contains various financial covenants, including, among other
matters, the maintenance of working capital, tangible net worth, and
restrictions on cash dividends and other borrowings.
F-13
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) The mortgage note provides for annual principal payments at varying
amounts through 2004 plus semiannual interest payments. Land and buildings in
Lancaster, Pa. are pledged as collateral.
The mortgage note agreement contains various financial covenants,
including, among other matters, the maintenance of specific amounts of working
capital and tangible net worth. In connection with this loan, the Company paid
approximately $220,000 in financing costs. Such costs are included in Other
Assets in the accompanying consolidated balance sheets at August 3, 1997 and
July 28, 1996 and are being amortized over the term of the loan (15 years).
(c) Under a contract for the purchase of an industrial parcel of land from
its Chairman, the Company is obligated to pay $846,000 at settlement on or
before April 30, 1998.
The Company paid interest of approximately $567,000 in 1997, $854,000 in
1996, and $1,010,000 in 1995.
Future payments required on long-term debt are as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Fiscal year ending during:
1998......................................................... $ 335,000
1999......................................................... 370,000
2000......................................................... 410,000
2001......................................................... 450,000
2002......................................................... 500,000
Thereafter................................................... 1,160,000
----------
$3,225,000
==========
</TABLE>
NOTE K -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
<TABLE>
<CAPTION>
AUGUST 3, JULY 28,
1997 1996
---------- ----------
<S> <C> <C>
Accounts payable.................................... $1,841,468 $1,579,230
Accrued payroll and bonuses......................... 1,483,915 1,160,345
Accrued commissions................................. 205,692 247,687
Accrued interest.................................... 55,900 95,925
Accrued litigation expenses......................... 297,538 1,206,914
Accrued expenses.................................... 1,102,227 833,794
---------- ----------
$4,986,740 $5,123,868
========== ==========
</TABLE>
NOTE L -- EMPLOYEE BENEFIT PLANS
In August 1985, the Board of Directors approved an Employee Savings Plan
which qualified as a thrift plan under Section 401(k) of the Internal Revenue
Code. This plan, as amended and restated, allows employees to contribute between
2% and 15% of their salaries to the plan. The Company, at its discretion can
contribute 100% of the first 2% of the employees' contribution and 25% of the
next 4%. Additional Company contributions can be made depending on profits. The
aggregate benefit payable to an employee is dependent upon his rate of
contribution, the earnings of the fund, and the length of time such employee
continues as a participant.
The Company has accrued approximately $178,000 for the 53 weeks ended
August 3, 1997, and contributed approximately $159,000, and $151,000 to this
plan for the 52 weeks ended July 28, 1996, and July 30, 1995, respectively.
F-14
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M -- SHAREHOLDERS' EQUITY
The Company has two fixed option plans which reserve shares of common stock
for issuance to executives, key employees and directors. The Company applies APB
Opinion No. 25 and related Interpretations in accounting for these plans.
Statement of Financial Accounting Standards No.123, "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued by the FASB in 1995 and, if fully adopted,
changes the methods for recognition of cost on plans similar to those of the
Company. The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the stock option
plans. Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.1%; volatility factor of the expected
market price of the Company's common stock of .63; and a weighted-average
expected life of the option of .4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
Had compensation cost for stock options granted in fiscal 1997 been
determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
53 WEEKS
ENDED
AUGUST 3,
1997
----------
<S> <C>
Net earnings -- as reported.................................... $4,803,659
Net earnings -- pro forma...................................... $3,451,882
Earnings per share -- as reported.............................. $ 1.01
Earnings per share -- pro forma................................ $ .73
</TABLE>
No options were granted in fiscal 1996.
The effects of applying the pro forma disclosures of SFAS 123 are not
likely to be representative of the effects on reported net earnings for future
years due to the various vesting schedules.
In May 1997, the Board of Directors approved the 1997 Stock Option Plan
which covers 1,666,666 shares of the Company's common stock. Options granted
under the plan may be incentive stock options qualified under Section 422 of the
Internal Revenue Code of 1986 or non-qualified stock options. Under the terms of
the plan, the exercise price for options granted under the plan will be the fair
market value at the date of grant. Prices for incentive stock options granted to
employees who own 10% or more of the Company's stock are at least 110% of market
value at date of grant. The nature and terms of the options to be granted is
determined at the time of grant by the Board of Directors. The options expire
ten years from the date of grant, subject to certain restrictions. Options for
801,660 shares were granted during the fiscal year ended August 3, 1997.
In October 1995, the Board of Directors approved the 1996 Stock Option Plan
which covers 666,666 shares of the Company's common stock. Options granted under
the plan may be incentive stock options qualified under Section 422 of the
Internal Revenue Code of 1986 or non-qualified stock options. Under the terms of
the plan, the exercise price for options granted under the plan will be the fair
market value at the date of grant. Prices for incentive stock options granted to
employees who own 10% or more of the Company's stock are at least 110% of market
value at date of grant. The nature and terms of the options to be granted is
determined at the time of grant by the Board of Directors. If not specified,
100% of the shares can be exercised
F-15
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
one year after the date of grant. The options expire ten years from the date of
grant. Options for 663,989 shares were granted during the fiscal year ended
August 3, 1997.
In December 1992, the Board of Directors approved the 1992 Non-Qualified
Stock Option Plan which covers 1,333,333 shares, as amended, of the Company's
common stock. Under the terms of the plan, the purchase price of the shares,
subject to each option granted, is 100% of the fair market value at the date of
grant. The date of exercise is determined at the time of grant by the Board of
Directors; however, if not specified, 50% of the shares can be exercised each
year beginning one year after the date of grant. The options expire ten years
from the date of grant. Options for 339,986 shares were granted during the
fiscal year ended July 30, 1995. These options may be exercised cumulatively at
the rate of 25% per year beginning one year after the date of grant. This plan
was terminated in December 1995, except for outstanding options thereunder.
In October 1987, the Board of Directors approved the 1988 Non-Qualified
Stock Option Plan which covers 666,666 shares of the Company's common stock.
Under the terms of the plan, the purchase price of the shares, subject to each
option granted, will not be less than 85% of the fair market value at the date
of grant. The date of exercise may be determined at the time of grant by the
Board of Directors; however, if not specified, 20% of the shares can be
exercised each year beginning one year after the date of grant and generally
expire five years from the date of grant. This plan was terminated in December
1995, except for outstanding options thereunder.
A summary of stock option activity under all plans for the 53 weeks ended
August 3, 1997, and the 52 weeks ended July 28, 1996, and July 30, 1995 follows:
<TABLE>
<CAPTION>
NON-QUALIFIED STOCK OPTIONS
---------------------------------------
WEIGHTED WARRANT AGREEMENTS
AVERAGE --------------------------
NUMBER PRICE RANGE EXERCISE NUMBER PRICE RANGE
OF SHARES PER SHARE PRICE OF SHARES PER SHARE
---------- ------------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
Outstanding July 31, 1994..... 929,969 $4.27 - 9.01 5.00 573,333 $ 5.35
Granted..................... 339,986 2.54 2.54
Canceled.................... (13,331) 2.54 - 5.25 4.88
---------- ------------- -------- -------- -------------
Outstanding July 30, 1995..... 1,256,624 $2.54 - 9.01 4.33 573,333 $ 5.35
Granted..................... -- 293,333 4.64
Exercised................... (541,900) 2.54 - 5.72 4.87
Canceled.................... (31,330) 2.54 - 5.25 4.83 (533,333) 5.35
---------- ------------- -------- -------- -------------
Outstanding July 28, 1996..... 683,394 $2.54 - 9.01 3.89 333,333 $ 4.64 - 5.35
Granted..................... 1,465,649 6.10 - 10.41 6.48
Exercised................... (1,225,384) 2.54 - 6.94 5.46 (13,333) 4.64
Canceled.................... (7,332) 5.25 - 9.01 8.67 --
---------- ------------- -------- -------- -------------
Outstanding August 3, 1997.... 916,327 $2.54 - 10.41 $ 5.87 320,000 $ 4.64 - 5.35
========== ========
</TABLE>
F-16
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options to purchase 130,218 shares of common stock were exercisable under
all plans at August 3, 1997 at a weighted average exercise price of $5.59 with a
weighted average remaining contractual life of 6.8 years as follows:
OPTIONS OUTSTANDING AND EXERCISABLE BY PRICE RANGE AS OF AUGUST 3, 1997
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.5350 - $5.2500............. 151,117 6.43 $ 2.9164 38,672 $ 4.0255
6.0938 - 6.0938............. 259,997 4.67 6.0938 56,995 6.0938
6.4688 - 6.4688............. 326,550 9.74 6.4688 8,889 6.4688
6.9375 - 10.4063............. 178,663 4.31 7.0152 25,662 6.9375
------- ------- ---- ------- -------
$2.5350 - $10.4063............. 916,327 6.79 $ 5.8728 130,218 $ 5.5948
======= =======
</TABLE>
In April 1993, common stock warrants were issued to certain officers and
directors for the right to acquire 573,333 shares of common stock of the Company
at the fair market value of $5.35 per share at date of issue. In December 1995
warrants for 533,333 shares were canceled. The warrants vest immediately and
expire April 30, 1998. In December 1995, common stock warrants were issued to
certain officers for the right to acquire 293,333 shares of common stock of the
Company at the fair market value of $4.64 per share at date of issue. The
warrants vest immediately and expire December 13, 2005. Warrants for 13,333
shares were exercised in fiscal 1997.
In connection with the sale of common stock to the public in 1992, the
Company issued to the underwriter, for its own account, warrants to purchase
170,529 shares of common stock of the Company (as adjusted under the agreement),
exercisable for a period of four years at a price of $9.06 per share (as
adjusted under the agreement), subject to further adjustment in certain events.
The warrants expired in February 1997.
On July 31, 1993, the Company issued 46,666 shares of common stock valued
at $5.91 per share in connection with the acquisition of substantially all of
the assets of Micro-Dynamics, Inc. These shares were subsequently canceled and
reissued in January 1995.
NOTE N -- RELATED PARTY TRANSACTIONS
On March 6, 1996, the Board of directors approved the purchase of an
industrial parcel of land from the Chairman of the Company for $940,000. A
deposit of $94,000 was paid on execution of the contract, and the balance of
$846,000 will be paid at settlement on or before April 30, 1998. The Company
intends to use this land for possible future expansion.
NOTE O -- MAJOR CUSTOMERS
Net sales to the U.S. Government in 1997, 1996, and 1995 accounted for
approximately 34%, 33%, and 30% of net sales, respectively. Net sales to the
Republic of Korea and Lockheed Martin accounted for approximately 22% of net
sales in 1997. Foreign sales amounted to approximately $9,320,000, $6,556,000,
and $3,908,000 in fiscal 1997, 1996, and 1995, respectively.
Included in accounts receivable as of August 3, 1997 and July 28, 1996 are
amounts due from the U.S. Government of approximately $1,454,000 and $933,000,
respectively.
NOTE P -- UNUSUAL ITEM
The Consolidated Statements of Operations for the fifty-two weeks ended
July 30, 1995 includes an unusual charge of $5,447,005 for settlement costs,
legal fees, and related expenses in connection with the settlement of certain
legal claims against the Company. Payments of $2,000,000 each, without interest,
were made in July 1995 and July 1996 in connection with the settlement of one of
the claims.
F-17
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE Q -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximated its fair value.
Notes receivable-officers: The carrying amount reported in the balance
sheet for notes receivable from officers approximated its fair value.
Available-for-sale securities: The fair value of available-for-sale
securities was based on quoted market prices.
Long-term debt: The fair value of the mortgage note was estimated
using discounted cash flow analysis, based on the Company's current
incremental borrowing rate for similar types of borrowing arrangements.
Off balance sheet financial instruments:
Stand-by letters of credit: These letters of credit primarily
collateralize the Company's obligations to customers for advanced payments
received under contracts. The contract amounts of the letters of credit
approximate their fair value.
The carrying amounts and fair values of the Company's financial instruments
are presented below:
<TABLE>
<CAPTION>
AUGUST 3, 1997
------------------------------
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
Cash and cash equivalents........................ $ 1,194,650 $1,194,650
Notes receivable-officers........................ 2,100,913 2,100,913
Long-term debt................................... 2,890,000 3,408,000
Stand-by letters of credit....................... -- 3,241,392
</TABLE>
NOTE R -- CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist primarily of trade accounts receivable. Credit risk with respect to
trade receivables is minimized since most of the Company's business is direct to
the U. S. Government or as a subcontractor to companies with significant
financial resources acting as prime contractors to the U. S. Government, as well
as to foreign governments. Additionally, shipments to foreign governments are
generally under irrevocable letters of credit.
NOTE S -- SUBSEQUENT EVENTS
On August 4, 1997, the Company completed the acquisition of Metraplex
Corporation, a Maryland corporation for 313,193 shares of common stock of the
Company in exchange for all of the issued and outstanding common stock of
Metraplex. Metraplex is a leading manufacturer of pulse code modulation and
frequency modulation, telemetry and data acquisition systems for severe
environment applications. Metraplex products are used worldwide for testing
space launch vehicle instrumentation, aircraft flight testing, and amphibian,
industrial and automotive vehicle testing. The transaction will be accounted for
under the purchase method.
On September 4, 1997 the Board of Directors declared a 4-for-3 stock split
effected as a stock dividend payable September 30, 1997 to holders of record on
September 15, 1997. The effect of the split is presented within shareholders'
equity at August 3, 1997. The distribution increased the number of shares
outstanding from 3,157,024 to 4,209,365. The amount of $105,234 was transferred
from the additional paid-in capital to the common stock account to record this
distribution. All share and per share data, including stock options and
warrants, included in this annual report have been restated to reflect the stock
split.
F-18
<PAGE> 70
GLOSSARY
<TABLE>
<S> <C>
C2 Command and Control referring to a system which controls UAVs and directs their
flight path.
EHD Electrode-less High Density
EMI Electro-Magnetic Interference
FTR Flight Termination Receiver, which is a device for the translation of range
safety command information into self-destruct signals
FM Frequency Modulation, which is angle modulation of a sine wave carrier in which
the instantaneous frequency of the modulated wave differs from the carrier
frequency by an amount proportional to the instantaneous value of the modulating
wave
GSS Global Security Systems, the international marketing group of the Company that
provides range instrumentation solutions to the international community
GPS Global Positioning System which is the satellite network used to provide point
positioning for users anywhere on the earth with the use of a GPS receiver
IFF Identification of Friend from Foe, referring to a radar interrogation-transponder
system in which the transponder, when interrogated, provides a coded response to
identify the corresponding vehicle as a "friend"
MAGIC(2) Multiple Aircraft GPS Integrated Command and Control, referring to a system
manufactured by the Company having the capability to provide simultaneous command
and control functionality for multiple remotely piloted vehicles with the GPS
used for vehicle tracking
MIC Microwave Integrated Circuit, which are devices incorporating multiple discrete
microwave components in a single, encapsulated, package
PCM Pulse Code Modulation, referring to a variety of pulse modulation wherein the
modulating (data) signal is sampled at regular intervals, quantized into discrete
steps, and then transmitted over the system by means of a code pattern of a
series of pulses
PPC Pulse Position Coding, referring to a variety of pulse modulation wherein the
modulating (data) signal is sampled at regular intervals and the sampled data is
used to vary the position in time of a pulse, relative to its unmodulated time of
occurrence
PCS Personal Communication System, referring to a cellular communication technology
utilizing spreadspectrum, microwave, communications techniques
RF Radio Frequency
RPV Remotely Piloted Vehicle, referring to a vehicle deriving its command and control
inputs from a source external to the vehicle
RSO Range Safety Officer, which for range operations is the person assigned the task
of ensuring safe conditions during the operations period
TTCS Target Tracking and Control System, referring to a system manufactured by the
Company having the capability to provide Command and Control functionality for
remotely piloted vehicles with radar tracking techniques used for vehicle
tracking
UAV Unmanned Airborne Vehicle, referring to an aircraft deriving its command and
control inputs either autonomously or from a source external to the vehicle
</TABLE>
G-1
<PAGE> 71
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. ANY INFORMATION OR PRESENTATIONS
NOT HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES
OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES BY ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE DELIVERY OF THIS PROSPECTUS
SHALL NOT, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Forward-Looking Statements............ 3
Prospectus Summary.................... 4
Risk Factors.......................... 8
Use of Proceeds....................... 13
Price Range of Common Stock........... 14
Dividend Policy....................... 14
Capitalization........................ 15
Selected Financial Data............... 16
Management's Discussion and Analysis
and of Financial Condition and
Results of Operations............... 17
Business.............................. 23
Management............................ 34
Principal and Selling Stockholders.... 42
Description of Securities............. 43
Underwriting.......................... 47
Legal Matters......................... 50
Experts............................... 50
Financial Statements.................. F-1
Glossary.............................. G-1
</TABLE>
======================================================
======================================================
HERLEY INDUSTRIES, INC.
1,400,000 SHARES OF COMMON STOCK
1,400,000 COMMON STOCK
PURCHASE WARRANTS
-----------------
PROSPECTUS
-----------------
JANNEY MONTGOMERY SCOTT INC.
SOUTHWEST SECURITIES
DECEMBER , 1997
======================================================
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the distribution, all of which shall be borne by
the Company, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 13,202
NASD Filing Fee........................................................... 4,857
NASDAQ National Market Fees............................................... 39,679
Blue Sky Fees and Expenses (including legal fees)......................... 5,000
Transfer Agent and Warrant Agent Fees..................................... 7,500
Accounting Fees and Expenses.............................................. 50,000
Legal Fees and Expenses................................................... 150,000
Printing and Engraving.................................................... 85,000
Managing Underwriters' Financial Advisory Fee............................. 128,124
Miscellaneous............................................................. 16,638
-------
Total................................................................... $500,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law (the "Delaware Act"), subject to the procedures
and limitations stated therein, to indemnify certain parties. Section 145 of the
Delaware Act provides in part that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Similar indemnity is authorized for such persons against
expenses (including attorneys' fees) actually and reasonably incurred in defense
or settlement of any threatened, pending or completed action or suit by or in
the right of the corporation, if such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and provided further that (unless a court of competent jurisdiction
otherwise provides) such person shall not have been adjudged liable to the
corporation. Any such indemnification may be made only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct. Where an officer or a director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually or reasonably incurred. Section 145 provides further that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
The Company's Certificate of Incorporation and By-laws contain provisions
that limit the potential personal liability of directors for certain monetary
damages and provide for indemnity of directors and other persons. The Company
also maintains officers and directors liability insurance. The policy coverage
is $3,000,000, which includes reimbursement for costs and fees, with a maximum
deductible for officers and directors of $150,000 for each claim. The Company is
unaware of any pending or threatened litigation
II-1
<PAGE> 73
against the Company or its directors that would result in any liability for
which such director would seek indemnification or similar protection.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to the Company and its stockholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction that involves a conflict between the interests of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions, including grossly negligent business decisions relating to
attempts to change control of the Company.
The provisions regarding indemnification provide, in essence, that the
Company will indemnify its directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
director's status as a director of the Company, including actions brought by or
on behalf of the Company (shareholder derivative actions). The provisions do not
require a showing of good faith. Moreover, they do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance.
These provisions diminish the potential rights of action that might
otherwise be available to shareholders by limiting the liability of officers and
directors to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a director
of the Company in connection with any stockholders derivative action. However,
the provisions do not have the effect of limiting the right of a stockholder to
enjoin a director from taking actions in breach of the director's fiduciary
duty, or to cause the Company to rescind actions already taken, although as a
practical matter courts may be unwilling to grant such equitable remedies in
circumstances in which such actions have already been taken.
The Company has entered into indemnification agreements with certain of its
officers and directors. The indemnification agreements provide for reimbursement
for all direct and indirect costs of any type or nature whatsoever (including
attorneys' fees and related disbursements) actually and reasonably incurred in
connection with either the investigation, defense or appeal of a legal
proceeding, including amounts paid in settlement by or on behalf of an
indemnitee thereunder.
The Underwriting Agreement among the Company, the Selling Stockholders and
the Underwriters provides for the indemnification by the Underwriters of the
Company, certain of its directors and officers and any controlling person
against any liabilities and expenses incurred by any of them in certain stated
proceedings and under certain stated conditions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In August 1997, the Company purchased all of the outstanding common stock
of Metraplex Corporation, a Delaware corporation, in exchange for 313,193 shares
of Common Stock. Pursuant to demand registration rights, the Company included
these 313,193 shares in a Registration Statement on Form S-3, which was declared
effective by the Commission on October 16, 1997. The transaction exchanging the
Metraplex common stock for the Company's Common Stock was a transaction by the
issuer not involving any public offering that was exempt from the registration
requirements under the Securities Act pursuant to Section 4(2) thereof.
II-2
<PAGE> 74
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement between the Company, the Selling Stockholders and
the Underwriters.
2.1 Agreement and Plan of Reorganization, dated as of July 8, 1997, by and among the
Company, Metraplex Acquisition Corp. and Metraplex Corporation (Incorporated by
reference to Exhibit 2.1 of the Company's Registration Statement on Form S-3,
File No. 333-35485 dated September 4, 1997).*
2.2 Stock Purchase Agreement, dated as of June 1, 1993, among the Company, Herley
Interim Corp., Milton Barnard, Edward M. Webber, Marvin Adler and Carlton
Industries, Inc. (Incorporated by reference to Exhibit 7(c) of the Company's
Report on Form 8-K, dated June 18, 1993).*
2.3 Asset Purchase Agreement, dated as of September 1, 1992, between Micro-Dynamics,
Inc. and the Company (Incorporated by reference to Exhibit 7(c) of the Company's
Report on Form 8-K dated October 22, 1992).*
2.4 Purchase and Sale Agreement, dated as of July 28, 1995, between Stewart Warner
Electronics Co. and the Company.*
3.1 Certificate of Incorporation of the Company, as amended (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form S-2,
File No. 2-87160).*
3.2 By-laws of the Company, as amended.
4.1 Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4 to the
Company's Registration Statement on Form S-2, File No. 2-87160).*
4.2 Form of Warrant Certificate.
4.3 Form of Warrant Agreement between the Company and the Warrant Agent.
5.1 Opinion and Consent of Blau, Kramer, Wactlar & Lieberman, P.C. regarding the
legality of the Securities being registered.
10.1 1992 Non-Qualified Stock Option Plan (Incorporated by reference to Exhibit A to
the Company's Proxy Statement filed December 30, 1992).*
10.2 1996 Stock Option Plan (Incorporated by reference to Exhibit 10 to the Company's
Annual Report on Form 10-K for the fiscal year ended July 28, 1996).*
10.3 1997 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the period ended May 4, 1997). *
10.4 Form of Employment Agreement between the Company and Lee N. Blatt dated as of
November 1, 1997.*
10.5 Form of Employment Agreement between the Company and Myron Levy dated as of
November 1, 1997.*
10.6 Form of Employment Agreement between the Company and Gerald Klein dated as of
November 1, 1997.
10.7 Severance Agreement between the Company and Allan Coon dated June 11, 1997.*
10.8 Revised Non-Negotiable Promissory Note of Lee N. Blatt dated June 2, 1997
(Incorporated by reference to Exhibit 10.4 of the Company's Quarterly Report on
Form 10-Q for the period ended May 4, 1997).*
10.9 Revised Non-Negotiable Promissory Note of Gerald I. Klein dated June 2, 1997
(Incorporated by reference to Exhibit 10.5 of the Company's Quarterly Report on
Form 10-Q for the period ended May 4, 1997).*
10.10 Revised Non-Negotiable Promissory Note of Myron Levy dated June 2, 1997
(Incorporated by reference to Exhibit 10.6 of the Company's Quarterly Report on
Form 10-Q for the period ended May 4, 1997).*
10.11 Loan Agreement between the Company and Allstate Municipal Income Opportunities
Trust (Incorporated by reference to Exhibit 10.6 of the Company's Annual Report
on Form 10-K for the fiscal year ended July 31, 1989).*
</TABLE>
II-3
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
10.12 Form of Warrant Agreement with directors.*
10.13 Credit Agreement, dated January 25, 1996 between Dauphin Deposit Bank and the
Company.*
10.14 Form of Indemnification Agreement with officers and directors.*
10.15 Form of Managing Underwriters' Warrant Agreement between the Company and the
Managing Underwriters.
10.16 Form of Registration Rights Agreement between the Company and the Managing
Underwriters.
10.17 License Agreement, dated March 1, 1994, between the Company and Clem Whittemore
d/b/a Allied Consulting and Engineering Services.*
10.18 Agreement for Sale of Real Estate, dated April 11, 1996, between the Company and
Lee N. Blatt.*
10.19 Letter of Intent, dated October 30, 1997, between the Representative and the
Company.*
10.20 Employment Agreement, dated August 4, 1997, among Metraplex Corporation, the
Company and Glenn Rosenthal.
11.1 Statement regarding Computation of Earnings Per Share.*
21.1 Subsidiaries of the Company.*
23.1 Consent of Blau, Kramer, Wactlar & Lieberman, P.C. (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
25.1 Powers of Attorney (included on the signature page to the initial filing of this
Registration Statement).
</TABLE>
- ---------------
* Previously filed.
Financial Statement Schedules
Not applicable.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the issuer
pursuant to the foregoing provisions, or otherwise, the issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the issuer of expenses
incurred or paid by a director, officer or controlling person of the issuer 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 issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining any liability under the Securities Act of 1933, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE> 76
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Lancaster,
Pennsylvania on the 10th day of December, 1997.
HERLEY INDUSTRIES, INC.
By: /s/ LEE N. BLATT
------------------------------------
Lee N. Blatt
Chairman of the Board
(Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below on December 10, 1997,
by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE/CAPACITY
- ------------------------------------------ -------------------------------------------------
<C> <S>
/s/ LEE N. BLATT Chairman of the Board (Chief Executive Officer)
- ------------------------------------------
Lee N. Blatt
/s/ MYRON LEVY President and Director
- ------------------------------------------
Myron Levy
/s/ ANELLO C. GAREFINO* Vice President -- Finance, Treasurer (Chief
- ------------------------------------------ Financial Officer and Principal Accounting
Anello C. Garefino Officer)
/s/ THOMAS J. ALLSHOUSE* Director
- ------------------------------------------
Thomas J. Allshouse
/s/ DAVID H. LIEBERMAN* Secretary and Director
- ------------------------------------------
David H. Lieberman
/s/ JOHN THONET* Director
- ------------------------------------------
John Thonet
/s/ ALVIN M. SILVER* Director
- ------------------------------------------
Alvin M. Silver
/s/ EDWARD K. WALKER, JR.* Director
- ------------------------------------------
Edward K. Walker, Jr.
*By: /s/ MYRON LEVY
-------------------------------------
Myron Levy
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement between the Company, the Selling Stockholders and
the Underwriters.
2.1 Agreement and Plan of Reorganization, dated as of July 8, 1997, by and among the
Company, Metraplex Acquisition Corp. and Metraplex Corporation (Incorporated by
reference to Exhibit 2.1 of the Company's Registration Statement on Form S-3,
File No. 333-35485 dated September 4, 1997).*
2.2 Stock Purchase Agreement, dated as of June 1, 1993, among the Company, Herley
Interim Corp., Milton Barnard, Edward M. Webber, Marvin Adler and Carlton
Industries, Inc. (Incorporated by reference to Exhibit 7(c) of the Company's
Report on Form 8-K, dated June 18, 1993).*
2.3 Asset Purchase Agreement, dated as of September 1, 1992, between Micro-Dynamics,
Inc. and the Company (Incorporated by reference to Exhibit 7(c) of the Company's
Report on Form 8-K dated October 22, 1992).*
2.4 Purchase and Sale Agreement, dated as of July 28, 1995, between Stewart Warner
Electronics Co. and the Company.*
3.1 Certificate of Incorporation of the Company, as amended (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form S-2,
File No. 2-87160).*
3.2 By-laws of the Company, as amended.
4.1 Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4 to the
Company's Registration Statement on Form S-2, File No. 2-87160).*
4.2 Form of Warrant Certificate.
4.3 Form of Warrant Agreement between the Company and the Warrant Agent.
5.1 Opinion and Consent of Blau, Kramer, Wactlar & Lieberman, P.C. regarding the
legality of the Securities being registered.
10.1 1992 Non-Qualified Stock Option Plan (Incorporated by reference to Exhibit A to
the Company's Proxy Statement filed December 30, 1992).*
10.2 1996 Stock Option Plan (Incorporated by reference to Exhibit 10 to the Company's
Annual Report on Form 10-K for the fiscal year ended July 28, 1996).*
10.3 1997 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the period ended May 4, 1997). *
10.4 Form of Employment Agreement between the Company and Lee N. Blatt dated as of
November 1, 1997.*
10.5 Form of Employment Agreement between the Company and Myron Levy dated as of
November 1, 1997.*
10.6 Form of Employment Agreement between the Company and Gerald Klein dated as of
November 1, 1997.
10.7 Severance Agreement between the Company and Allan Coon dated June 11, 1997.*
10.8 Revised Non-Negotiable Promissory Note of Lee N. Blatt dated June 2, 1997
(Incorporated by reference to Exhibit 10.4 of the Company's Quarterly Report on
Form 10-Q for the period ended May 4, 1997).*
10.9 Revised Non-Negotiable Promissory Note of Gerald I. Klein dated June 2, 1997
(Incorporated by reference to Exhibit 10.5 of the Company's Quarterly Report on
Form 10-Q for the period ended May 4, 1997).*
10.10 Revised Non-Negotiable Promissory Note of Myron Levy dated June 2, 1997
(Incorporated by reference to Exhibit 10.6 of the Company's Quarterly Report on
Form 10-Q for the period ended May 4, 1997).*
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
10.11 Loan Agreement between the Company and Allstate Municipal Income Opportunities
Trust (Incorporated by reference to Exhibit 10.6 of the Company's Annual Report
on Form 10-K for the fiscal year ended July 31, 1989).*
10.12 Form of Warrant Agreement with directors.*
10.13 Credit Agreement, dated January 25, 1996 between Dauphin Deposit Bank and the
Company.*
10.14 Form of Indemnification Agreement with officers and directors.*
10.15 Form of Managing Underwriters' Warrant Agreement between the Company and the
Managing Underwriters.
10.16 Form of Registration Rights Agreement between the Company and the Managing
Underwriters.
10.17 License Agreement, dated March 1, 1994, between the Company and Clem Whittemore
d/b/a Allied Consulting and Engineering Services.*
10.18 Agreement for Sale of Real Estate, dated April 11, 1996, between the Company and
Lee N. Blatt.*
10.19 Letter of Intent, dated October 30, 1997, between the Representative and the
Company.*
10.20 Employment Agreement, dated August 4, 1997, among Metraplex Corporation, the
Company and Glenn Rosenthal.
11.1 Statement regarding Computation of Earnings Per Share.*
21.1 Subsidiaries of the Company.*
23.1 Consent of Blau, Kramer, Wactlar & Lieberman, P.C. (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
25.1 Powers of Attorney (included on the signature page to the initial filing of this
Registration Statement).
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
1,400,000 SHARES OF COMMON STOCK
1,400,000 COMMON STOCK PURCHASE WARRANTS
HERLEY INDUSTRIES, INC.
LEE N. BLATT
GERALD I. KLEIN
KATHI THONET
UNDERWRITING AGREEMENT
December 10, 1997
Janney Montgomery Scott Inc.,
as Representative of the Several Underwriters
26 Broadway
New York, New York 10004
Attention: Syndicate Department
Ladies and Gentlemen:
Herley Industries, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule I hereto (the "Underwriters") 700,000 shares of its common stock, par
value $.10 per share (the "Common Stock"), and 1,400,000 Common Stock Purchase
Warrants, and those certain stockholders of the Company named in Schedule II
hereto (the "Selling Stockholders") propose to sell to the Underwriters 700,000
shares of Common Stock. Each such Common Stock Purchase Warrant shall entitle
the holder thereof to purchase one share of Common Stock at an exercise price
equal to 120% of the public offering price per share of Common Stock during the
first 13 months of the warrant's term and 130% during the remaining 12 months of
the warrant's term. The Common Stock Purchase Warrants shall expire 25 months
after the closing of the offering, unless such term is extended pursuant to the
Warrant Agreement governing the terms of the Common Stock Purchase Warrants (the
"Warrant Agreement"). The Warrant Agreement shall be in the form of the Warrant
Agreement attached as an exhibit to the Registration Statement on Form S-1 (as
amended from time to time, the "Registration Statement") on file with the
Securities and Exchange Commission (the "Commission") on the date hereof
covering the offer and sale of the shares of Common Stock, the Common Stock
Purchase Warrants, and the shares of Common Stock issuable upon the exercise of
the Common Stock Purchase Warrants.
The 1,400,000 shares of Common Stock to be purchased by the
Underwriters are hereinafter referred to as the "Firm Shares" and the 1,400,000
Common Stock Purchase Warrants
-1-
<PAGE> 2
to be purchased by the Underwriters as the "Firm Warrants." The Firm Shares and
the Firm Warrants are hereinafter collectively referred to as the "Firm
Securities." In addition, the Company proposes to grant to the several
Underwriters, solely for the purpose of covering over-allotments in the sale of
the Firm Securities, the option described in Section 2 of this Agreement (this
"Agreement") to purchase up to 210,000 additional shares of Common Stock (the
"Additional Shares") and 210,000 additional Common Stock Purchase Warrants (the
"Additional Warrants"). The Additional Shares and the Additional Warrants are
hereinafter collectively referred to as the "Additional Securities."
The Firm Warrants and the Additional Warrants are hereinafter
collectively referred to as the "Warrants"; the Shares of Common Stock to be
issued or sold upon the exercise of the Warrants as the "Warrant Shares"; and
the Firm Securities, the Additional Securities, and the shares of Common Stock
issuable upon the exercise of the Firm Warrants and the Additional Warrants as
the "Offered Securities." This Agreement, the Warrant Agreement, the Managing
Underwriters' Warrant Agreement, and the Registration Rights Agreement (as such
terms are defined herein) are hereinafter collectively referred to as the
"Operative Documents."
You, as the representative of the Underwriters (the
"Representative"), have advised the Company and the Selling Stockholders that
you and the other Underwriters desire to purchase, severally and not jointly,
the Firm Shares and Firm Warrants as described on Schedule I hereto and that you
have been authorized by the Underwriters to execute this Agreement on their
behalf.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Commission in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), the Registration
Statement (File No. 333-39767), including a prospectus subject to completion,
relating to the Offered Securities. The prospectus in the form included in the
Registration Statement when the Commission declares the Registration Statement
effective, or if the prospectus included in the Registration Statement omits
information in reliance upon Rule 430A under the Securities Act and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Securities Act or as part of a post-effective amendment to
the Registration Statement after the Registration Statement becomes effective,
the prospectus as so filed, is referred to in this Agreement as the
"Prospectus." The prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of such Registration
Statement with the Commission and as such prospectus is amended from time to
time until the date of the Prospectus is referred to in this Agreement as the
"Prepricing Prospectus."
2. AGREEMENTS TO SELL AND PURCHASE. The Company and the
Selling Stockholders (in accordance with Schedule II hereto) hereby agree,
severally and not jointly, to sell the Firm Securities to the Underwriters, and
upon the basis of the representations, warranties and agreements of the Company
and the Selling Stockholders contained herein and subject to all
-2-
<PAGE> 3
the terms and conditions set forth herein, each Underwriter agrees, severally
and not jointly, to purchase from the Company and the Selling Stockholders at a
purchase price of $_____ per Firm Share and $.0935 per Firm Warrant, the number
of Firm Shares and Firm Warrants set forth opposite the name of such Underwriter
in Schedule I hereto (or such number of Firm Shares and Firm Warrants as
adjusted pursuant to Section 11 hereof).
The Company hereby also agrees to sell to the Underwriters,
and upon the basis of the representations, warranties and agreements of the
Company and the Selling Stockholders herein contained and subject to all the
terms and conditions set forth herein, the Underwriters shall have the right for
30 days after the Closing Date (as defined herein) to purchase from the Company
up to an aggregate of 210,000 Additional Shares and 210,000 Additional Warrants
at a price identical to the price per Firm Share and Firm Warrant, respectively,
set forth above. The Additional Shares and Additional Warrants may be purchased
solely for the purpose of covering over-allotments, if any, made in connection
with the offering of the Firm Securities. If any Additional Shares and
Additional Warrants are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase the number of Additional Shares and Additional
Warrants (subject to such adjustments as you may determine to avoid fractional
shares) that bears the same proportion to the total number of Additional Shares
and Additional Warrants to be purchased by the Underwriters as the number of
Firm Shares and Firm Warrants, respectively, set forth opposite the name of such
Underwriter in Schedule I hereto (or such number of Firm Shares and Firm
Warrants as adjusted pursuant to Section 11 hereof) bears to the total number of
Firm Shares and Firm Warrants. Upon any election by the Underwriters to purchase
less than all the Additional Shares and Additional Warrants, the aggregate
number of Additional Shares and Additional Warrants to be purchased from the
Company by all the Underwriters shall be in the same proportion as the maximum
number of Additional Shares and Additional Warrants that may be purchased from
the Company as set forth on Schedule II hereto.
At the Closing (as defined herein), the Company shall sell to
the Representative and Southwest Securities, Inc. (collectively with the
Representative, the "Managing Underwriters") a warrant (the "Managing
Underwriters' Warrant") for $10 entitling the holder thereof to (i) purchase up
to 140,000 shares of Common Stock for five years after the Closing Date for an
exercise price per share equal to 120% of the per share offering price set forth
on the cover page of the Prospectus, and (ii) purchase up to 140,000 Warrants,
identical to the Firm Warrants and the Additional Warrants, for an exercise
price per Warrant equal to 120% of the per Warrant offering price set forth on
the cover page of the Prospectus. The Managing Underwriters' Warrant shall be
exercisable with respect to the shares of Common Stock for a period of four
years commencing one year after the Closing Date, and the Managing Underwriters'
Warrant shall be exercisable with respect to the Warrants for a period of 13
months commencing one year after the Closing Date. The Managing Underwriters'
Warrant shall also contain the other terms and conditions as set forth in the
Managing Underwriters' Warrant Agreement included as an exhibit to the
Registration Statement on the date hereof (the "Managing Underwriters' Warrant
Agreement"). In addition, the holders of the Managing Underwriters' Warrant
shall be entitled to the registration rights with respect to the resale of the
Managing Underwriters' Warrant, the resale of the shares of Common Stock
issuable upon the exercise of such warrant, the resale of
-3-
<PAGE> 4
the Warrants issuable upon the exercise of such warrant, and the issuance of the
shares of Common Stock issuable upon the exercise of such Warrants as set forth
in the Registration Rights Agreement included as an exhibit to the Registration
Statement on the date hereof (the "Registration Rights Agreement"). As used
herein, "Managing Underwriters' Securities" shall mean the Managing
Underwriters' Warrant, including the shares of Common Stock and Warrants
issuable upon the exercise thereof and the shares of Common Stock issuable upon
the exercise of such Warrants. At the Closing, the Company also shall pay to the
Managing Underwriters a fee equal to 1.33% of the Company's gross proceeds from
its sale of the Firm Securities (the "Financial Advisory Fee").
3. TERMS OF PUBLIC OFFERING. The Company and the Selling
Stockholders have been advised by you that the Underwriters propose to make a
public offering of their respective portions of the Firm Securities and any
Additional Securities as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable, and initially
to offer the Firm Securities and any Additional Securities upon the terms set
forth in the Prospectus.
4. DELIVERY OF CERTAIN SECURITIES AND PAYMENT THEREFOR. You
contemplate that the delivery to the Underwriters of the Firm Securities and
payment therefor (the "Closing") shall be made at the office of Janney
Montgomery Scott Inc., 26 Broadway, New York, New York, at 10:00 a.m., New York
City time, on December 16, 1997 (the "Closing Date"). The place of closing for
the Firm Securities and the Closing Date may be varied by you as you consider
advisable.
Delivery to the Underwriters of and payment for any Additional
Securities to be purchased by the Underwriters shall be made at the office of
Janney Montgomery Scott Inc., 26 Broadway, New York, New York, at 10:00 a.m.,
New York City time, on such date or dates (each an "Additional Closing Date,"
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than three nor later than ten business days after
the giving of the notice hereinafter referred to) as shall be specified in a
written notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Securities. Such notice may be given to the Company by you at any
time within 30 days after the Closing Date. The place of closing for the
Additional Securities and the Additional Closing Date may be varied by you as
you consider advisable.
Certificates for the Firm Securities and for any Additional
Securities to be purchased hereunder shall be registered in such names and in
such denominations as you shall request prior to 1:00 p.m., New York City time,
not later than the second full business day preceding the Closing Date or the
Additional Closing Date, as the case may be. Such certificates shall be made
available to you in New York, New York for inspection and packaging not later
than 9:30 a.m., New York City time, on the business day immediately preceding
the Closing Date or the Additional Closing Date, as the case may be. The
certificates evidencing the Firm Securities and any Additional Securities to be
purchased hereunder shall be delivered to you, for the respective accounts of
the several Underwriters, on the Closing Date or the Additional
-4-
<PAGE> 5
Closing Date, as the case may be, against payment of the purchase price therefor
by wire transfer to accounts designated in writing to you by the Company and
each of the Selling Stockholders or by certified or official bank check or
checks payable in New York Clearing House funds. Time shall be of the essence
and delivery at the time and place specified in this Agreement is a further
condition to the obligations of each Underwriter.
5. COVENANTS AND AGREEMENTS. The Company and each Selling
Stockholder severally, and not jointly, covenants and agrees with the several
Underwriters as follows (except with respect to the covenants and agreements
below made by the Company, for which the Selling Stockholders shall bear no
responsibility):
a. The Company will cause the Registration Statement
and any post-effective amendments thereto to be prepared in conformity
with the requirements of the Securities Act. In addition, the Company
will use its best efforts to cause the Registration Statement and any
post-effective amendments thereto to become effective and will advise
you promptly, and if requested by you, will confirm such advice in
writing (i) when the Registration Statement has become effective and
when any post-effective amendment thereto becomes effective; (ii) if
Rule 430A under the Securities Act is used, when the Prospectus has
been timely filed pursuant to Rule 424(b) under the Securities Act;
(iii) of any request by the Commission for amendments or supplements to
the Registration Statement, any Prepricing Prospectus or the Prospectus
or for additional information; (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Offered
Securities for offering or sale in any jurisdiction or the initiation
of any proceeding for such purposes and (v) of any change in the
Company's condition (financial or other), business, properties, net
worth, results of operations, or prospects or of any event that comes
to the attention of the Company that makes any statement made in the
Registration Statement or the Prospectus (as then amended or
supplemented) untrue in any material respect or that requires the
making of any additions thereto or changes therein in order to make the
statements therein not misleading in any material aspect, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Securities Act or any other law. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will use its
best efforts to obtain the withdrawal of such order at the earliest
possible time.
b. The Company will furnish to you, without charge,
three signed duplicate originals of the Registration Statement as
originally filed with the Commission and of each amendment thereto,
including financial statements and all exhibits thereto, and will also
furnish to you, without charge, such number of conformed copies of the
Registration Statement as originally filed and of each amendment
thereto as you may reasonably request.
c. The Company will not file any amendment to the
Registration Statement or make any amendment or supplement to the
Prospectus of which you shall not previously have been advised (with a
reasonable
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<PAGE> 6
opportunity to review such amendment or supplement) or to which you
have reasonably objected after being so advised.
d. The Company will prepare and file with the
Commission, upon your reasonable request, any amendments or supplements
to the Registration Statement or Prospectus, in form and substance
reasonably satisfactory to counsel for the Company, as in the opinion
of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the
Underwriters, may be necessary or advisable in connection with the
distribution of the Offered Securities and the exercise of the Warrants
included therein, and will use its best efforts to cause the same to
become effective as promptly as possible. The Company will keep the
Registration Statement effective for the term of the Firm Warrants and
Additional Warrants with respect to the issuance and sale of the
related Warrant Shares.
e. Prior to the execution and delivery of this
Agreement, the Company has delivered to you, without charge, in such
quantities as you have requested copies of each form of the Prepricing
Prospectus. The Company and the Selling Stockholders have consented to
the use, in accordance with the provisions of the Securities Act and
with the securities or Blue Sky laws of the jurisdictions in which the
Offered Securities are offered by the several Underwriters and by
dealers, prior to the date of the Prospectus, of each Prepricing
Prospectus so furnished.
f. As soon after the execution and delivery of this
Agreement as is practicable and thereafter from time to time for such
period as in the reasonable opinion of counsel for the Underwriters a
prospectus is required by the Securities Act to be delivered in
connection with sales by any Underwriter or a dealer, and for so long a
period as you may request for the distribution of the Offered
Securities, the Company will deliver to each Underwriter, without
charge, as many copies of the Prospectus (and of any amendment or
supplement thereto) as they may reasonably request. The Company and the
Selling Stockholders consent to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of
the Securities Act and with the securities or Blue Sky laws of the
jurisdictions in which the Offered Securities are offered by the
several Underwriters and by all dealers to whom Offered Securities may
be sold, both in connection with the offering and sale of the Offered
Securities and for such period of time thereafter as the Prospectus is
required by the Securities Act to be delivered in connection with sales
by any Underwriter or dealer. If at any time during the period during
which a Prospectus is required to be delivered in accordance with the
Securities Act any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Underwriters is required
to be set forth in the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, or if it is necessary to supplement or amend the Prospectus
to comply with the Securities Act or any other law, the Company will
forthwith prepare and, subject to Sections 5(a) and 5(c) hereof, file
with the Commission and use its best efforts to cause to become
effective as promptly as possible an appropriate supplement or
amendment thereto, and
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<PAGE> 7
will furnish to each Underwriter who has previously requested
Prospectuses, without charge, a reasonable number of copies thereof.
g. The Company and the Selling Stockholders will
cooperate with you and counsel for the Underwriters in connection with
the registration or qualification of the Offered Securities for
offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may reasonably
designate and will file such consents to service of process or other
documents as may be reasonably necessary in order to effect such
registration or qualification; provided that in no event shall the
Company be obligated to qualify to do business in any jurisdiction
where it is not now required to be qualified or to take any action that
would subject it to service of process in suits, other than those
arising out of the offering or sale of the Offered Securities, in any
jurisdiction where it is not now so subject.
h. The Company will make generally available to its
security holders as soon as practicable, but not later than 45 days
after the end of the 12 month period beginning at the end of the fiscal
quarter of the Company during which the date on which the Commission
declares the Registration Statement effective (the "Effective Date"),
or 90 days if such 12 month period coincides with the Company's fiscal
year, a consolidated earnings statement (in form complying with the
provisions of Section 11(a) of the Securities Act and Rule 158 under
the Securities Act), which need not be audited, covering such 12 month
period.
i. During the period beginning on the date hereof and
ending on the fifth anniversary of the Closing Date, the Company will
furnish to you and, upon your request, to each of the other
Underwriters, (i) as soon as available, a copy of each proxy statement,
quarterly or annual report or other report of the Company mailed to
stockholders or filed with the Commission, the National Association of
Securities Dealers, Inc. (the "NASD") or any securities exchange or the
Nasdaq National Market (as defined herein) and (ii) from time to time
such other information concerning the Company as you may reasonably
request.
j. If this Agreement is terminated after the
execution hereof (other than pursuant to Section 11 hereof), including
any termination by the Underwriters because of breach of any
representation and warranty of, or failure to perform any agreement by,
the Company or any Selling Stockholder herein or to comply with any of
the terms or provisions hereof, the Company agrees to reimburse you and
the other Underwriters for all actual accountable out-of pocket
expenses (including travel expenses and fees and expenses of counsel
for the underwriters) reasonably incurred by the Underwriters in
connection herewith.
k. The Company will apply the net proceeds from the
sale of the Offered Securities to be sold by it substantially in
conformity with the purposes set forth under "Use of Proceeds" in the
Prospectus.
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<PAGE> 8
l. If Rule 430A under the Securities Act is used, the
Company will timely file the Prospectus pursuant to Rule 424(b) under
the Securities Act.
m. Prior to the Closing Date or the Additional
Closing Date, as the case may be, the Company will furnish to you, as
promptly as possible, copies of any unaudited interim consolidated
financial statements of the Company and its subsidiaries for any
quarterly period subsequent to the periods covered by the financial
statements appearing in the Prospectus.
n. The Company will comply in all material respects
with all provisions of the undertakings contained in the Registration
Statement.
o. Neither the Company nor any Selling Stockholder
will take any action constituting, or which might reasonably be
expected to constitute or result in, stabilization or manipulation of
the trading price of the Common Stock or the Warrants to facilitate the
sale or resale of the Offered Securities.
p. The Company will use its best efforts to qualify
or register the shares of Common Stock and the Warrants for sale in
non-issuer transactions under (or obtain exemptions from the
application of) the Blue Sky laws of each state where necessary to
permit market making transactions and secondary trading if you, based
on advice of counsel, advise the Company that such qualification,
registration or exemption is necessary or desirable, and will comply
with such Blue Sky laws and will continue such qualifications,
registrations and exemptions in effect for a period of five years after
the Closing Date.
q. The Company will timely file with the NASD
Automated Quotation National Market System (the "Nasdaq National
Market") or such other exchange upon which its securities are listed
all documents and notices required by the Nasdaq National Market or
such other applicable exchange of companies that have issued securities
that are traded on such market.
r. So long as the Company shall be subject to the
reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company shall furnish to its
stockholders and warrant holders annual reports containing financial
statements of the Company audited by its independent certified public
accountants and will make available to such stockholders and warrant
holders upon their request quarterly reports for the first three
quarters of its fiscal year containing financial information, which may
be unaudited.
s. So long as the Company shall be subject to the
reporting requirements of the Exchange Act, the Company will, from time
to time, after the date the Registration Statement becomes effective,
file with the Commission such reports as are required by the Securities
Act and Exchange Act and with state securities commissions in
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<PAGE> 9
states where the Offered Securities have been sold by the Underwriters
such reports as are required to be filed by the securities acts and the
regulations of those states.
t. The Company will cause the Selling Stockholders
and each officer, director and employee of the Company or any
Subsidiary (as defined herein) who owns shares of Common Stock or
options or warrants to acquire shares of Common Stock and who is listed
on Schedule III attached hereto to enter into an agreement with the
Representative to the effect that, for the period beginning on the date
hereof and ending (i) 180 days for all Selling Stockholders, and (ii)
120 days for each such officer, director and employee who is not a
Selling Stockholder, from the Effective Date, he or she will not,
without the prior consent of the Representative, directly or
indirectly, offer, sell, offer to sell, grant any option to purchase or
otherwise sell or dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable therefor
(other than in connection with a conversion, exercise or exchange in
which the holder retains the shares of Common Stock) or with respect to
which such person has the power of disposition.
u. The Prospectus and any amendment or supplement
thereto will at all times up to and including the Closing Date and any
Additional Closing Date, and during such longer period as the
Prospectus may be required to be delivered in connection with the
issuance and/or sale by the Company or the Selling Stockholders of
shares of Common Stock or Warrants or the exercise of any of the
Warrants, comply in all material respects with the provisions of the
Securities Act and will not contain any untrue statement of a material
fact and will not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
v. Until the second anniversary of the Effective
Date:
(i) All members of the Audit and
Compensation Committees of the Company's Board of
Directors (the "Board of Directors") shall be
Independent Directors as defined in the Bylaws of the
Company attached as an exhibit to the Registration
Statement on the date hereof.
(ii) Article V of the Company's Bylaws,
which concerns certain corporate governance matters,
shall not be modified or rescinded without the
approval of the holders of 66 2/3% of the
outstanding shares of Common Stock.
(iii) The Company shall not (x) issue or
sell shares of Common Stock or securities convertible
into, or exchangeable for, or options or other rights
to acquire, shares of Common Stock to Lee N. Blatt,
Myron Levy, Gerald I. Klein or any relative or
affiliate of any such person (collectively, the
"Executives"), except for issuances of shares of
Common Stock upon the exercise of stock options and
warrants outstanding on the
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<PAGE> 10
date hereof and described in the Prospectus, or (y)
increase any compensation payable to any of the
Executives, unless such issuance or sale of
securities or increase of compensation is unanimously
approved by the Compensation Committee of the Board
of Directors.
(iv) The Company shall base the compensation
for the Company's directors and executive officers
upon standards established with the assistance of an
outside compensation specialist.
w. At the Closing, the Company will enter into the
Managing Underwriters' Warrant Agreement and the Registration Rights
Agreement.
x. The Company will not reprice any stock options or
warrants before the second anniversary of the Closing Date.
y. The Company and the Selling Stockholders will do
and perform all things required to be done and performed under this
Agreement by them prior to the Closing Date and use their best efforts
to satisfy all conditions precedent within their control to the
delivery of the Offered Securities.
z. The Company and the Selling Stockholders will
comply in all material respects with the Operative Documents.
aa. At the Closing, the Company will enter into the
Warrant Agreement with American Stock Transfer & Trust Company
("American Stock Transfer" or the "Warrant Agent").
bb. At the Closing, Lee N. Blatt, Myron Levy, and
Gerald I. Klein will repay all indebtedness owed to the Company or any
Subsidiary (as defined herein), including the indebtedness evidenced by
their non-negotiable promissory notes payable to the Company set forth
as exhibits to the Registration Statement on the date hereof.
6. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. The
Company represents and warrants to each Underwriter on the date hereof, and
shall be deemed to represent and warrant to each Underwriter on the Closing Date
and any Additional Closing Date, that:
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<PAGE> 11
a. Each Prepricing Prospectus included as part of the
Registration Statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 424(a) under the
Securities Act, complied when so filed in all material respects with
the provisions of the Securities Act, except that this representation
and warranty does not apply to statements in or omissions from such
Prepricing Prospectus (or any amendment or supplement thereto) made in
reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein. The Commission has
not issued any order preventing or suspending the use of any Prepricing
Prospectus.
b. The Registration Statement, in the form in which
it becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective, and the
Prospectus, and any supplement or amendment thereto when filed with the
Commission under Rule 424(b) under the Securities Act, will comply in
all material respects with the provisions of the Securities Act and
will not at any such times contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that
this representation and warranty does not apply to statements in or
omissions from the Registration Statement or the Prospectus (or any
amendment or supplement thereto) made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by or on behalf of any Underwriter through you
expressly for use therein.
c. The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of
Delaware, with full power and authority to own, lease and operate its
properties and to conduct its business as presently conducted and as
described in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or
place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure
to so register or qualify does not have a material adverse effect on
the condition (financial or other), business, properties, net worth,
results of operations or prospects of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect").
d. Except for the subsidiaries listed in Exhibit 21.1
to the Registration Statement as of the date hereof, the Company does
not own a material interest in or control, directly or indirectly, any
other corporation, partnership, joint venture, association, trust or
other business organization that is material to the business of the
Company. Each of the subsidiaries described on Exhibit 21.1 to the
Registration Statement as of the date hereof (collectively, the
"Subsidiaries") is a corporation duly organized and validly existing in
good standing under the laws of the jurisdiction of its organization,
with full power and authority to own, lease and operate its properties
and to conduct its business as presently conducted and as described in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly registered and qualified to conduct
its business and is in good standing in each other
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<PAGE> 12
jurisdiction or place where the nature of its properties or the conduct
of its business requires such registration or qualification, except
where the failure to so register or qualify does not have a Material
Adverse Effect. All of the outstanding shares of capital stock of each
of the Subsidiaries has been duly authorized and validly issued, are
fully paid and nonassessable, and are owned by the Company directly, or
indirectly through one of the other Subsidiaries, free and clear of any
security interest, lien, adverse claim, equity or other encumbrance.
e. The capitalization of the Company is and will be
as set forth in the Prospectus as of the date set forth therein. All of
the outstanding shares of Common Stock have been, and as of the Closing
Date will be, duly authorized and validly issued, are fully paid and
nonassessable and free of any preemptive or similar rights; the Firm
Shares and Additional Shares to be issued and sold to the Underwriters
by the Company hereunder have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights; the capital
stock of the Company conforms in all material respects to the
description thereof in the Registration Statement and the Prospectus
(and any amendment or supplement thereto); and the delivery of
certificates for the Firm Shares and the Additional Shares pursuant to
the terms of this Agreement and payment for the Firm Shares and the
Additional Shares will pass valid title to the Firm Shares and the
Additional Shares, free and clear of any claim, encumbrance or defect
in title to the several Underwriters purchasing the Firm Shares and the
Additional Shares. The certificates for the Firm Shares and the
Additional Shares are in valid and sufficient form.
f. The Firm Shares to be sold to the Underwriters by
the Selling Stockholders were duly authorized and validly issued, are
fully paid and nonassessable, and were not issued in violation of any
preemptive or similar rights.
g. There are no legal or governmental proceedings
pending or, to the knowledge of the Company after reasonable inquiry
and investigation, threatened, against the Company or any of the
Subsidiaries, or to which the Company, any of the Subsidiaries, or any
of their respective properties is subject, that are required to be
described in the Registration Statement or the Prospectus (or any
amendment or supplement thereto) but are not described as required.
Except as described in the Prospectus, there is no action, suit,
inquiry, proceeding, or investigation by or before any court or
governmental or other regulatory or administrative agency or commission
pending or, to the knowledge of the Company after reasonable inquiry
and investigation, threatened, against or involving the Company or any
Subsidiary, which might individually or in the aggregate prevent or
adversely affect the transactions contemplated by this Agreement or
result in a Material Adverse Effect, nor is there any basis for any
such action, suit, inquiry, proceeding, or investigation. There are no
agreements, contracts, indentures, leases or other instruments that are
required to be described in the Registration Statement or the
Prospectus (or any amendment or supplement thereto) or to be filed as
an exhibit to the Registration Statement that are not
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<PAGE> 13
described or filed as required by the Securities Act. All such
contracts to which the Company or any Subsidiary is a party have been
duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or
such Subsidiary and are enforceable against and by the Company or such
Subsidiary in accordance with the terms thereof except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally, (ii) as the
enforceability of any indemnification provision may be limited under
federal or state securities laws and (iii) as the remedy of specific
forms of equitable relief may be subject to equitable defenses and
discretion of the court before which any proceeding may be brought
(collectively, the "Enforceability Exceptions"), and neither the
Company nor any Subsidiary, nor to the Company's knowledge after
reasonable inquiry and investigation, any other party, is in breach of
or default under any of such contracts.
h. Neither the Company nor any of the Subsidiaries is
in violation in any material respect of its certificate or articles of
incorporation or bylaws, or other organizational documents, or of any
law, ordinance, administrative or governmental rule or regulation
applicable to the Company or any of the Subsidiaries or of any decree
of any court or governmental agency or body having jurisdiction over
the Company or any of the Subsidiaries, or in default in the
performance of any obligation, agreement or condition contained in (i)
any bond, debenture, note or any other evidence of indebtedness, or
(ii) any material agreement, indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which any
of them or any of their respective properties may be bound; and to the
Company's knowledge after reasonable inquiry and investigation there
does not exist any state of facts that constitutes an event of default
on the part of the Company or any Subsidiary as defined in such
documents or which, with notice or lapse of time or both, would
constitute such an event of default.
i. The execution and delivery of this Agreement and
the performance by the Company of its obligations under this Agreement,
including the issuance and sale of the Offered Securities on the terms
set forth in this Agreement, have been duly and validly authorized by
the Company, and this Agreement has been duly executed and delivered by
the Company and constitutes the valid and legally binding agreement of
the Company, enforceable against the Company in accordance with its
terms subject to the Enforceability Exceptions.
j. The execution and delivery of the Warrant
Agreement and the performance by the Company of its obligations under
the Warrant Agreement have been duly and validly authorized by the
Company, and at the Closing the Warrant Agreement will be duly executed
and delivered by the Company and constitute the valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms subject to the Enforceability Exceptions.
k. The execution and delivery of the Managing
Underwriters' Warrant Agreement and the performance by the Company of
its obligations under the
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<PAGE> 14
Managing Underwriters' Warrant Agreement have been duly and validly
authorized by the Company, and at the Closing the Managing
Underwriters' Warrant Agreement will be duly executed and delivered by
the Company and constitute the valid and legally binding agreement of
the Company, enforceable against the Company in accordance with its
terms subject to the Enforceability Exceptions.
l. The execution and delivery of the Registration
Rights Agreement and the performance by the Company of its obligations
under the Registration Rights Agreement have been duly and validly
authorized by the Company, and at the Closing the Registration Rights
Agreement will be duly executed and delivered by the Company and
constitute the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms subject to
the Enforceability Exceptions.
m. The Warrants have been duly and validly authorized
by the Company for issuance and sale pursuant to this Agreement and,
when issued and countersigned in accordance with the terms of the
Warrant Agreement and delivered against payment therefor in accordance
with the terms hereof and thereof, will be validly issued and the
legal, valid and binding obligations of the Company subject to the
Enforceability Exceptions. The Company has duly reserved a sufficient
number of shares of Common Stock for the issuance of the Warrant Shares
upon the exercise of the Warrants and has duly and validly authorized
the issuance of such Warrant Shares upon the exercise of the Warrants.
Upon the exercise of the Warrants and the payment of the exercise price
thereof, the respective Warrant Shares will be validly issued, fully
paid and nonassessable, and not issued in violation of any preemptive
or similar rights. The Warrants conform in all material respects to the
description thereof contained in the Prospectus.
n. The Managing Underwriters' Warrant has been duly
and validly authorized by the Company for issuance and sale pursuant to
this Agreement and, when payment is made therefor in accordance with
the terms hereof and the Managing Underwriters' Warrant Agreement, will
be validly issued and the legal, valid and binding obligation of the
Company subject to the Enforceability Exceptions. The Company has
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<PAGE> 15
duly reserved a sufficient number of its shares of Common Stock for the
issuance of the shares of Common Stock upon the exercise of the
Managing Underwriters' Warrant, including the shares of Common Stock
issuable upon the exercise of the Warrants issuable upon the exercise
of the Managing Underwriters' Warrant, and has duly and validly
authorized the issuance of such shares of Common Stock upon the
exercise of the Managing Underwriters' Warrant and the Warrants
issuable upon the exercise of the Managing Underwriters' Warrant. Upon
the exercise of the Managing Underwriters' Warrant and the shares of
Common Stock issuable upon the exercise of the Warrants issuable upon
the exercise of the Managing Underwriters' Warrant, and the payment of
the exercise price thereof, the respective shares of Common Stock will
be validly issued, fully paid and nonassessable, and not issued in
violation of any preemptive or similar rights. The Managing
Underwriters' Warrant conforms in all material respects to the
description thereof contained in the Prospectus.
o. Neither the issuance and sale of the Offered
Securities, the execution, delivery or performance of this Agreement
and the other Operative Documents by the Company nor the consummation
by the Company of the transactions contemplated hereby or thereby (i)
requires any consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency or official (except such as
may be required under the Securities Act and compliance with the
securities or Blue Sky laws of various jurisdictions) or conflicts with
or will conflict with or constitutes or will constitute a breach of, or
a default under, the certificate or articles of incorporation or
bylaws, or other organizational documents, of the Company or any of the
Subsidiaries or (ii) conflicts or will conflict with or constitutes a
breach of, or a default under, any agreement, indenture, lease or other
instrument to which the Company or any of the Subsidiaries is a party
or by which any of them or any of their respective properties is bound,
or violates any statute, law, regulation, filing, judgment, injunction,
order or decree applicable to the Company or any of the Subsidiaries or
any of their respective properties, or results in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries pursuant to the terms
of any agreement or instrument to which any of them is a party or by
which any of them is bound or to which any of the property or assets of
any of them is subject.
p. Except as set forth in the Prospectus, the Company
does not have outstanding and at the Closing Date (and any Additional
Closing Date) will not have outstanding any options to purchase, or any
warrants to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any shares of
Common Stock or any such options, warrants or convertible securities or
obligations. No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of
the Registration Statement that have not been satisfied or heretofore
waived in writing.
q. The financial statements, together with related
schedules and notes, included in the Registration Statement and the
Prospectus (and any amendment or
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<PAGE> 16
supplement thereto), comply as to form in all material respects with
the applicable accounting requirements of the Securities Act for
Registration Statements on a Form S-1 and present fairly the
consolidated financial position, results of operations and changes in
cash flows of the Company and the Subsidiaries on the basis stated in
the Registration Statement at the respective dates or for the
respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial
and statistical information and data set forth in the Registration
Statement and Prospectus (and any amendment or supplement thereto) is
accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company. No other
financial statements or schedules are required to be included in the
Registration Statement. Neither the Company nor any Subsidiary has
undergone any Material Adverse Effect since the date of the most recent
balance sheet included in the financial statements set forth in the
Prospectus.
r. Except as disclosed in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), subsequent
to the respective dates as of which such information is given in the
Registration Statement and the Prospectus (or any amendment or
supplement thereto), (i) the Company and its Subsidiaries have not
incurred any liabilities or obligations, indirect, direct or
contingent, or entered into any transaction that is not in the ordinary
course of business or that could result in a material reduction in the
future earnings of the Company and the Subsidiaries; (ii) the Company
and the Subsidiaries have not sustained any material loss or
interference with respect to their businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or
other distributions with respect to its capital stock and the Company
and its Subsidiaries are not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been
any change in the capital stock (other than upon the sale of the
Offered Securities and the Managing Underwriters' Warrant hereunder and
upon the exercise of options and warrants described in the Prospectus)
or indebtedness material to the Company and the Subsidiaries (other
than in the ordinary course of business); and (v) there has not been
any material adverse change, or any development involving or that may
reasonably be expected to involve a potential future material adverse
change in the condition (financial or otherwise), business, properties,
net worth, results of operations or prospects of the Company and the
Subsidiaries.
s. The Company and each of the Subsidiaries has good
and marketable title to all property (real and personal) described in
the Prospectus as being owned by it, free and clear of all liens,
claims, security interests or other encumbrances except (i) such as are
described in the financial statements included in the Prospectus or
(ii) such as are not materially burdensome and do not interfere in any
material respect with the use of the property or the conduct of the
business of the Company and the Subsidiaries taken as a whole. The
property (real and personal) held under lease by each of the Company
and the Subsidiaries is held by it under valid, subsisting and
enforceable
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<PAGE> 17
leases, with only such exceptions as in the aggregate are not material
and do not interfere in any material respect with the conduct of the
business of the Company and the Subsidiaries taken as a whole.
t. The Company has not distributed and will not
distribute any offering material in connection with the offering and
sale of the Offered Securities other than the Prepricing Prospectus and
the Prospectus.
u. The Company has not taken, directly or indirectly,
any action constituting, or which might reasonably be expected to
constitute or result in, stabilization or manipulation of the trading
price of the Common Stock to facilitate the sale or resale of the
Offered Securities.
v. The Company is not, and does not intend to conduct
its business in a manner in which it would become, an "investment
company" under the Investment Company Act of 1940, as amended.
w. The Company and each of the Subsidiaries have all
permits, licenses, franchises, approvals, consents and authorizations
of governmental or regulatory authorities (hereinafter "permit" or
"permits") as are necessary to own their respective properties and to
conduct their respective businesses in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the
Prospectus; the Company and each of the Subsidiaries have fulfilled and
performed all of their material obligations with respect to each such
permit and no event has occurred that allows, or after notice or lapse
of time would allow, revocation or termination of any such permit or
result in any other material impairment of the rights of the holder of
any such permit, subject in each case to such qualification as may be
set forth in the Prospectus.
x. The Company and the Subsidiaries have complied and
will comply with wage and hour determinations issued by the U.S.
Department of Labor under the Service Contract Act of 1965 and the Fair
Labor Standards Act in paying its employee salaries, fringe benefits,
and other compensation for the performance of work or other duties in
connection with contracts with the U.S. government. The Company and the
Subsidiaries have complied and will comply with the terms of all
certifications and representations made to the U.S. government in
connection with the submission of any bid or proposal or any contract.
The Company and the Subsidiaries have complied and will comply with
their obligations under their agreements and contracts with the U.S.
government and agencies thereof. Neither the Company nor any of the
Subsidiaries is involved in any labor dispute that might reasonably be
expected to result in a Material Adverse Effect nor, to the knowledge
of the Company after reasonable investigation and inquiry, is any such
dispute threatened.
y. The Company and the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii)
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<PAGE> 18
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorizations; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
z. Neither the Company nor any Subsidiary has,
directly or indirectly, (i) made any unlawful contribution to any
candidate for political office, or failed to disclose fully any
contribution in violation of law; or (ii) made any payment to any
federal, state or foreign governmental official, or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States and applicable
foreign jurisdictions.
aa. The Company and the Subsidiaries have obtained
all required permits, licenses and other authorizations, if any, which
are required under federal, state, local and foreign statutes,
ordinances and other laws relating to pollution or protection of the
environment ("Environmental Laws"). The Company and the Subsidiaries
are in compliance with all terms and conditions of all required
permits, licenses and authorizations, and are also in compliance with
all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws. There is no pending or, to the
knowledge of the Company after reasonable inquiry and investigation,
threatened civil or criminal litigation, notice of violation, or
administrative proceeding relating to the Environmental Laws involving
the Company or the Subsidiaries. There have not been and there are not
any past, present, or to the Company's knowledge after reasonable
inquiry and investigation, foreseeable future events, conditions,
circumstances, activities, practices, incidents, actions or plans
relating to the Company or the Subsidiaries that may interfere with or
prevent continued compliance with, or that may give rise to any common
law or legal liability, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, study or investigation under
the Environmental Laws.
bb. Each of the Company and the Subsidiaries has
sufficient trademarks, trade names, registered service marks, patents,
patent applications, patent rights, licenses, permits, copyright
protection and governmental or other authorizations currently required
for the conduct of its business, and each of the Company and the
Subsidiaries is in all material respects complying therewith, and the
products and services, and the marks associated therewith, used by the
Company and each Subsidiary do not violate or infringe any trademarks,
trade names, registered service marks, patents, patent rights,
licenses, permits or copyrights held or owned by any other party.
Neither the Company nor any Subsidiary has received any notice of
violation or infringement of or conflict with asserted rights of others
with respect to any trademarks, trade
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<PAGE> 19
names, registered service marks, patents, patent rights, licenses,
permits, copyrights or authorizations owned or used by the Company, any
Subsidiary or any other person. Other than as disclosed in the
Prospectus, the expiration of any such trademarks, trade names,
registered service marks, patents, patent rights, licenses, permits,
copyrights and governmental or other authorizations would not
materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
Subsidiaries, taken as a whole, and neither the Company nor any
Subsidiary has received any notice of violation or infringement of or
conflict with asserted rights of others with registered service marks,
patents, patent rights, licenses, permits, copyrights or authorizations
owned or used by the Company, any Subsidiary or any other person.
cc. The Company has filed with the Nasdaq National
Market an application for listing on the Nasdaq National Market of the
additional shares of Common Stock that the Company will issue in this
offering, the Warrants, and the shares of the Common Stock issuable
upon the exercise of the Warrants. The Nasdaq National Market has
approved this application, subject to the occurrence of the Closing.
The Company has previously filed with the Nasdaq National Market
applications for the listing on the Nasdaq National Market of all
outstanding shares of Common Stock, including the shares that are
subject to sale under the Company's stock option plans and warrants
previously issued to certain directors and officers. The Nasdaq
National Market has approved all of such applications.
dd. All federal, state and local tax returns required
to be filed by or on behalf of the Company or any Subsidiary have been
filed (or are the subject of a valid extension) with the appropriate
federal, state and local authorities and all such tax returns, as
filed, are accurate in all material respects. All federal, state and
local taxes (including estimated tax payments) required to be shown on
all such tax returns or claimed to be due from or with respect to the
business of the Company or any Subsidiary have been paid or reflected
as a liability on the consolidated financial statements of the Company
for the appropriate periods, except for those taxes or claims therefor
which are being contested by the Company in good faith and for which
appropriate reserves are reflected in the Company's consolidated
financial statements. All deficiencies asserted as a result of any
federal, state or local tax audits have been paid or finally settled
and no issue has been raised in any such audit that, by application of
the same or similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so audited. To the
Company's knowledge after reasonable inquiry and investigation, no
state of facts exists or has existed that would constitute grounds for
the assessment of any tax liability with respect to the periods that
have not been audited by appropriate federal, state or local
authorities. There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any federal, state or
local tax return of the Company or any Subsidiary. On the Closing Date,
and any Additional Closing Date, all stock transfer and other taxes
that are required to be paid in connection with the sale of the Firm
Securities, Additional Securities and Managing Underwriters' Warrant to
be sold by the Company or the Selling Stockholders will have been fully
paid by the Company and the Selling Stockholders and all laws imposing
such taxes will have been complied with.
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<PAGE> 20
ee. Except as set forth in the Prospectus, there are
no transactions with affiliates, as defined in Rule 405 promulgated
under the Securities Act, which are required by the Securities Act and
the applicable rules and regulations thereunder to be disclosed in the
Registration Statement.
ff. The Company has procured the written agreement of
the Selling Stockholders, and each officer, director and employee of
the Company or any Subsidiary who owns shares of Common Stock or
options or warrants to acquire shares of Common Stock and who is listed
on Schedule III attached hereto not to sell, offer to sell or contract
to sell, or otherwise dispose of or transfer, directly or indirectly,
any shares of Common Stock owned or controlled, or hereafter acquired,
by such persons, or any rights to purchase any of such shares of Common
Stock (other than in connection with a conversion, exercise or exchange
in which the holder retains the shares of Common Stock), for the period
beginning on the date hereof and ending (i) 180 days for all Selling
Stockholders and (ii) 120 days for each such officer, director and
employee who is not a Selling Stockholder, after the Effective Date
without the prior written consent of the Representative.
gg. No officer, director, nominee for director or
stockholder of the Company has any direct or indirect affiliation or
association with any member of the NASD.
hh. The Company and each of the Subsidiaries has its
property adequately insured against loss or damage by fire, maintains
adequate insurance against liability for negligence, and maintains such
other insurance in such nature and amounts of coverage as is usually
maintained by companies engaged in the same or similar business.
ii. To the Company's knowledge after reasonable
inquiry and investigation, the Company has not incurred any liability
for any finder's fees or similar payments in connection with any of the
transactions herein contemplated.
jj. Neither the Company, any of the Subsidiaries, nor
to the Company's knowledge after reasonable inquiry and investigation,
any of their respective officers, directors, employees, agents or any
other person acting on their behalf, has directly or indirectly, given
or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or an agent of a customer or supplier,
or official or employee of any governmental agency or instrumentality
of any government (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who was, is,
or may be in a position to help or hinder their respective businesses
(or assist in connection with any actual or proposed transaction) which
(a) reasonably may subject any of them to any damage or penalty in any
civil, criminal or governmental litigation or proceeding; (b) if not
given in the past, could have resulted in a Material Adverse Effect; or
(c) if not continued in the future, could reasonably be expected to
result in a Material Adverse Effect. The internal accounting controls
and procedures of the Company and the
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<PAGE> 21
Subsidiaries are sufficient to enable them to comply with the Foreign
Corrupt Practices Act of 1977, as amended.
kk. The Company has entered into the amended and
restated employment agreements with Lee Blatt, Chairman and Chief
Executive Officer of the Company, Myron Levy, President of the Company,
and Gerald I. Klein that are attached as exhibits to the Registration
Statement on the date hereof (collectively, the "Employment
Agreements"). The execution and delivery of the Employment Agreements
and the performance by the Company of its obligations under the
Employment Agreements has been duly and validly authorized by the
Company, and the Employment Agreements have been duly executed and
delivered by the Company and the employees that are parties thereto and
constitute the valid and legally binding agreements of the Company and
such employees, enforceable against and by the Company and such
employees in accordance with their terms subject to the Enforceability
Exceptions. No payment under any Employment Agreement will constitute
an "excess parachute payment" under Section 280G of the Internal
Revenue Code of 1986, as amended.
ll. The Company has amended and restated the Bylaws
as set forth as an exhibit to the Registration Statement on the date
hereof.
mm. As contemplated under Section 3.02 of the Joint
Venture Agreement, dated as of August 26, 1997 (the "ATI Agreement"),
between the Company and Advanced Techcom, Inc. ("ATI"), the Company and
ATI approached ATI's bank and requested such bank to increase ATI's
line of credit with the bank by $1,000,000 based upon the Company's
guarantee of such incremental borrowing or delivery of a letter of
credit with respect thereto. As the bank nevertheless declined to
increase the line of credit, the Company will not provide any financing
to ATI pursuant to the ATI Agreement or otherwise. In addition, the
Company has abandoned the ATI Agreement because of the bank's failure
to increase ATI's line of credit and for other reasons. The Company's
abandonment of the ATI Agreement will not have a Material Adverse
Effect.
nn. None of the execution, delivery and performance
of this Agreement, the issuance and sale of the Offered Securities, the
application of the proceeds from the issuance and sale of the Offered
Securities and the consummation of the transactions contemplated
thereby as set forth in the Prospectus, will violate Regulations G, T,
U or X promulgated by the Board of Governors of the Federal Reserve
System or analogous foreign laws and regulations.
oo. There exist no conditions that would constitute a
default by the Company or the Selling Stockholders (or an event which
with notice or the lapse of time, or both, would constitute a default)
under this Agreement or any of the other Operative Documents.
pp. The Company has applied for and obtained a CUSIP
number for the Warrants.
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<PAGE> 22
qq. The Company and the Subsidiaries have obtained
proper export licenses for all foreign sales and will obtain proper
export licenses for all future foreign sales.
rr. The Company has terminated its agreement with
Stonegate Securities, Inc., dated July 25, 1997, pursuant to its terms.
ss. Since July 28, 1996, the Company has not issued
any securities except pursuant to an issuance registered under the
Securities Act (with respect to securities registered or qualified
under the applicable state securities or Blue Sky laws) or exempt from
registration under the Securities Act (and registration or
qualification under applicable state securities or Blue Sky laws).
tt. The issuance of the Offered Securities
(including the issuance of shares of Common Stock upon the exercise of
the Warrants) and the issuance of the Managing Underwriters' Warrant
(including the issuance of shares of Common Stock and Warrants upon
the exercise thereof and the issuance of shares of Common Stock upon
the exercise of such Warrants) will not cause an anti-dilution event
to occur with respect to any of the Company's outstanding securities,
including any outstanding stock options or warrants.
Each certificate signed by an officer of the Company and
delivered to the Representative or counsel for the Representative shall be
deemed to be a representation and warranty by the Company to the Underwriters as
to the matters covered thereby.
7. REPRESENTATIONS AND WARRANTIES CONCERNING THE SELLING
STOCKHOLDERS. Each Selling Stockholder, severally, and not jointly, represents
and warrants to each Underwriter on the date hereof, and shall be deemed to
represent and warrant to each Underwriter on the Closing Date and any Additional
Closing Date, that:
a. All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Stockholder of
this Agreement and the Power of Attorney (the "Power of Attorney")
referred to in the last paragraph of this Section 7, and for the sale
and delivery of the Firm Shares to be sold by such Selling Stockholder
hereunder, have been obtained; and such Selling Stockholder has, as to
himself or herself the full right, power and authority to enter into
this Agreement and the Power of Attorney, and to sell, assign, transfer
and deliver the Firm Shares to be sold by such Selling Stockholder
hereunder.
b. This Agreement and the Power of Attorney have been
duly executed and delivered by such Selling Stockholder and constitute
the valid and binding agreements of such Selling Stockholder,
enforceable against such Selling Stockholder in accordance with their
respective terms subject to the Enforceability Exceptions.
c. The performance of this Agreement and the Power of
Attorney and the consummation of the transactions contemplated herein
and therein will not result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, voting trust agreement, note
agreement, lease or other agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder or his or
her properties are bound, or under any order, rule or regulation of
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<PAGE> 23
any court or governmental agency or body applicable to such Selling
Stockholder or his or her business or property.
d. Such Selling Stockholder has, and immediately
prior to the Closing Date such Selling Stockholder will have, good and
valid title to the Firm Shares to be sold by such Selling Stockholder
hereunder, free and clear of all liens, encumbrances, equities,
stockholder agreements, voting trusts or claims of any nature
whatsoever, and upon delivery of such Firm Shares and payment therefor
pursuant hereto, good and valid title to such Firm Shares, free and
clear of all liens, encumbrances, equities, stockholder agreements,
voting trusts or claims of any nature whatsoever, will pass to the
several Underwriters.
e. Such Selling Stockholder will not from the date
hereof until 180 days after the Effective Date, directly or indirectly,
sell, offer to sell, contract to sell or otherwise dispose of or
transfer any shares of Common Stock or rights to purchase shares of
Common Stock (other than in connection with a conversion, exercise or
exchange in which the holder retains the shares of Common Stock),
otherwise than hereunder without the prior written consent of the
Representative.
f. Such Selling Stockholder has not taken, directly
or indirectly, any action constituting or which might reasonably be
expected to constitute or result in, stabilization or manipulation of
the trading price of the Common Stock to facilitate the sale or resale
of the Offered Securities.
g. No consent, approval, authorization or order of,
or any filing of declaration with, any court or governmental agency or
body is required for the consummation by such Selling Stockholder of
the transactions on its part contemplated herein or in the Power of
Attorney, except such as have been obtained under the Securities Act
and such as may be required under state securities or Blue Sky laws or
the by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Firm Shares to be sold by such
Selling Stockholder.
h. All information with respect to such Selling
Stockholder contained in the Registration Statement, the Prepricing
Prospectus and the Prospectus (as amended or supplemented, if the
Company shall have filed with the Commission any amendment or
supplement thereto) complied and will comply in all material respects
with all applicable provisions of the Securities Act, contains and will
contain all statements required to be stated therein in accordance with
the Securities Act, and does not and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein not misleading.
i. Such Selling Stockholders have not distributed and
will not distribute any offering material in connection with the
offering and sale of the Offered Securities other than the Prepricing
Prospectus and the Prospectus.
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<PAGE> 24
j. On the Closing Date, all stock transfer and other
taxes (other than income taxes) that are required to be paid in
connection with the sale and transfer of the Firm Shares to be sold
by such Selling Stockholder to the several Underwriters hereunder will
have been fully paid for by such Selling Stockholder and all laws
imposing such taxes will have been fully complied with.
k. The Firm Shares to be sold to the Underwriters by
such Selling Stockholder were duly authorized and validly issued, are
fully paid and nonassessable, and were not issued in violation of any
preemptive or similar rights.
In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 with respect to the transactions herein contemplated, such Selling
Stockholder agrees to deliver to you at least two days prior to the Closing a
properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
Such Selling Stockholder acknowledges, represents and warrants
that it has duly executed and delivered a Power of Attorney, in the form
heretofore furnished to you, appointing Lee N. Blatt and Myron Levy as such
Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority
to execute and deliver this Agreement and any other agreements or documents
related to this offering on behalf of such Selling Stockholder, authorize the
delivery of the Firm Shares to be sold by such Selling Stockholder hereunder or
otherwise to act on behalf of such Selling Stockholder in connection with the
transactions contemplated by this Agreement. Prior to the date of this
Agreement, each Selling Stockholder has delivered to the Attorneys-in-Fact
certificates in negotiable form representing all the Firm Shares to be sold by
such Selling Stockholder hereunder, to be held by the Attorneys-in-Fact until
such time as the Attorneys-in-Fact shall deliver such Firm Shares to the
Underwriters, or if this Agreement is terminated prior to such delivery, to
return such Firm Shares to such Selling Stockholder. Each Selling Stockholder
specifically agrees that the Firm Shares represented by the certificates held in
custody with respect to such Selling Stockholder under the Power of Attorney are
subject to the interest of the Underwriters hereunder, and that the arrangements
made by such Selling Stockholder for the custody, and the appointment by such
Selling Stockholder of the Attorneys-in-Fact by the Powers of Attorney, are to
that extent irrevocable.
Each certificate signed by such Selling Stockholder, or by an
Attorney-in-Fact on behalf of such Selling Stockholder pursuant to the Power of
Attorney, and delivered to the Representative or counsel for the Representative
shall be deemed to be a representation and warranty by such Selling Stockholder
to the Underwriters as to the matters covered thereby.
8. EXPENSES. Whether or not the transactions contemplated
hereby are consummated or this Agreement becomes effective or is terminated, the
Company and the
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<PAGE> 25
Selling Stockholders, jointly and severally, shall be responsible for and shall
pay or cause to be paid the following: (i) all fees, disbursements and expenses
of the Company's and each Selling Stockholder's respective counsel and
accountants in connection with the registration of the Offered Securities under
the Securities Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof and of any Prepricing Prospectus to the Underwriters and dealers; (ii)
all registration and filing fees of the Commission; (iii) all printing and
delivery (including, without limitations postage, air freight charges and
charges for counting and packaging) of such copies of the Registration
Statement, the Prospectus, each Prepricing Prospectus, the Operative Documents,
the Blue Sky memoranda, the Agreement Among Underwriters, the Selected Dealers
Agreement, any ancillary agreements and documents, and all amendments or
supplements to any of them as may be reasonably requested for use in connection
with the offering and sale of the Firm Securities and Additional Securities;
(iv) all expenses in connection with the qualification of the Firm Securities
and Additional Securities for offering and sale under state securities laws or
Blue Sky laws, including the reasonable fees of the counsel for the Underwriters
in connection therewith; (v) all filing fees incident to securing the review by
the NASD of the terms of the sale of the Offered Securities; (vi) all Nasdaq
National Market listing, designation and other filing fees; (vii) all costs of
preparing stock and warrant certificates; (viii) all costs and charges of any
transfer agent, warrant agent or registrar; (ix) all costs of the tax stamps, if
any, in connection with the issuance and delivery of the Firm Securities and
Additional Securities to the respective Underwriters; (x) all expenses in
connection with the "road shows"; (xi) all fees, disbursements and expenses of
the Warrant Agent's counsel in connection with the review of the Warrant
Agreement; (xii) all other fees, costs and expenses referred to in Item 13 of
the Registration Statement, except that the Financial Advisory Fee shall only be
payable if the Closing occurs; and (xiii) all other costs and expenses incurred
in the performance of the obligations of the Company and the Selling
Stockholders hereunder that are not otherwise specifically provided for in this
section. In addition, in the event that the proposed offering is terminated for
the reasons set forth in Section 5(j) hereof, the Company agrees to reimburse
the Underwriters as provided in Section 5(j).
9. INDEMNIFICATION AND CONTRIBUTION. The Company and each of
the Selling Stockholders, jointly and severally, agree to indemnify and hold
harmless you and each other Underwriter, the directors, officers, employees and
agents of each Underwriter, and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable attorneys' fees and costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or in any application or other document executed by the Company or any
Selling Stockholder, or arising out of or based upon any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or arising out of or based upon any
inaccuracy in the representations and warranties of the Company or any of the
Selling Stockholders contained herein or any failure of the Company or any of
the Selling Stockholders to perform their respective obligations under
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<PAGE> 26
this Agreement, any other Operative Document, or applicable law, except insofar
as such losses, claims, damages, liabilities or expenses arise out of or are
based upon an untrue statement or omission or alleged untrue statement or
omission that has been made in any Prepricing Prospectus, the Registration
Statement, or the Prospectus or omitted therefrom in reliance upon and in
conformity with the information furnished in writing to the Company by or on
behalf of any Underwriter through you expressly for use in connection therewith;
provided, however, that with respect to any untrue statement or omission made in
any Prepricing Prospectus, the indemnity agreement contained in this paragraph
shall not inure to the benefit of any Underwriter (or to the benefit of any
other person entitled to such indemnification) from whom the person asserting
any such losses, claims, damages or liabilities purchased the Offered Securities
concerned if both (i) a copy of the Prospectus was not sent or given to such
person at or prior to the written confirmation of the sale of such Offered
Securities to such person as required by the Securities Act, and (ii) the untrue
statement or omission in the Prepricing Prospectus was corrected in the
Prospectus. Notwithstanding anything in this Section 9, in no event shall any
Selling Stockholder's obligation under the preceding sentence exceed the total
net proceeds from the offering received by such Selling Stockholder (it being
agreed that the Company shall bear the balance.)
If any action or claim shall be brought against any
Underwriter, any director, officer, employee or agent of any Underwriter, or any
person controlling any Underwriter (the "indemnified parties") in respect of
which indemnity may be sought against the Company and the Selling Stockholders
(the "indemnifying parties"), the indemnified party shall promptly notify in
writing the indemnifying parties, and such indemnifying parties shall assume the
defense thereof, including the employment of counsel reasonably acceptable to
the indemnified party and payment of all fees and expenses. The indemnified
party shall have the right to employ separate counsel (but the indemnifying
parties shall not be liable for the fees and expenses of more than one counsel)
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying parties have agreed in writing to pay such fees and
expenses, (ii) the indemnifying parties have failed to assume the defense and
employ counsel reasonably acceptable to the indemnified party or (iii) the named
parties to any such action (including any impleaded parties) include the
indemnified party and the indemnifying parties, and the indemnified party shall
have been advised by its counsel that one or more legal defenses may be
available to the indemnified party that may be unavailable to the indemnifying
parties, or that representation of such indemnified party and any indemnifying
parties by the same counsel would be inappropriate under applicable standards of
professional conduct due to actual or potential differing interests between them
(in which case the indemnifying parties shall not have the right to assume the
defense of such action on behalf of the indemnified party (notwithstanding their
obligation to bear the fees and expenses of such counsel)). The indemnifying
parties shall not be liable for any settlement of any such action effected
without their written consent, which may not be unreasonably withheld, but if
settled with such written consent, or if there be a final judgment for the
plaintiff in any such action, the indemnifying parties agree to indemnify and
hold harmless any indemnified party from and against any loss, claim, damage,
liability or expense by reason of such settlement or judgment, but in the case
of a judgment only to the extent provided in this Section 9.
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<PAGE> 27
Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
and the Selling Stockholders, to the same extent as the foregoing indemnity from
the Company and the Selling Stockholders, but only with respect to information
furnished in writing by or on behalf of such Underwriter through you expressly
for use in the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto. If any action or claim shall
be brought or asserted against the Company, any of its directors, any such
officers, any such controlling person or the Selling Stockholders based on the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto, and in respect of which indemnity may be sought
against any Underwriter pursuant to this paragraph, such Underwriter shall have
the rights and duties of the indemnifying party in the preceding paragraph
(except that if the Company shall have assumed the defense thereof such
Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof), and the Company, its directors,
any such officers, and any such controlling persons and the Selling Stockholders
shall have the rights and duties given to the indemnified party in such
paragraph.
If the indemnification provided for in this Section 9 is
unavailable or insufficient for any reason whatsoever in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then the persons
otherwise responsible for providing such indemnification shall contribute to the
amount paid or payable by the persons otherwise entitled to such indemnification
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and each of the Selling Stockholders on the one hand and
the Underwriters on the other hand from the offering of the Offered Securities
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
the Company and the Selling Stockholders on the one hand and the Underwriters on
the other hand in connection with the statements or omissions that resulted in
such losses, claims, damages, liabilities or expenses, 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 proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus; provided that, in the event that the Underwriters shall have
purchased any Additional Securities hereunder, any determination of the relative
benefits received by the Company and the Selling Stockholders or the
Underwriters from the offering of the Offered Securities shall include the net
proceeds (before deducting expenses) received by the Company, and the
underwriting discounts and commissions received by the Underwriters, from the
sale of such Additional Securities, in each case computed on the basis of the
respective amounts set forth in the notes to the table on the cover page of the
Prospectus. The relative fault of the Company and the Selling Stockholders on
the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the
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Company and the Selling Stockholders on the one hand or by the Underwriters on
the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, each of the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by a pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
as a result of the losses, claims, damages, liabilities and expenses referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably incurred
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
underwriting discounts and commissions with respect to the Firm Securities and
Additional Securities underwritten by it and distributed to the public exceeds
the amount of any damages which such Underwriter has otherwise been required to
pay with respect to the public offering. 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 to contribute
pursuant to this Section 9 are several in proportion to the respective numbers
of Firm Shares set forth opposite their names in Schedule I hereto (or such
numbers of Firm Shares increased as set forth in Section 11 hereof), and not
joint.
Notwithstanding anything to the contrary in this Section 9,
any losses, claims, damages, liabilities or expenses for which a person is
entitled to indemnification or contribution under this Section 9 shall be paid
by the person required to provide such indemnification or contribution as such
losses, claims, damages, liabilities or expenses are incurred. The indemnity,
contribution and reimbursement agreements contained in this Section 9 and the
representations and warranties of the Company and each of the Selling
Stockholders, respectively, set forth in this Agreement shall remain operative
and in full force and effect, regardless of (i) any investigation made by or on
behalf of any Underwriter, any person controlling any Underwriter, the Company,
its directors or officers, any person controlling the Company or any of the
Selling Stockholders, (ii) acceptance of any Firm Securities and Additional
Securities and payment therefor hereunder and (iii) any termination of this
Agreement. A successor to any Underwriter, any person controlling any
Underwriter, the Company, its directors or officers, any person controlling the
Company or any of the Selling Stockholders, shall be entitled to the benefits of
the indemnity, contribution and reimbursement agreements contained in this
Section 9.
Any controversy arising out of the operation of the interim
reimbursement arrangements set forth in this Section 9, including the amounts of
any requested reimbursement payments and the method of determining such amounts,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock Exchange,
Inc. or pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
written notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding
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arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration will be limited to the operation of the
interim reimbursement provisions contained in this Section 9, and will not
resolve the ultimate propriety or enforceability of the obligation to reimburse
expenses created by the provisions of this Section 9.
10. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Securities hereunder are
subject to the following conditions:
a. The Registration Statement shall have become
effective not later than 10:00 a.m. New York City time, on the day
following the date hereof, or at such later date and time as shall be
consented to in writing by you, and all filings required by Rules
424(b) and 430A under the Securities Act shall have been timely made.
b. You shall be reasonably satisfied that since the
respective dates as of which information is given in the Registration
Statement and Prospectus, (i) there shall not have been any change in
the capital stock (other than pursuant to the exercise of outstanding
options disclosed in the Prospectus or granted under the stock option
plans described in the Prospectus) of the Company or any of the
Subsidiaries or any material change in the indebtedness (other than in
the ordinary course of business) of the Company or any of the
Subsidiaries, (ii) except as set forth or contemplated by the
Registration Statement or the Prospectus, no material verbal or written
agreement or other transaction shall have been entered into by the
Company or any of the Subsidiaries that was not in the ordinary course
of business or that could reasonably be expected to result in a
material reduction in the future earnings of the Company and the
Subsidiaries, (iii) no loss or damage (whether or not insured) to the
property of the Company or any of the Subsidiaries shall have been
sustained that has a Material Adverse Effect, (iv) no legal or
governmental action, suit or proceeding affecting the Company or any of
the Subsidiaries that is material to the Company and the Subsidiaries
or that affects or could reasonably be expected to affect the
transactions contemplated by this Agreement shall have been instituted
or threatened, and (v) there shall not have been any material change in
the condition (financial or otherwise), business, management,
properties, net worth, results or operations or prospects of the
Company and the Subsidiaries.
c. You shall have received an opinion of Blau,
Kramer, Wactlar & Lieberman, P.C., counsel for the Company and the
Selling Stockholders, dated the Closing Date, in form and substance
reasonably satisfactory to you and your counsel, to the effect that:
(i) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware, with full power and authority to own, lease
and operate its properties and to conduct its business as
presently conducted and as described in the Registration
Statement and the Prospectus (and any amendment or supplement
thereto), and is duly registered and
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qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties
or the conduct of its business requires such registration or
qualification, except where the failure to so register or
qualify does not have a Material Adverse Effect.
(ii) The Company has no subsidiaries material to its
operations or business other than the Subsidiaries set forth
in Exhibit 21.1 to the Registration Statement; and each of the
Subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of the
jurisdiction of its organization, with full power and
authority to own, lease and operate its properties and to
conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement
thereto); and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its
business requires such registration or qualification, except
where the failure to so register or qualify does not have a
Material Adverse Effect; and all of the outstanding shares of
capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and
nonassessable, and are owned by the Company directly, or
indirectly through one of the other Subsidiaries, free and
clear of any perfected security interest, or to the knowledge
of such counsel, any other security interest, lien, adverse
claim, equity or other encumbrance.
(iii) The authorized capital stock of the Company,
including the Common Stock and the Warrants, conforms in all
material respects to the description thereof under the caption
"Description of Securities" in the Prospectus and such
statements present fairly the matters respecting such
securities required to be set forth in the Registration
Statement and the Prospectus.
(iv) All of the outstanding shares of Common Stock
have been, and as of the Closing Date will be, duly authorized
and validly issued, are fully paid and nonassessable and free
of preemptive rights; the Firm Shares and Additional Shares to
be issued and sold to the Underwriters by the Company
hereunder have been duly authorized, and when issued and
delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued,
fully paid and nonassessable and free of any preemptive
rights; and the delivery of certificates for the Firm Shares
and the Additional Shares pursuant to the terms of this
Agreement and payment for the Firm Shares and the Additional
Shares will pass valid title to the Firm Shares and the
Additional Shares, free and clear of any claim, encumbrance or
defect in title to the several Underwriters purchasing the
Firm Shares and the Additional Shares, assuming that such
Underwriters purchased such shares in good faith and without
notice of any adverse claim.
(v) The Firm Shares to be sold to the Underwriters
by the Selling Stockholders were duly authorized and validly
issued, are fully paid and
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nonassessable, and were not issued in violation of any
preemptive or similar rights.
(vi) (A) The Registration Statement has become
effective under the Securities Act, and to the knowledge of
such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or
contemplated by the Commission; (B) the Registration Statement
and the Prospectus and each amendment or supplement thereto
(except for the financial statements and the notes thereto,
schedules, and other financial and statistical data included
therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the
requirements of the Securities Act; and (C) to the knowledge
of such counsel, the descriptions in the Prospectus of
statutes, regulations and governmental proceedings insofar as
they purport to summarize certain of the provisions thereof,
are accurate and present fairly in all material respects the
information required to be presented.
(vii) Neither the Company nor any of the Subsidiaries
is in violation of its certificate or articles of
incorporation or bylaws, or other organizational documents, or
to the knowledge of such counsel, of any law, ordinance,
administrative or governmental rule or regulation applicable
to the Company or any of the Subsidiaries or of any decree of
any court or governmental agency or body having jurisdiction
over the Company or any of the Subsidiaries, or to the
knowledge of such counsel, in default in the performance of
any obligation, agreement or condition contained in (A) any
bond, debenture, note or any other evidence of indebtedness,
or (B) any agreement, indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by
which any of them or any of their respective properties may be
bound; and to the knowledge of such counsel, there does not
exist any state of facts that constitutes an event of default
on the part of the Company or any Subsidiary as defined in
such documents or which, with notice or lapse of time or both,
would constitute such an event of default.
(viii) The execution and delivery of this Agreement and
the performance by the Company of its obligations under this
Agreement, including the issuance and sale of the Offered
Securities on the terms set forth in this Agreement, have been
duly and validly authorized by the Company, and this Agreement
has been duly executed and delivered by the Company.
(ix) The execution and delivery of the Warrant
Agreement and the performance by the Company of its
obligations under the Warrant Agreement have been duly and
validly authorized by the Company, and the Warrant Agreement
has been duly executed and delivered by the Company, and
assuming due authorization, execution and delivery by each of
the other parties thereto, constitutes the valid and legally
binding agreement of the Company, enforceable
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against the Company in accordance with its terms subject to
the Enforceability Exceptions.
(x) The execution and delivery of the Managing
Underwriters' Warrant Agreement and the performance by the
Company of its obligations under the Managing Underwriters'
Warrant Agreement have been duly and validly authorized by the
Company, and the Managing Underwriters' Warrant Agreement has
been duly executed and delivered by the Company, and assuming
due authorization, execution and delivery by each of the other
parties thereto, constitutes the valid and legally binding
agreement of the Company, enforceable against the Company in
accordance with its terms subject to the Enforceability
Exceptions.
(xi) The execution and delivery of the Registration
Rights Agreement and the performance by the Company of its
obligations under the Registration Rights Agreement have been
duly and validly authorized by the Company, and the
Registration Rights Agreement has been duly executed and
delivered by the Company, and assuming due authorization,
execution and delivery by each of the other parties thereto,
constitutes the valid and legally binding agreement of the
Company, enforceable against the Company in accordance with
its terms subject to the Enforceability Exceptions.
(xii) Such counsel has reviewed all agreements,
contracts, indentures, leases or other documents or
instruments referred to in the Registration Statement and the
Prospectus and such agreements, contracts, indentures, leases
or other documents or instruments are fairly summarized and
disclosed therein, and filed as exhibits thereto as required,
and such counsel does not know of any agreements, contracts,
indentures, leases or other documents or instruments required
to be so summarized and disclosed or filed which have not been
so summarized, disclosed and filed.
(xiii) The Warrants have been duly and validly
authorized by the Company for issuance and sale pursuant to
this Agreement, and when issued and countersigned in
accordance with the terms of the Warrant Agreement and
delivered against payment therefor in accordance with the
terms hereof and thereof, will be validly issued and the
legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms
subject to the Enforceability Exceptions; the Company has duly
reserved a sufficient number of its shares of Common Stock for
the issuance of the Warrant Shares upon the exercise of the
Warrants; the Company has duly and validly authorized the
issuance of such Warrant Shares upon the exercise of the
Warrants; upon the exercise of the Warrants and the
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payment of the exercise price thereof, the respective Warrant
Shares will be validly issued, fully paid and nonassessable,
and not issued in violation of any preemptive or similar
rights.
(xiv) The Managing Underwriters' Warrant has been
duly and validly authorized by the Company for issuance and
sale pursuant to this Agreement, and when payment is made
therefor in accordance with the terms hereof and the Managing
Underwriters' Warrant Agreement and assuming due
authorization, execution and delivery by each other party
thereto, will be validly issued and the legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms subject to the
Enforceability Exceptions; the Company has duly reserved a
sufficient number of its shares of Common Stock for the
issuance of the shares of Common Stock upon the exercise of
the Managing Underwriters' Warrant, including the shares of
Common Stock issuable upon the exercise of the Warrants
issuable upon the exercise of the Managing Underwriters'
Warrant; the Company has duly and validly authorized the
issuance of the shares of Common Stock upon the exercise of
the Managing Underwriters' Warrant, including the shares of
Common Stock issuable upon the exercise of the Warrants
issuable upon the exercise of the Managing Underwriters'
Warrant; upon the exercise of the Managing Underwriters'
Warrant and the shares of Common Stock issuable upon the
exercise of the Warrants issuable upon the exercise of the
Managing Underwriters' Warrant, and the payment of the
exercise price thereof, the respective shares of Common Stock
will be validly issued, fully paid and nonassessable, and not
issued in violation of any preemptive or similar rights; and
the Managing Underwriters' Warrant conforms in all material
respects to the description thereof contained in the
Prospectus.
(xv) To the knowledge of such counsel, neither the
issuance and sale of the Offered Securities, the execution,
delivery or performance of this Agreement and the other
Operative Documents by the Company nor the consummation by the
Company of the transactions contemplated hereby or thereby (A)
requires any consent, approval, authorization or other order
of, or registration or filing with, any court, regulatory
body, administrative agency or other governmental body, agency
or official or conflicts with or will conflict with or
constitutes or will constitute a breach of, or a default
under, the certificate or articles of incorporation or bylaws,
or other organizational documents, of the Company or any of
the Subsidiaries (other than approval or consent required
under the securities laws or
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state blue sky laws) or (B) conflicts or will conflict with or
constitutes a breach of, or a default under, any agreement,
indenture, lease or other instrument to which the Company or
any of the Subsidiaries is a party or by which any of them or
any of their respective properties may be bound, or violates
any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or any
of the Subsidiaries or any of their respective properties, or
results in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any
of the Subsidiaries pursuant to the terms of any agreement or
instrument to which any of them is a party or by which any of
them may be bound or to which any of the property or assets of
any of them is subject.
(xvi) To the knowledge of such counsel, except as
described in the Prospectus, the Company does not have
outstanding any options to purchase, or any warrants to
subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any
shares of Common Stock or any such options, warrants or
convertible securities or obligations.
(xvii) Except as set forth in the Prospectus, to the
knowledge of such counsel, the Company and each of the
Subsidiaries has good and marketable title to all property
(real and personal) described in the Prospectus as being owned
by it, free and clear of all liens, claims, security interests
or other encumbrances except (A) such as are described in the
financial statements included in the Prospectus or (B) such as
are not materially burdensome and do not interfere in any
material respect with the conduct of the business of the
Company and the Subsidiaries taken as a whole; to the
knowledge of such counsel the property (real and personal)
held under lease by each of the Company and the Subsidiaries
is held by it under valid, subsisting and enforceable leases,
with only such exceptions as in the aggregate are not material
and do not interfere in any material respect with the conduct
of the business of the Company and the Subsidiaries taken as a
whole.
(xviii) To the knowledge of such counsel, (A) there
are no legal or governmental proceedings pending or threatened
against the Company or any of the Subsidiaries, or to which
the Company or any of the Subsidiaries, or any of their
property, is subject, that are required to be described in the
Registration Statement or Prospectus (or any amendment or
supplement thereto) that are not described as required
therein, and (B) there are no agreements, contracts,
indentures, leases or other instruments that are required to
be described in the Registration Statement or the Prospectus
or to be filed as an exhibit to the Registration Statement
that are not described or filed as required, as the case may
be.
(xix) To the knowledge of such counsel, neither the
Company nor any of the Subsidiaries is in violation of any
law, ordinance, administrative or
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governmental rule or regulation applicable to the Company
or any of the Subsidiaries or of any decree of any court or
governmental agency or body having jurisdiction over the
Company or any of the Subsidiaries.
(xx) The Company is not an "investment company" under
the Investment Company Act of 1940, as amended, and if the
Company conducts its business and uses the proceeds of the
offering as set forth in the Prospectus, will not become an
"investment company" and will not be required to register
under such act.
(xxi) To the knowledge of such counsel, the Company
and each of the Subsidiaries have all permits as are
necessary to own their respective properties and to conduct
their respective businesses substantially in the manner
described in the Prospectus, the Company and each of the
Subsidiaries have fulfilled and performed all of their
obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would
allow, revocation or termination of any such permit or result
in any other material impairment of the rights of the holder
of any such permit.
(xxii) The forms of certificates for the Common Stock
and the Warrants conform in all material respects with the
requirements of the Delaware General Corporation Law.
(xxiii) To the knowledge of such counsel, no consent,
approval, authorization or order has been or is required for
the performance of this Agreement and the Powers of Attorney
by each of the Selling Stockholders or the consummation of the
transactions contemplated by this Agreement and the Powers of
Attorney in connection with the Firm Shares to be sold by the
Selling Stockholders hereunder, except consents, approvals,
authorizations or orders that have been duly obtained and are
in full force and effect.
(xxiv) This Agreement and the Powers of Attorney have
been duly executed and delivered by each Selling Stockholder;
the Powers of Attorney constitute the valid and binding
agreements of such Selling Stockholders and assuming due
authorization, execution, and delivery by each other party
thereto, are enforceable against the Selling Stockholders in
accordance with their respective terms subject to the
Enforceability Exceptions; and the performance of this
Agreement and the Powers of Attorney and the consummation of
the transactions contemplated herein and therein will not
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, voting trust agreement,
note agreement, lease or other
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<PAGE> 36
agreement or instrument of which such counsel is aware to
which any of the Selling Stockholders is a party or by which
any of the Selling Stockholders or their properties are bound,
or under any order, rule or regulation, known to such counsel,
of any court or governmental agency or body applicable to any
of the Selling Stockholders or the business or property of any
of the Selling Stockholders.
(xxv) Each Selling Stockholder has good and valid title
to the Firm Shares to be sold by such Selling Stockholder
hereunder, free and clear of all liens, encumbrances,
equities, stockholder agreements, voting trusts or claims of
any nature whatsoever, and upon delivery of such Firm Shares
and payment therefor pursuant hereto, good and valid title to
such Firm Shares, free and clear of all liens, encumbrances,
equities, stockholder agreements, voting trusts or claims of
any nature whatsoever, will pass to the several Underwriters.
In rendering such opinion, counsel may rely, to the
extent such counsel deems such reliance proper, upon an opinion or
opinions, each dated the Closing Date, of other counsel as to matters
governed by the laws of jurisdictions other than the United States or
the States of Delaware or New York, provided that (i) each such local
counsel is acceptable to you and your counsel, (ii) counsel shall state
in its opinion that it believes that it and you are justified in
relying thereon, and (iii) such reliance is expressly authorized by
each opinion so relied upon and a copy of each such opinion is
delivered to you and is in form and substance satisfactory to you and
your counsel. In rendering such opinion, counsel may rely, to the
extent such counsel deems such reliance proper, as to matters of fact
upon certificates of officers of the Company, the Selling Stockholders,
and government officials. Copies of all such certificates shall be
acceptable to you and your counsel and furnished to you and your
counsel at the Closing.
In addition, such counsel shall state that such
counsel has participated in conferences with officers and other
representatives of the Company, counsel for the Underwriters,
representatives of the independent public accountants for the Company,
and the Underwriters, at which the contents of the Registration
Statement and Prospectus and related matters were discussed, and
although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and Prospectus, on
the basis of the foregoing, no facts have come to such counsel's
attention that lead such counsel to believe (i) that the Registration
Statement or any amendment or supplement thereto (other than the
financial statements, schedules and reports thereon, and other
financial and statistical data included therein, as to which such
counsel need not comment), as of its effective date, contained an
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 (ii) that the Prospectus or any amendment or
supplement thereto (other than financial statements, schedules and
reports thereon, and other financial and statistical data included
therein, as to which such counsel need not comment), as of its issue
date and as of the Closing Date, contained or contains an untrue
statement of a material fact or
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<PAGE> 37
omitted or omits to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
d. You shall have received an opinion of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., as counsel for the Underwriters, dated
the Closing Date, with respect to such matters related to this offering
as you may reasonably request, and the Company and its counsel shall
have furnished to your counsel such documents as your counsel may
reasonably request for the purpose of enabling your counsel to pass
upon such matters.
e. You shall have received comfort letters addressed
to you and dated the date hereof and the Closing Date from Arthur
Andersen LLP, independent certified public accountants, in the forms
heretofore approved by you.
f. No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall be pending, threatened or contemplated by the
Commission; no order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Offered
Securities under the securities or Blue Sky laws of any jurisdiction
shall be in effect and no proceeding for such purpose shall be pending,
threatened or contemplated by the Commission or the authorities of any
jurisdiction; any request for additional information on the part of the
staff of the Division of Corporation Finance of the Commission or any
such authorities shall have been complied with to the satisfaction of
such staff or such authorities; after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have
been filed unless a copy thereof was first submitted to you and you did
not object thereto in good faith; and all of the representations and
warranties of the Company contained in this Agreement shall be true and
correct in all respects on and as of the date hereof and on and as of
the Closing Date as if made on and as of the Closing Date, and you
shall have received a certificate, dated the Closing Date and signed by
the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you) to the effect
set forth in this Section 10(f) and in Sections 10(b) and 10(g) hereof.
g. Neither the Company nor any Selling Stockholder
shall have failed in any respect at or prior to the Closing Date to
have performed or complied with any of such person's agreements herein
contained and required to be performed or complied with by such person
hereunder at or prior the Closing Date.
h. You shall have received a certificate, dated on
and as of the Closing Date, by or on behalf of the Selling Stockholders
to the effect that as of the Closing Date each Selling Stockholder's
representations and warranties in this Agreement are true and correct
as if made on and as of such Closing Date, and that each Selling
Stockholder has performed all of his or her obligations and satisfied
all the conditions on his or her part to be performed or satisfied at
or prior to the Closing Date.
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i. The Company and each of the Selling Stockholders
shall have furnished or caused to have been furnished to you such
further certificates and documents as you shall have reasonably
requested.
j. At or prior to the Closing Date, you shall have
received the written commitment of each of the individuals named on
Schedule III hereto not to sell, offer to sell, contract to sell, or
otherwise dispose of or transfer any shares of Common Stock or rights
to purchase any shares of Common Stock (other than in connection with a
conversion, exercise or exchange in which the holder retains the shares
of Common Stock), directly or indirectly, except to the Underwriters
pursuant to this Agreement, for a period of (i) 180 days for each
Selling Stockholder, and (ii) 120 days for the officers, directors and
employees who are not Selling Stockholders, after the Effective Date
without the prior written consent of the Representative.
k. Prior to the date of this Agreement, the issuance
and sale of the Offered Securities to be sold by the Company and the
Managing Underwriters' Warrant shall have been approved by all
requisite corporate action of the Company.
l. The NASD shall have indicated that it had no
objection to the underwriting arrangements pertaining to the sale of
the Firm Securities and the Additional Securities and the participation
by the Underwriters in the sale thereof.
m. No action shall have been taken by the Commission
or the NASD the effect of which would make it improper for members of
the NASD to execute transactions (as principal or agent) in any of the
Offered Securities, and no proceedings for the taking of such action
shall have been instituted or shall be pending or contemplated by the
Commission or the NASD.
n. The Company and the Warrant Agent shall have
entered into the Warrant Agreement and the Representative shall have
received counterparts, conformed as executed, thereof.
o. The Company and the Managing Underwriters shall
have entered into the Managing Underwriters' Warrant Agreement and the
Representative shall have received counterparts, conformed as executed,
thereof.
p. The Company and the Managing Underwriters shall
have entered into the Registration Rights Agreement and the
Representative shall have received counterparts, conformed as executed,
thereof.
q. The Warrants shall have been approved for listing
on the Nasdaq National Market.
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<PAGE> 39
r. The Company and Lee N. Blatt, Myron Levy, and
Gerald I. Klein shall have entered into the respective Employment
Agreements and the Representative shall have received counterparts,
conformed as executed, thereof.
s. The Company shall have amended its Bylaws as set
forth in the exhibit included in the Registration Statement.
t. Lee N. Blatt, Myron Levy, and Gerald I. Klein
shall have repaid all indebtedness owed to the Company or any
Subsidiary, including the indebtedness evidenced by their
non-negotiable promissory notes payable to the Company set forth as
exhibits to the Registration Statement on the date hereof.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
The several obligations of the Underwriters to purchase
Additional Securities hereunder are subject to the satisfaction on and as of
each Additional Closing Date of the conditions set forth in this Section 10,
except that if an Additional Closing Date is other than the Closing Date, the
certificates, opinions and letters shall be as of such Additional Closing Date.
If any of the conditions hereinabove provided for in this
Section 10 shall not have been satisfied when and as required by this Agreement,
this Agreement may be terminated by you by notifying the Company and the Selling
Stockholders of such termination in writing (which you may deliver by facsimile
transmission) prior to the Closing, but you shall be entitled to waive any of
such conditions.
11. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective upon execution and delivery by all of the parties hereto and the
release of notification of the effectiveness of the Registration Statement by
the Commission; provided, however, that the provisions of Sections 8 and 9 shall
at all times be effective following the execution and delivery of this Agreement
by the parties hereto.
If any one or more of the Underwriters shall fail or refuse to
purchase Firm Securities that it or they have agreed to purchase hereunder, and
the aggregate number of Firm Securities that such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of the Firm Securities, each non-defaulting Underwriter
shall be obligated, severally, in the proportion that the number of Firm
Securities set forth opposite its name in Schedule I hereto bears to the
aggregate number of Firm Securities set forth opposite the names of all
nondefaulting Underwriters or in such other proportion as you may specify in the
Agreement Among Underwriters, to purchase the Firm Securities that such
defaulting Underwriter or Underwriters agreed, but failed or refused to
purchase. In that event, the Representative, for the accounts of the several
nondefaulting Underwriters, may take up and pay for all or any part of such Firm
Securities to be purchased by each nondefaulting Underwriter under this section,
and may postpone the Closing Date to a time
-39-
<PAGE> 40
not exceeding three full business days after the Closing Date determined as
provided in Section 4 of this Agreement. If any Underwriter or Underwriters
shall fail or refuse to purchase Firm Securities and the aggregate number of
Firm Securities with respect to which such default occurs is more than one-tenth
of the aggregate number of Firm Securities and the nondefaulting Underwriters do
not purchase such Firm Securities, another person or persons to substitute for
the defaulting Underwriters and purchase such Firm Securities is not found, or
other arrangements satisfactory to you, the Company and the Selling Stockholders
for the purchase of such Firm Securities are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
nondefaulting Underwriter, the Company or the Selling Stockholders. In any such
case that does not result in termination of this Agreement, either you or the
Company and each of the Selling Stockholders shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. As used in this Agreement,
the term "Underwriter" includes any person substituted for an Underwriter under
this Section 11. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement.
12. TERMINATION OF AGREEMENT. This Agreement shall be subject
to termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or any of the Selling Stockholders by notice to the
Company and each of the Selling Stockholders, if on or prior to the Closing Date
or the Additional Closing Date (if different from the Closing Date and then only
as to the Additional Securities), as the case may be, in your sole judgment, (i)
trading in the Common Stock or the Warrants shall have been suspended by the
Commission or the Nasdaq National Market; (ii) trading in securities generally
on the New York Stock Exchange, American Stock Exchange or Nasdaq National
Market shall have been suspended or materially limited, or minimum or maximum
prices shall have been generally established on such exchange or market, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by any
such exchange or market or by order of the Commission or any court or other
governmental authority; (iii) a general moratorium on commercial banking
activities shall have been declared by either federal or New York state
authorities; (iv) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions or other material event the effect
of which on the financial markets of the United States is such as to make it, in
your judgment, impracticable or inadvisable to market the Offered Securities or
to enforce contracts for the sale of the Offered Securities; (v) except as set
forth in the Prospectus, there shall be pending or threatened against the
Company or any of the Subsidiaries or notification has been received by the
Company or any of the Subsidiaries of the threat of any material legal or
governmental proceeding or action relating generally to the business or
prospects of the Company or any of the Subsidiaries which could have a Material
Adverse Effect (including action with respect to credit or interest rates) or
which in your reasonable judgment makes it impracticable or inadvisable to
proceed with the offering; (vi) any of the certificates, opinions or other
documents to be delivered on the date of this Agreement or at the Closing Date
(or the Additional Closing Date with respect to any Additional Securities) are
not in form reasonably satisfactory to counsel to the Underwriters; (vii) any
conditions set forth
-40-
<PAGE> 41
in Section 10 of this Agreement shall not have been satisfied; or (viii) the
Company is merged or consolidated or all or substantially all of the capital
stock or assets of the Company are acquired by another company or group, or
there exists a binding legal commitment for the foregoing or any other material
change of ownership or control occurs.
13. INFORMATION FURNISHED BY THE UNDERWRITERS. The Company and
the Selling Stockholders acknowledge that the statements set forth in the last
paragraph on the cover page of the Prospectus and in the third, fifth, sixth and
seventh paragraphs under the caption "Underwriting" in any Prepricing Prospectus
and in the Prospectus, constitute the only information furnished by or on behalf
of the Underwriters through you or on your behalf as such information is
referred to in Sections 6(a), 6(b) and 9 hereof.
14. MISCELLANEOUS. Notice given pursuant to any of the
provisions of this Agreement shall be in writing and shall be delivered (i) if
to the Company or the Selling Stockholders, to the office of the Company at 10
Industry Drive, Lancaster, Pennsylvania 17603, Attention: Myron Levy, President,
Facsimile Number (717) 397-9503 (with a copy to Blau, Kramer, Wactlar &
Lieberman, P.C., 100 Jericho Quadrangle, Suite 225, Jericho, New York 11753,
Attention: David H. Lieberman, Esquire, Facsimile Number (516) 822-5609), or
(ii) if to you, as Representative of the Underwriters, to Janney Montgomery
Scott Inc., 26 Broadway, New York, New York 10004-1776 Attention: Herbert M.
Gardner, Senior Vice President, Facsimile Number (212) 510-0683 (with copy to
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue, Suite 4100,
Dallas, Texas 75201-4675, Attention: Terry M. Schpok, P.C., Facsimile Number
(214) 969-4343).
This Agreement has been and is made solely for the benefit of
the several Underwriters, the Company, the Selling Stockholders, the other
persons entitled to indemnification and contribution under Section 9 hereof, and
their respective successors and assigns. No other person shall acquire or have
any right under or by virtue of this Agreement. Neither of the terms "successor"
and "successors and assigns" as used in this Agreement shall include a purchaser
from any Underwriter of any of the Offered Securities solely by reason of such
person's status as such a purchaser.
This Agreement constitutes the entire agreement, and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties with respect to the subject matter hereof, except for the
section of the Letter of Intent, dated October 30, 1997, between the Company and
you, entitled "Investment Banking Agreement," which shall remain in full force
and effect.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to choice of
law principles thereunder. Time is of the essence in this Agreement.
All representations and warranties, covenants and agreements
of the Company and the Selling Stockholders contained in this Agreement shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Underwriters and shall
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<PAGE> 42
survive delivery of and payment for the Offered Securities to and by the
Underwriters. The agreements contained in Sections 5(j), 8 and 9 shall survive
the termination of this Agreement, including any termination pursuant to Section
12.
For purposes of this Agreement, any representation and
warranty concerning the Company or any Subsidiary concerning any liabilities,
obligations, or violations of the Company or such Subsidiary shall be deemed to
refer to the Company and each of its predecessors or such Subsidiary and each of
its predecessors, respectively.
The Company, each of the Selling Stockholders and the
Underwriters each hereby irrevocably waive any right they may have to a trial by
jury in respect to any claim based upon or arising out of this Agreement or the
transactions contemplated hereby.
This Agreement may be signed in various counterparts which
together shall constitute one and the same agreement.
Subject to Section 11 hereof, this Agreement shall be
effective when, but only when, at least one counterpart hereof shall have been
executed and delivered on behalf of each party hereto.
[THE REMAINDER OF THIS PAGE HAS
BEEN INTENTIONALLY LEFT BLANK]
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<PAGE> 43
Please confirm that the foregoing correctly sets forth the
agreement among the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
HERLEY INDUSTRIES, INC.
By:
--------------------------------------
Name: Myron Levy
Title: President
Selling Stockholders:
-----------------------------------------
Lee N. Blatt
Gerald I. Klein
Kathi Thonet
CONFIRMED as of the date first above mentioned, on
behalf of itself and the other several Underwriters
named in Schedule I hereto:
JANNEY MONTGOMERY SCOTT INC.
By:
-----------------------------------
Name: Herbert M. Gardner
Title: Senior Vice President
-43-
<PAGE> 44
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number Number
of Firm of Firm
Name Shares Warrants
- ---- ------ --------
<S> <C> <C>
Janney Montgomery Scott Inc......... 700,000 700,000
Southwest Securities, Inc .......... 700,000 700,000
--------- ---------
TOTAL............. 1,400,000 1,400,000
========= =========
</TABLE>
I-1
<PAGE> 45
SCHEDULE II
OFFERED SECURITIES
<TABLE>
<CAPTION>
Additional Additional
Firm Shares Firm Warrants Shares Warrants
----------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Company ............. 700,000 1,400,000 210,000 210,000
--------- --------- ------- -------
Selling Stockholders:
Lee N. Blatt .... 550,000 -- -- --
Gerald I. Klein . 75,000 -- -- --
Kathi Thonet .... 75,000 -- -- --
--------- --------- ------- -------
Total Selling
Stockholders .... 700,000 0 0 0
--------- --------- ------- -------
TOTAL ............... 1,400,000 1,400,000 210,000 210,000
--------- --------- ------- -------
</TABLE>
II-1
<PAGE> 46
SCHEDULE III
INDIVIDUALS SUBJECT TO LOCK-UP AGREEMENTS
Adm. Thomas J. Allshouse (Ret.)
Lee N. Blatt
Adam J. Bottenfield
Allan Coon
Anello C. Garefino
George Hopp
Gerald I. Klein
Myron Levy
David H. Lieberman
Glen Rosenthal
Alvin M. Silver
John A. Thonet
Kathi Thonet
Raymond Umbarger
Adm. Edward J. Walker, Jr. (Ret.)
III-1
<PAGE> 1
EXHIBIT 3.2
AMENDED BY-LAWS
OF
HERLEY INDUSTRIES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders shall be held at
such place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of stockholders shall be
held on such date not earlier than September 1 nor later than March 1 of the
subsequent year on such day and at such time as shall be designated from time to
time by the Board of Directors. At each annual meeting the stockholders shall
elect a Board of Directors by plurality vote and transact such other business as
may be properly brought before the meeting.
Section 3. Special Meetings. Except as otherwise required by law,
special meetings of the stockholders may be called only by the Board of
Directors.
Section 4. Notice of Meetings. Written notice of each meeting of the
stockholders stating place, date and hour of the meeting shall be given by or at
the direction of the Board of Directors to each stockholder entitled to vote at
the meeting at least ten, but not more than sixty, days prior to the meeting.
Notice of any special meeting shall state in general terms the purpose or
purposes for which the meeting is called and no other business shall be
transacted thereat except as stated in such notice.
Section 5. Quorum: Adjournments of Meetings. The holders of the issued
and outstanding shares of the capital stock of the corporation entitled to cast
a majority of the votes entitled to be cast by the holders of all classes of
capital stock of the corporation entitled to vote generally in elections of
directors,
1
<PAGE> 2
considered for this purpose as one class, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at such
meeting; but, if there be less than a quorum, the holders of a majority of the
votes entitled to be cast by the holders of all classes of the corporation's
capital stock so present or represented may adjourn the meeting to another time
or place, from time to time, until a quorum shall be present, whereupon the
meeting may be held, as adjourned, without further notice, except as required by
law, and any business may be transacted thereat which might have been transacted
at the meeting as originally called.
Section 6. Voting. At any meeting of the stockholders every registered
owner of shares entitled to vote may vote in person or by proxy and, except as
otherwise provided by statute, in the Certificate of Incorporation or these
By-Laws, shall have one vote for each such share standing in his name on the
books of the corporation. Except as otherwise required by statute, the
Certificate of Incorporation or these By-Laws, all matters, other than the
election of directors, brought before any meeting of the stockholders shall be
decided by a vote of a majority in interest of the stockholders of the
corporation present in person or by proxy at such meeting and voting thereon, a
quorum being present.
Section 7. Inspectors of Election, The Board of Directors, or, if the
Board shall not have made the appointment, the chairman presiding at any meeting
of stockholders, shall have power to appoint one or more persons to act as
inspectors of election at the meeting or any adjournment thereof, but no
candidate for the office of director shall be appointed as an inspector at any
meeting for the election of directors.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. Except as provided in the Certificate of
Incorporation or these By-Laws, the affairs, business and property of the
Corporation shall be managed and controlled by the Board of Directors. The Board
may exercise all such authority and powers of the Corporation and do all such
lawful acts and things as are not by statute or the Certificate of Incorporation
directed or required to be exercised or done by the
2
<PAGE> 3
stockholders.
Section 2. Number of Directors. The number of directors of the
corporation shall not be less than three nor more than twelve, and may be
changed from time to time by action of not less than a majority of the members
of the Board then in office. Whenever the words "whole Board", "entire Board"
or "total number of directors" are used in these By-Laws, such words shall mean
the number of directors fixed by the Board and then in effect in accordance with
the provisions of the Certificate of Incorporation or these By-Laws.
Section 3. First Meeting. The first meeting of each newly elected Board
of Directors, of which no notice shall be necessary, shall be held immediately
following the annual meeting of stockholders or any adjournment thereof at the
place the annual meeting of stockholders was held at which such directors were
elected, or at such other place as a majority of the members of the newly
elected Board who are then present shall determine, for the election or
appointment of officers for the ensuing year and the transaction of such other
business as may be brought before such meeting.
Section 4. Regular Meeting. Regular meetings of the Board of Directors,
other than the first meeting, may be held without notice at such times and
places as the Board of Directors may from time to time determine.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by order of the Chairman of the Board, the Vice Chairman of the
Board, the President or any two directors. Notice of the time and place of each
special meeting shall be given by or at the direction of the person or persons
calling the meeting by mailing the same at least two days before the meeting or
by telephoning, telegraphing or delivering personally the same at least
twenty-four hours before the meeting to each director. Except as otherwise
specified in the notice thereof, or as required by statute, the Certificate of
Incorporation or these By-Laws, any and all business may be transacted at any
special meeting.
Section 6. Attendance by Communication Equipment. Unless otherwise
restricted by the Certificate of Incorporation, members of the Board of
Directors or of any committee designated by the
3
<PAGE> 4
Board may participate in a meeting of the Board or any such committee by means
of conference telephone or similar communications equipment whereby all persons
participating in the meeting can hear each other. Participation in any meeting
by such means shall constitute presence in person at such meeting. Any meeting
at which one or more members of the Board of Directors or of any committee
designated by the Board shall participate by means of conference telephone or
similar communications equipment shall be deemed to have been held at the place
designated for such meeting, provided that at least one member is at such place
while participating in the meeting.
Section 7. Quorum; Vote. A majority of the directors then in office
shall constitute a quorum, for the transaction of business, but less than a
quorum may adjourn any meeting to another time or place from time to time until
a quorum shall be present, whereupon the meeting may be held, as adjourned,
without further notice. Except as otherwise required by statute, the Certificate
of Incorporation or these By-Laws, all matters coming before any meeting of the
Board of Directors shall be decided by the vote of a majority of the directors
present at the meeting, a quorum being present.
Section 8. Compensation. A director or member of a committee may serve
the Corporation in any other capacity and receive compensation therefor. Each
director or member of a committee, other than directors who are officers or
employees of the Corporation, may receive for his services as director or member
of a committee, compensation (whether in the form of attendance fees, fixed
remuneration, or otherwise) in such amount as may be fixed from time to time by
the Board of Directors, in addition to reimbursement of traveling or like
expenses.
ARTICLE III
COMMITTEES
Section 1. Executive Committee. The Board of Directors may, by
resolution passed by a majority of the whole board, designate from among its
members an Executive Committee to consist of three or more members and may
designate one of such members as chairman. The Board may also designate one or
more of its members as
4
<PAGE> 5
alternates to serve as a member or members of the Executive Committee in the
absence of a regular member or members. Except as provided in Section 4 of this
Article III, the Executive Committee shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and the Executive Committee may authorize the seal
of the corporation to be affixed to all papers which may require it.
Section 2. Other Committees. The Board of Directors, acting by a
majority of the whole Board, may also appoint from among its own members or
otherwise such other committees as the Board may determine, to have such powers
and duties as shall from time to time be prescribed by the Board and which, in
the discretion of the Board, may be designated as committees of the Board;
provided, however, that if an audit committee or compensation committee is
formed, each such committee shall contain only Independent Directors (as such
term is defined in Article V, Section 1).
Section 3. Quorum and Discharge. A majority of the entire committee
shall constitute a quorum for the transaction of business of any committee and
may fix its rules of procedure. The Board of Directors may discharge any
committee either with or without cause at any time.
Section 4. Powers of Committees. No committee designated or appointed
by the Board of Directors shall have the power or authority of the Board in
reference to (a) amending the Certificate of Incorporation, (b) adopting an
agreement of merger or consolidation, (c) recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, (d) recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, (e) amending the By-Laws of the
Corporation, (f) declaring dividends, (g) designating committees, (h) filling
vacancies among committee members or (i) removing officers. The Executive
Committee shall have the power and authority of the Board to authorize the
issuance of shares of capital stock of the corporation of any class or any
series of any class.
Section 5. Committee Meetings. Regular meetings of any committee
designated or appointed by the Board of Directors shall be held at such times
and places and on such notice, if any, as the
5
<PAGE> 6
committee may from time to time determine. Special meetings of any committee
designated or appointed by the Board may be called by order of the Chairman of
the Board, Vice Chairman of the Board, President of the Corporation, Chairman of
the committee or any two members of any such committee. Notice shall be given of
the time and place of each special meeting by mailing the same at least two days
before the meeting or by telephoning, telegraphing or delivering personally the
same at least twenty-four hours before the meeting to each committee member.
Except as otherwise specified in the notice thereof or as required by law, the
Certificate of Incorporation or these By-Laws, any and all business may be
transacted at any regular or special meeting of a committee. The Secretary of
the Corporation shall keep the minutes of the meetings of all committees
designated or appointed by the Board of Directors and shall be the custodian of
all corporation records.
ARTICLE IV
OFFICERS
Section 1. Number and Designation. The Board of Directors shall elect
as executive officers a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and there may be one or more Vice
Chairmen of the Board, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers, as the Board of Directors may deem
necessary. The Chairman of the Board, the Vice Chairmen of the Board and the
President shall be elected from among the Directors. Any two offices may be held
by one person, but in any case where the By-Laws or resolutions of the Board of
Directors provide for the signature of the incumbents of two or more officers of
the Corporation upon the certificates of stock, notes, checks or other
instruments or documents issued by the Corporation, no one person shall sign in
more than one capacity. The executive officers shall be elected annually by the
Board of Directors at its first meeting following the annual election of
directors, but in the event of the failure of the Board so to elect any
executive officer, such executive officer may be elected at any subsequent
meeting of the Board of Directors. The Board of Directors may at any meeting
elect additional Vice Presidents. Each executive officer shall hold office until
the first meeting of the Board of Directors following the next annual election
of directors and until his successor shall have been duly elected and qualified,
except in
6
<PAGE> 7
the event of the earlier termination of his term of office through death,
resignation, removal or otherwise. Any vacancy in an executive office may be
filled for the unexpired portion of the term of such office by the Board of
Directors at any regular or special meeting.
Section 2(a). The Chairman of the Board. The Chairman of the Board
shall be the chief executive officer of the Corporation, and, subject to the
Board of Directors, shall have general direction, supervision and management of
the business and affairs of the corporation. The Chairman of the Board (i) shall
have such other powers and perform such other duties as the Board of Directors
may from time to time prescribe; (ii) may execute contracts and other
instruments in the name of the Corporation, and appoint and discharge agents and
employees; and (iii) shall preside at all meetings of the stockholders and of
the Board of Directors.
Section 2(b). Vice Chairman of the Board. The Vice Chairman of the
Board shall assist the Chairman of the Board in the performance of the duties of
chief executive officer, and, subject to the Board of Directors, shall have such
of the powers and duties of the chief executive officer of the Corporation as
shall be delegated by the Chairman of the Board. The Vice Chairman of the Board,
or if more than one, the Vice Chairmen of the Board, (i) to the extent empowered
by the Board, shall perform the duties of the Chairman of the Board in the
absence of the Chairman of the Board, or in the event of his inability to act;
(ii) shall have such other powers and perform such other duties as the Board of
Directors may from time to time prescribe; and (iii) may also execute contracts
and other instruments in the name of the Corporation, and appoint and discharge
agents and employees.
Section 2(c). President. The President shall be the chief operations
officer of the Corporation, and, subject to the Board of Directors, the Chairman
of the Board and the Vice Chairman of the Board, shall direct the operations of
the Corporation. The President (i) shall have such other powers and perform such
other duties as the Board of Directors may from time to time prescribe; (ii) in
the absence of and/or in the event of the inability of both the Chairman of the
Board and the Vice Chairman of the Board to act, shall perform the duties of the
Chairman of the Board; (iii) may also execute contracts and other instruments in
the name of the Corporation, and appoint and discharge agents and employees; and
7
<PAGE> 8
(iv) except as herein otherwise provided, shall perform all other duties
incident to the office of President.
Section 3. Vice Presidents. Whenever there is more than one Vice
President, the Board of Directors shall decide upon the order of their seniority
and may designate one or more to be executive Vice Presidents. In the absence or
inability to act of the President, or if the office of President be vacant, the
Vice Presidents, in order of seniority, subject to the right of the Board of
Directors from time to time to extend or confine such powers and duties, may
exercise all the powers of the President. Each Vice President shall have such
other powers and shall perform such other duties as may be assigned to him by
the Board of Directors.
Section 4. Treasurer. The Treasurer, subject to the right of the Board
of Directors from time to time to extend or confine his powers and duties or
assign them to others, shall have general supervision over the care and custody
of the funds and securities of the corporation and shall deposit the same or
cause the same to be deposited in the name of the Corporation in such bank or
banks, trust company or trust companies, and in such safe deposit company or
companies or invested in securities of such money market fund or funds, as the
Board of Directors or the executive committee may designate, shall have
supervision over the accounts of all receipts and disbursements of the
Corporation, shall, whenever required by the Board, render or cause to be
rendered financial statements of the Corporation, shall have the powers and
perform the duties usually incident to the office of Treasurer, and shall have
such other powers and perform such other duties as may be assigned to him by the
Board of Directors.
Section 5. Secretary. The Secretary, subject to the right of the Board
of Directors from time to time to extend or confine his powers and duties or to
assign them to others, shall act as Secretary of all meetings of the
stockholders and of the Board of Directors at which he is present, shall have
supervision over the giving and serving of notices of the Corporation, shall be
the custodian of the corporate records and of the corporate seal of the
Corporation, shall be empowered to affix the corporate seal to documents,
execution of which, on behalf of the Corporation, under its seal, is duly
authorized, and when so affixed may attest the same, shall exercise the powers
and perform the duties usually
8
<PAGE> 9
incident to the office of Secretary, and shall exercise such other powers and
perform such other duties as may be assigned to him by the Board of Directors.
The Secretary shall, if the law so provides, be sworn to the faithful discharge
of his duties.
Section 6. Other Officers. The Assistant Secretaries, the Assistant
Treasures and all other officers shall hold office during the pleasure of the
Board of Directors and shall exercise such powers and perform such duties as may
be assigned to each by the Board of Directors.
Section 7. Term of Office; Removal and Vacancy. Each officer shall
hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any officer or agent shall be subject to removal
with or without cause at any time by the Board of Directors. Vacancies in any
office whether occurring by death, resignation, removal or otherwise, may be
filled by the Board of Directors.
Section 8. Power to Vote Stock. Unless otherwise ordered by the Board
of Directors, the Chairman of the Board, the Vice Chairman and the President
each shall have full power and authority on behalf of the Corporation to attend
and to vote at any meeting of stockholders of any corporation in which the
Corporation may hold stock, and may exercise on behalf of this Corporation any
and all of the rights and powers incident to the ownership of such stock at any
such meeting and shall have power and authority to execute and deliver proxies,
waivers and consents on behalf of the Corporation in connection with the
exercise by the Corporation of the rights and powers incident to the ownership
of such stock. The Board of Directors from time to time, may confer like powers
upon any other person or persons.
ARTICLE V
POLICY REGARDING CORPORATE OPPORTUNITY AND
AFFILIATE TRANSACTIONS
Section 1. Definitions. For the purpose of this Article, the following
terms have the meanings set forth below:
"Affiliate" means, with respect to a particular Person, (i) any Person
that, directly or indirectly is in control of, is
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<PAGE> 10
controlled by, or is under common control with, such particular Person, (ii) any
Person who is a director, officer or general partner (A) of such particular
Person, (B) of any Subsidiary of such particular Person, (C) of any Person
described in clause (i) above, (iii) any trust or estate in which such
particular Person, or the spouse of any relative of such Person, or any relative
of such spouse, has a beneficial interest or as to which such particular Person,
or the spouse of any relative of such Person, or any relative of such spouse,
serves as trustee or in a similar fiduciary capacity, or (iv) the spouse of any
relative of such particular Person, or any relative of such spouse. For purposes
of this definition, (i) "control" of a Person shall mean the power, direct or
indirect, (A) to vote 10% or more of the securities having ordinary voting
power for the election of directors of such Person or (B) to direct or cause the
direction of the management and policies of such Person whether by contract or
otherwise; and the terms "controlling and "controlled by" have meanings
correlative to the foregoing and (ii) a "relative" of a Person shall mean an
ancestor, descendant or sibling of such Person.
"Independent Director" means a director of the Company who (i) is not
an employee or Affiliate of the Company or any of its Subsidiaries (other than
by reason of his status as a director of the Company or one or more of its
Subsidiaries) and (ii) has no material business or professional relationship
with the Company or any Subsidiary of the Company, or any of their Affiliates.
For purposes of this definition, a "material business or professional
relationship" means any business or professional relationship with the Company
or a Subsidiary of the Company of any of the types described in, and which
exceeds any applicable disclosure threshold set forth in, Item 404(b) of
Regulation S-K.
"Person" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
Section 2. Corporate Opportunity. In the event any corporate
opportunity is presented to any director or officer of the Company or any
Subsidiary or any Affiliates of such director or officer to acquire or to enter
into any business transaction involving any type of business conducted by the
Company or that
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<PAGE> 11
would be significant to the Company, i.e., Flight Instrumentation Components and
Systems and related products or systems, such director or officer shall submit
such opportunity to the Board of Directors for their review and consideration by
appropriate notice in writing promptly after presentation of the opportunity to
such director or officer and such director or officer shall take no action with
respect to such opportunity until the first to occur of (i) a decision by the
Board of Directors not to pursue the opportunity so presented by such director
or officer and approval of the Board of Directors of such director's or
officer's participation in such opportunity or (ii) the expiration of thirty
(30) days after receipt by the Board of Directors of the notice from such
director or officer to the Board of Directors described such opportunity.
Section 3. Affiliate Transactions. The Company shall not, and shall not
permit any Subsidiary of the Company to, directly or indirectly, enter into any
transaction (including without limitation the purchase, sale, lease or exchange
of any property or the rendering of any service) with an officer or director of
the Company or of any Subsidiary or an Affiliate of any such officer or director
(an "Affiliate Transaction"), unless such transaction shall have been
unanimously approved by the Independent Directors and such resolution provides
that such Affiliate Transaction complies with the requirements of this Article
V.
Section 4. Investment Policy. The Company shall establish an investment
policy for the investing of available cash. Cash held by the Company, to the
extent not immediately necessary to fulfill the Company's needs, shall be
invested in certain high-quality short term securities, the choice of which
shall be at the reasonable discretion of the treasurer or other chief financing
officer of the Company.
Section 5. Amendment of this Article. This Article may only be amended
or repealed by approval of the holders of two-thirds of the outstanding shares
of the Company's common stock.
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<PAGE> 12
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates for Stock. Certificates or stock of the
Corporation shall be in such form as the Board of Directors may from time to
time prescribe and shall be signed by the Chairman of the Board or a Vice
Chairman of the Board or the President or a Vice President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary.
Section 2. Transfer of Stock. Shares of capital stock of the
Corporation shall be transferable on the books of the Corporation only by the
holder of record thereof, in person or by duly authorized attorney, upon
surrender and cancellation of certificates for a like number of shares, with an
assignment or power of transfer endorsed thereon or delivered therewith, duly
executed, and with such proof of the authenticity of the signature and of
authority to transfer, and of payment of transfer taxes, as the Corporation or
its agents may require.
Section 3. Ownership of Stock. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the owner thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise expressly provided by
law.
ARTICLE VII
MISCELLANEOUS
Section 1. Corporate Seal. The seal of the Corporation shall be
circular in form and shall contain the name of the Corporation and the year and
State of Incorporation.
Section 2. Fiscal Year. The Board of Directors shall have power to fix,
and from time to time to change, the fiscal year of the Corporation.
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<PAGE> 13
ARTICLE VIII
AMENDMENT
The Board of Directors shall have the power to make, alter or repeal
the By-Laws of the Corporation subject to the power of the stockholders to alter
or repeal the By-Laws made or altered by the Board of Directors.
ARTICLE IX
INDEMNIFICATION
The Corporation may indemnify any director, officer, employee or agent
of the Corporation to the full extent permitted by law.
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<PAGE> 1
Exhibit 4.2
CERTIFICATE NUMBER WARRANTS
W
CUSIP 42738 11 0
[LOGO]
HERLEY INDUSTRIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Warrant Certificate certifies that
or its registered assigns is the registered holder (the "Registered Holder") of
the number of Warrants set forth above, each of which represents the right to
purchase one fully paid and nonassessable share of common stock, par value $.10
per share (the "Common Stock"), of Herley Industries, Inc., a Delaware
corporation (the "Company"), at any time until the Expiration Date hereinafter
referred to, by surrendering this Warrant Certificate, with the exercise form
set forth hereon duly executed with signatures guaranteed as provided below, at
the office maintained pursuant to the Warrant Agreement hereinafter referred to
for that purpose by American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005, and any other offices of the Warrant Agent or its
successor designated for such purpose (any such warrant agent being herein
called the "Warrant Agent"), and by paying in full the sum of $ per share if
exercised on or before January , 1999, and $ per share if exercised after
January , 1999 and on or before the Expiration Date (as defined below) (the
"Exercise Price"), plus transfer taxes, if any. Payment of the Exercise Price
shall be made in United States currency, by certified check or money order
payable to the order of the Company.
Upon certain events provided for in the Warrant Agreement, the Exercise Price
and the number of shares of Common Stock issuable upon the exercise of each
Warrant are required to be adjusted.
No Warrant may be exercised after 5:00 p.m. (New York City time) on January ,
2000 or on such expiration date as may be extended to provide the Registered
Holder at least 90 days written notice of such expiration date or to maintain an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act") for at
<PAGE> 2
least 90 consecutive days prior to such expiration date (the "Expiration Date").
After the Expiration Date, all Warrants evidenced hereby shall thereafter become
void, and the holders thereof shall have no rights hereunder. Prior to the
Expiration Date, subject to any applicable laws, rules or regulations
restricting transferability and to any restriction on transferability that may
appear on this Warrant Certificate in accordance with the terms of the Warrant
Agreement, the Registered Holder shall be entitled to transfer this Warrant
Certificate in whole or in part upon surrender of this Warrant Certificate at
the office of the Warrant Agent with the form of assignment set forth hereon
duly executed, with signatures guaranteed by a member firm of a national
securities exchange, a commercial bank, a savings bank or a savings and loan
association or a trust company located in the United States, a member of the
National Association of Securities Dealers, Inc. or other eligible guarantor
institution which is a participant in a signature guarantee program (as such
terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended). Upon any such transfer, a new Warrant Certificate or Warrant
Certificates representing the same aggregate number of Warrants will be issued
in accordance with the instructions in the form of assignment.
No Warrant is exercisable unless, at the time of such exercise, the Company
has a registration statement in effect under the Securities Act covering the
shares of Common Stock issuable or transferable upon exercise of such Warrant,
and such shares have been registered or qualified under the securities laws of
the state of residence of the exercising Registered Holder, or such issuance or
transfer is exempt from the registration requirements of the Securities Act and
such shares of Common Stock are exempt from such registration or qualification.
Upon the exercise of less than all of the Warrants evidenced by this Warrant
Certificate, there shall be issued to the Registered Holder a new Warrant
Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled to
exchange this Warrant Certificate, with or without other Warrant Certificates,
for another Warrant Certificate or Warrant Certificates for the same aggregate
number of Warrants, upon surrender of this Warrant Certificate at the office
maintained for such purpose by the Warrant Agent.
No fractional shares will be issued upon the exercise of Warrants. As to any
final fraction of a share, which the Registered Holder of one or more Warrant
Certificates, the rights under which are exercised in the same transaction,
would otherwise be entitled to purchase upon such exercise, the Registered
Holder shall be paid the cash value thereof determined as provided in the
Warrant Agreement.
This Warrant Certificate is issued under and in accordance with a Warrant
Agreement between the Company, certain selling stockholders and
<PAGE> 3
the Warrant Agent (the "Warrant Agreement") and is subject to the terms and
provisions contained in said Warrant Agreement, to all of which terms and
provisions the Registered Holder consents by acceptance hereof.
This Warrant Certificate shall not entitle the Registered Holder to any of
the rights of a stockholder of the Company, including, without limitation, the
right to vote, to receive dividends and other distributions, or to attend or
receive any notice of meetings of stockholders or any other proceedings of the
Company.
This Warrant Certificate shall not be valid for any purpose until it shall
have been countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated:
HERLEY INDUSTRIES, INC.
BY: [SEAL] BY:
PRESIDENT TREASURER
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
WARRANT AGENT
BY:
AUTHORIZED OFFICER
EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the right, represented
by this Warrant Certificate, to receive ___________________ shares of Common
Stock and herewith makes payment therefor. The undersigned requests that a
certificate for such shares be registered in the name of _____________, whose
address is _____________________________________________________________ and
whose social security or other identifying number is ____________________, and
that such shares be delivered to ________________________________________, whose
address is ____________________________________________________________.
If said number of shares is less than all of the shares of Common Stock
<PAGE> 4
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the balance of such shares be registered in the name of ________,
whose address is _____________________________________________________________
and whose social security or other identifying number is ____________________,
and that such Warrant Certificate be delivered to ___________________________,
whose address is ____________________________________________________________.
Date: ________________________________ ____________________________________
Signature
Signature Guaranteed:
____________________________________
The signature to the exercise form must correspond to the name as written
upon the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever. The signature should be
guaranteed by an eligible guarantor institution (banks, stockbrokers, savings
and loan associations and credit unions with membership in an approved signature
guarantee medallion program), pursuant to Rule 17Ad-15.
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers unto
________________________________________________________________________, whose
address is _____________________________________________________________ and
whose social security or other identifying number is ____________________, the
Warrants represented by this Warrant Certificate (or ___________ Warrants, if
less than all of the Warrants represented by this certificate), and hereby
irrevocably constitutes and appoints the Warrant Agent as his or her
attorney-in-fact to transfer this Warrant Certificate in the books of the
Warrant Agent maintained for such purpose, with full power of substitution and
re-substitution in the premises. If said number of Warrants is less than all of
the Warrants evidenced by this certificate, the undersigned requests that a new
Warrant Certificate representing the balance of such Warrants be registered in
the name of ____________________________________________________
________________________________________________________________________________
whose address is _____________________________________________________________
and whose social security or other identifying number is ____________________,
and that such Warrant Certificate be delivered to ___________________________,
whose address is ____________________________________________________________.
Date: ________________________________ ____________________________________
Signature
<PAGE> 5
Signature Guaranteed:
____________________________________
The signature to the assignment form must correspond to the name as written
upon the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever. The signature should be
guaranteed by an eligible guarantor institution (banks, stockbrokers, savings
and loan associations and credit unions with membership in an approved signature
guarantee medallion program), pursuant to Rule 17Ad-15.
<PAGE> 1
EXHIBIT 4.3
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of this ____ day of ________,
1997, by and between Herley Industries, Inc., a Delaware corporation (the
"Company") and American Stock Transfer & Trust Company, as warrant agent (the
"Warrant Agent").
W I T N E S S E T H
WHEREAS, the Company proposes to make a public offering (the
"Public Offering") of shares of its Common Stock (as defined in Section I
hereof) and common stock purchase warrants (the "Warrants") of the Company, each
Warrant exercisable to purchase one share of Common Stock; and
WHEREAS, in relation to the Public Offering, the Company has
filed a Registration Statement on Form S-1 (Registration Statement No.333-39767)
(as amended or supplemented, the "Registration Statement") with the
Securities and Exchange Commission ("SEC"); and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in connection
with the issuance, registration, transfer, and exchange of the Warrants, the
issuance of certificates representing the Warrants (each a "Warrant
Certificate"), the exercise of the Warrants, and the rights of the registered
holders thereof;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the Company
and the Warrant Agent, the parties hereto hereby agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the Company's common stock, par
value $.10 per share.
(b) "Company" shall have the meaning set forth in the
introductory paragraph.
(c) "Convertible Securities" shall have the meaning set forth
in Section 8(c) hereof.
(d) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at 40 Wall Street, New York, New
York 10005 as of the date hereof.
<PAGE> 2
(e) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(f) "Exempt Securities" shall have the meaning set forth in
Section 8(o) hereof.
(g) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (i) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof, or his attorney duly authorized in writing, with the
appropriate signature guarantees, as described in the Warrant Certificate, and
(ii) payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the Exercise Price plus transfer taxes, if any.
(h) "Exercise Price" shall mean the purchase price to be paid
upon exercise of a Warrant in accordance with the terms hereof, which price
shall be $_____ per share of Common Stock for a period of 13 months from the
date hereof and $___ per share of Common Stock thereafter until the Warrant
Expiration Date, subject to (i) adjustment from time to time pursuant to the
provisions of Section 8 hereof, and (ii) the Company's right to reduce the
Exercise Price, upon written notice to all Registered Holders, for a period of
not less than 30 days.
(i) "Managing Underwriters" shall have the meaning set forth
in Section 2(c) hereof.
(j) "Managing Underwriters' Warrant" shall have the meaning
set forth in Section 2(c) hereof.
(k) "Nasdaq National Market" shall have the meaning set forth
in Section 8(f) hereof.
(l) "Notice Event" shall mean (i) any authorization by the
Company of the issuance to all holders of shares of Common Stock of rights,
options or warrants to subscribe for or purchase shares of Common Stock or of
any other subscription rights or warrants, (ii) any authorization by the Company
of the distribution to all holders of shares of Common Stock of evidences of its
indebtedness or assets (other than cash dividends or distributions payable out
of consolidated earnings or earned surplus or dividends payable in shares of
Common Stock), (iii) any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of the
conveyance or transfer of the properties and
2
<PAGE> 3
assets of the Company substantially as an entirety, or of any reclassification
or change of Common Stock issuable upon exercise of the Warrants (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or a tender offer or
exchange offer for shares of Common Stock, (iv) any voluntary or involuntary
dissolution, liquidation or winding up of the Company, or (v) any proposal by
the Company to take any other action that would require an adjustment of the
Exercise Price or the number of Warrant Shares pursuant to Section 8.
(m) "Option Issuance" shall have the meaning set forth in
Section 8(c) hereof.
(n) "Options" shall have the meaning set forth in Section 8(c)
hereof.
(o) "Prospectus" shall mean the prospectus contained in the
Registration Statement, as such prospectus is amended or supplemented from time
to time.
(p) "Public Offering" shall have the meaning set forth in the
Recitals.
(q) "Registered Holder" shall mean the person in whose name
any certificate representing Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6 hereof.
(r) "Registration Rights Agreement" shall mean that certain
Registration Rights Agreement, dated as of the date hereof, by and between the
Company and the Managing Underwriters.
(s) "SEC" shall have the meaning set forth in the Recitals.
(t) "SEC Reports" shall have the meaning set forth in Section
5(g) hereof.
(u) "Registration Statement" shall have the meaning set forth
in the Recitals.
(v) "Stock Option Plans" shall have the meaning set forth in
Section 8(o) hereof.
(w) "Time of Determination" shall have the meaning set forth
in Section 8(f) hereof.
(x) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
3
<PAGE> 4
(y) "Warrant Agent" shall have the meaning set forth in the
introductory paragraph.
(z) "Warrant Certificate" shall have the meaning set forth in
the Recitals.
(aa) "Warrant Expiration Date" shall mean 5:00 p.m. (New York
City time) on January ___, 2000 (or as may be extended pursuant to Section
5(f)), provided that, if in New York City, such date (or extended date) shall be
a holiday or a day on which banks are authorized to close, then 5:00 p.m. (New
York City time) on the next following day which in New York City is not a
holiday or a day on which banks are authorized to close.
(bb) "Warrants" shall have the meaning set forth in the
Recitals.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant Exercisable for One Share. A Warrant shall
initially entitle the Registered Holder of the Warrant Certificate representing
such Warrant to purchase one share of Common Stock upon the exercise thereof, in
accordance with the terms hereof, subject to modification and adjustment as
provided in Section 8 hereof.
(b) 1,750,000 Shares. From time to time, up to the Warrant
Expiration Date, the Transfer Agent shall execute and deliver stock certificates
in required whole number denominations representing up to an aggregate of
1,750,000 shares of Common Stock, subject to adjustment as described herein,
upon the exercise of Warrants in accordance with this Agreement.
(c) Warrant Certificates. From time to time, up to the Warrant
Expiration Date, the Warrant Agent shall execute and deliver Warrant
Certificates in required whole number denominations to the persons entitled
thereto in connection with any transfer or exchange permitted under this
Agreement; provided that no Warrant Certificates shall be issued except (i)
those initially issued hereunder, (ii) those issued upon the exercise of fewer
than all Warrants represented by any Warrant Certificate, to evidence any
unexercised Warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to Section 6 hereof, (iv) those
issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7 hereof, (v) those issued upon exercise by
Janney Montgomery Scott Inc. or Southwest Securities, Inc. (collectively, the
"Managing Underwriters") or their assignees of the Managing Underwriters'
Warrant (the "Managing Underwriters' Warrant") issued to the Managing
Underwriters in connection with the Public Offering, and (vi) at the option of
the Company, in such form as may be approved by its Board of Directors, to
reflect (A) any adjustment or change in the Exercise Price or the number of
shares of Common Stock purchasable upon exercise of the Warrants made pursuant
to Section 8 hereof and (B) any other modifications approved by Registered
Holders in accordance with Section 15 hereof.
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<PAGE> 5
SECTION 3. Form and Execution of Warrant Certificates.
(a) Form. The Warrant Certificates shall be substantially in
the form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed, engraved or typed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
as may be required to comply with any law, with any rule or regulation made
pursuant thereto, or with any rule or regulation of any stock exchange or
securities association on which or through which the Warrants may be listed, or
to conform to usage. The Warrant Certificates shall be dated the date of
issuance thereof (whether upon initial issuance, transfer, exchange or in lieu
of mutilated, lost, stolen, or destroyed Warrant Certificates) and issued in
registered form. Warrants shall be numbered serially with the letter "W."
(b) Execution. Warrant Certificates shall be executed on
behalf of the Company by the Company's Chairman of the Board, President or
any Vice President and by its Treasurer, an Assistant Treasurer, its Secretary
or an Assistant Secretary, by manual signatures or by facsimile signatures
printed thereon, shall have imprinted thereon a facsimile of the Company's
seal and shall be countersigned by an authorized signatory of the Warrant
Agent. In case any officer of the Company who shall have signed any of such
Warrant Certificates shall cease to be such officer of the Company before
the date of issuance of the Warrant Certificates and issue and delivery
thereof, such Warrant Certificates may nevertheless be issued and delivered with
the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be such officer of the Company. After execution
by the Company and countersignature by the Warrant Agent, Warrant Certificates
shall be delivered by the Warrant Agent to the Registered Holders.
SECTION 4. Exercise.
(a) Time of Exercise. Each Warrant may be exercised by the
Registered Holder thereof at any time after the date hereof and on or before the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date, and the person entitled to receive the shares of Common Stock and any
unexercised Warrants deliverable upon such exercise shall be treated for all
purposes as the holder of such shares of Common Stock and such unexercised
Warrants upon such exercise as of the close of business on the Exercise Date. As
soon as practicable on or after the Exercise Date, the Warrant Agent shall
deposit the proceeds received from the exercise of a Warrant into an account of
the Company as designated in writing by the Company or as the Company may
otherwise direct in writing.
(b) Receipt of Payment and Issuance. The Warrant Agent shall
promptly after clearance of checks received in payment of the Exercise Price,
direct the Transfer Agent to issue and deliver to the person or persons entitled
to receive the same, a
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<PAGE> 6
stock certificate or certificates for the shares of Common Stock deliverable
upon such exercise and the Warrant Agent shall issue and deliver a Warrant
Certificate for any remaining unexercised Warrants. Notwithstanding the
foregoing, in the case of payment made in the form of a check drawn on an
account of the Managing Underwriters or such other investment banks and
brokerage houses as the Company shall approve, the Warrant Agent shall cause the
certificates to be issued immediately without any delay. Upon the exercise of
any Warrant and clearance of the funds received therefor, the Warrant Agent
shall promptly remit the payment received for the Warrants to the Company or as
the Company may direct in writing.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
etc.
(a) Issuance and Sale of Shares. The Company covenants that it
will at all times reserve and keep available, free from preemptive rights, out
of its authorized Common Stock, solely for the purpose of issuance upon exercise
of Warrants, such number of shares of Common Stock as shall then be issuable
upon the exercise of all outstanding Warrants. The Company covenants that all
shares of Common Stock that shall be issuable upon exercise of the Warrants
shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue or sale thereof.
The Transfer Agent for the Common Stock will be irrevocably
authorized and directed at all times to reserve such number of authorized shares
as shall be required for such purpose. The Company will keep a copy of this
Agreement on file with the Transfer Agent. The Warrant Agent is hereby
irrevocably authorized to requisition from time to time from such Transfer Agent
the stock certificates required to honor outstanding Warrants upon exercise
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<PAGE> 7
thereof in accordance with the terms of this Agreement. The Company will supply
such Transfer Agent with duly executed certificates for such purposes and will
provide or otherwise make available any cash which may be payable as provided
in Section 9. The Company will furnish the Transfer Agent a copy of all notices
of adjustments and certificates related thereto, transmitted to each Registered
Holder pursuant to Section 8(p) hereof.
Before taking any action which would cause an adjustment
pursuant to Section 8 hereof that would reduce the Exercise Price below the then
par value (if any) of the shares of Common Stock, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock at the Exercise Price as so adjusted.
(b) Registration Statement. Except for the Warrants issuable
upon exercise of the Managing Underwriters' Warrant, Registered Holders will be
able to exercise their Warrants only if (i)(A) the Registration Statement or
another registration statement relating to the sale of shares of Common Stock
underlying such Warrants is then in effect, or (B) the sale of such
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<PAGE> 8
shares upon exercise of such Warrants is exempt from the registration
requirements of the Securities Act of 1933, as amended, and (ii) such shares are
qualified for sale or exempt from qualification under applicable laws of the
states where the Registered Holders reside. The Company covenants to maintain
the Registration Statement or another registration statement in effect at all
times with respect to the sale of shares of Common Stock underlying such
Warrants until the Warrant Expiration Date. The Company also covenants to
maintain at all times all necessary or desireable state "blue sky" filings
with respect to the sale of shares of Common Stock underlying such Warrants
until the Warrant Expiration Date.
(c) Managing Underwriters' Warrant. A new registration
statement will be required to be filed and declared effective by the SEC before
the issuance of the Warrants issuable upon exercise of the Managing
Underwriters' Warrant and the shares of Common Stock issuable upon exercise of
such Warrants unless such issuances are exempt from registration under the
Securities Act of 1933, as amended. In addition, before the issuance of such
Warrants and shares of Common Stock, such securities must also be registered or
qualified under the applicable state securities laws, unless an exemption exists
from such registration or qualification. Under the Registration Rights
Agreement, the Company has agreed to, among other things, file and maintain the
effectiveness of certain registration statements with respect to such Warrants
and shares of Common Stock and register or qualify them under state securities
laws. Neither such Warrants nor shares of Common Stock may be issued unless such
a registration statement is in effect and such Warrants and shares of Common
Stock are registered or qualified under applicable state securities laws, or an
exemption from the requirements to file such a registration statement or
register or qualify such Warrants and shares of Common Stock exists.
(d) Notices. The Company shall give notice not less than 90,
and not more than 120, days prior to the Warrant Expiration Date to the
Registered Holders of all then outstanding Warrants to the effect that the
Warrants will terminate and become void as of 5:00 p.m., New York City time, on
the Warrant Expiration Date. If the Company fails to give such notice, the
Warrants will not expire until 90 days after the Company gives such notice,
provided, however, in no event will Registered Holders be entitled to any
damages or other remedy for the Company's failure to give such notice other than
any such extension. In addition, notwithstanding anything to the contrary in
this Agreement, if the Company has not maintained an effective registration
statement under the Securities Act with respect to the sale of shares of Common
Stock underlying the Warrants during the 90 days immediately before the Warrant
Expiration Date (and maintained the registration or qualification of such shares
under applicable state securities laws during such period), the Warrants shall
not expire until the Company maintains an effective registration statement (and
such registrations and qualifications) for 90 consecutive days beginning with
the first day after 90 days before the Warrant Expiration Date that such
registration statement (and such registrations and qualifications) is effective.
In the circumstances described in this paragraph, the extended Warrant
Expiration Date for the Warrants shall be considered the Warrant Expiration Date
for purposes of this Agreement.
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(e) Stamp Taxes. The Company shall pay all documentary, stamp
or similar taxes and other governmental charges that may be imposed with respect
to the issuance of Warrants, or the issuance or delivery of any shares of Common
Stock upon exercise of the Warrants; provided, however, that if shares of Common
Stock are to be delivered in a name other than the name of the Registered Holder
of the Warrant Certificate, then no such delivery shall be made unless the
person requesting the same has paid to the Warrant Agent the amount of transfer
taxes or charges incident thereto, if any.
(f) Listings. The Company will from time to time take all
action which may be necessary so that the Warrants and the shares of Common
Stock issuable upon the exercise of the Warrants will be listed on the principal
securities exchanges and markets (including, without limitation, the Nasdaq
National Market) within the United States of America, if any, on which any of
the Company's shares of Common Stock are then listed.
(g) SEC Reports. So long as any of the Warrants remain
outstanding, the Company shall cause copies of all quarterly and annual
financial reports and of the information, documents, and other reports (or
copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act ("SEC Reports") to be filed
with the Warrant Agent and mailed to the Registered Holders at their addresses
appearing in the register of the Registered Holders maintained by the Warrant
Agent, in each case, within 15 days after filing with the SEC. If the Company is
not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall nevertheless continue to cause SEC Reports, comparable to those
which it would be required to file pursuant to Section 13 or 15(d) of the
Exchange Act if it were subject to the requirements of either such section, to
be so filed with the SEC (but only if the SEC permits such filings) and with the
Warrant Agent and mailed to the Registered Holders, in each case, within the
same time periods as would have applied (including under the preceding sentence)
had the Company been subject to the requirements of Section 13 or 15(d) of the
Exchange Act. The Company shall provide the Warrant Agent with a sufficient
number of copies of all SEC Reports to enable the Warrant Agent to deliver to
each Registered Holder at least one copy and to each nominee Registered Holder
at least one copy for each beneficial holder for whom such nominee Registered
Holder holds Warrants.
SECTION 6. Exchange and Registration of Transfer.
Subject to the restrictions on transfer contained herein or in
the Warrant Certificates:
(a) Exchange of Warrant Certificates. Warrant Certificates may
be exchanged for other Warrant Certificates representing an equal aggregate
number of Warrants or may be transferred in whole or in part. Warrant
Certificates to be exchanged shall be surrendered to the Warrant Agent at its
Corporate Office, and upon satisfaction of the terms and provisions herein, the
Company shall execute, and the Warrant Agent shall countersign, issue and
deliver in
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<PAGE> 10
exchange therefor, the Warrant Certificate or Certificates that the Registered
Holder making the exchange shall be entitled to receive.
(b) Warrant Register. The Warrant Agent shall keep books at
its office, in which it shall register Warrant Certificates and transfers
thereof in accordance with its regular practice. Upon due presentment for
registration of transfer of any Warrant Certificate at its office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) Exercise Form. With respect to all Warrant Certificates
presented for registration of transfer, or for exchange or exercise, the
exercise form attached thereto must be duly endorsed, or be accompanied by a
written instrument or instruments of transfer and exercise in form satisfactory
to the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) Service Charge. A service charge may be imposed by the
Warrant Agent upon the Registered Holder for any exchange or registration of
transfer of Warrant Certificates. The Warrant Agent may require payment by a
Registered Holder of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) Registered Holder Treated as Absolute Owner. Prior to due
presentment for registration of transfer thereof, the Company and the Warrant
Agent may deem and treat the Registered Holder of any Warrant Certificate as the
absolute owner thereof and of each Warrant represented thereby for all purposes
and shall not be affected by any notice to the contrary.
(f) Separately Transferable. The Warrants will be separately
transferable from the Common Stock that they were issued with immediately
following the completion of the Public Offering.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership and loss,
theft, destruction or mutilation of any Warrant Certificate and, in case of
loss, theft or destruction, of indemnity satisfactory to them, and in the case
of mutilation, upon surrender and cancellation thereof, in the absence of notice
that the Warrant Certificate has been acquired by a bona fide purchaser the
Company shall execute and the Warrant Agent shall countersign and deliver to the
Registered Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants. Registered Holders
requesting a substitute Warrant Certificate will be required to comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
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<PAGE> 11
SECTION 8. Adjustment of Exercise Price and Number of Shares
of Common Stock. The number of shares of Common Stock purchasable upon the
exercise of the Warrants and the Exercise Price shall be subject to adjustment
from time to time as follows:
(a) Stock Splits, Combinations, etc. In case the Company shall
hereafter (i) pay a dividend or make a distribution on its Common Stock in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Company, the Exercise Price in effect and the
number of shares of Common Stock issuable upon exercise of each Warrant
immediately prior to such action shall be adjusted so that the Registered Holder
of any Warrant thereafter exercised shall be entitled to receive the number of
shares of capital stock of the Company at the same aggregate Exercise Price that
such Registered Holder would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this paragraph shall become effective immediately after the record
date in the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, as a result of an adjustment made pursuant to this paragraph, the Registered
Holder of any Warrant thereafter exercised shall become entitled to receive
shares of two or more classes of capital stock of the Company, the Board of
Directors of the Company (whose determination shall be conclusive) shall
determine the allocation of the adjusted Exercise Price between or among shares
of such classes of capital stock.
(b) Reclassification, Combinations, Mergers, etc. In case of
any reclassification or change of outstanding shares of Common Stock issuable
upon exercise of the Warrants (other than as set forth in paragraph (a) above
and other than a change in par value, or from par value to no par value, or from
no par value to par value or as a result of a subdivision or combination), or in
case of any consolidation or merger of the Company with or into another
corporation or entity (other than a merger in which the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants), or in the case of any sale or
conveyance of all or substantially all of the assets of the Company followed by
a related distribution to holders of shares of Common Stock of cash, securities
or other property, then as a condition of such reclassification, change,
consolidation, merger, or sale of assets, the Company or such a successor
corporation or entity, as the case may be, shall forthwith make lawful and
adequate provision whereby the Registered Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, or sale of
assets, by a holder of the number of shares of Common Stock issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, or sale of assets, and enter into a supplemental warrant
agreement so providing. Such provisions shall include provision for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 8. If the issuer of securities deliverable upon
exercise of the Warrants under the supplemental warrant agreement is an
affiliate of the formed or surviving corporation or other entity, that issuer
shall join in the
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supplemental warrant agreement. The above provisions of this paragraph (b) shall
similarly apply to successive reclassifications and changes of shares of Common
Stock and to successive consolidations or mergers.
(c) Issuance of Options or Convertible Securities. In the
event the Company shall, at any time or from time to time after the date hereof,
issue, sell, distribute or otherwise grant in any manner (including by
assumption) any rights to subscribe for or to purchase, or any warrants or
options for the purchase of, Common Stock or any stock or securities convertible
into or exchangeable for Common Stock (any such rights, warrants or options
being herein called "Options" and any such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), whether or not such
Options or the rights to convert or exchange such Convertible Securities are
immediately exercisable, and the price per share at which Common Stock is
issuable upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (i) the aggregate amount, if
any, received or receivable by the Company as consideration for the issuance,
sale, distribution or granting of such Options or any such Convertible Security,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options or upon conversion or
exchange of all such Convertible Securities, plus, in the case of Options to
acquire Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the conversion or exchange of all such
Convertible Securities, by (ii) the total maximum number of shares of Common
Stock issuable upon the exercise of all such Options or upon the conversion or
exchange of all such Convertible Securities or upon the conversion or exchange
of all Convertible Securities issuable upon the exercise of all such Options)
shall be less than the current market price per share of Common Stock on the
date that the Company becomes obligated to make such issuance, sale,
distribution or granting of such Options or Convertible Securities (any such
event being herein called an "Option Issuance"), then, effective upon such
Option Issuance, (I) the Exercise Price shall be reduced to the price
(calculated to the nearest 1/1,000 of one cent) determined by multiplying the
Exercise Price in effect immediately prior to such Option Issuance by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding (exclusive of any treasury shares) immediately prior to
such Option Issuance multiplied by the current market price per share of Common
Stock on the date of such Option Issuance plus (ii) the consideration, if any,
received by the Company upon such Option Issuance, and the denominator of which
shall be the product of (A) the total number of shares of Common Stock
outstanding (exclusive of any treasury shares) immediately after such Option
Issuance multiplied by (B) the current market price per share of Common Stock on
the date of the Option Issuance and (II) the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall be increased to a number
determined by multiplying the number of shares of Common Stock so purchasable
immediately prior to the date of the Option Issuance by a fraction, the
numerator of which shall be the Exercise Price in effect immediately prior to
the adjustment required by clause (I) of this sentence and the denominator of
which shall be the Exercise Price in effect immediately after such adjustment.
For purposes of the foregoing, the total maximum number of shares of Common
Stock issuable upon exercise of all such Options or upon conversion or exchange
of all such Convertible Securities or upon the conversion or exchange of the
total maximum amount of the Convertible Securities issuable upon the exercise of
all such Options shall be deemed to have been issued as of the date of such
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<PAGE> 13
Option Issuance and thereafter shall be deemed to be outstanding and the Company
shall be deemed to have received as consideration therefor such price per share,
determined as provided above. Except as provided in paragraphs (j) and (k)
below, no additional adjustment of the Exercise Price shall be made upon the
actual exercise of such Options or upon conversion or exchange of the
Convertible Securities or upon the conversion or exchange of the Convertible
Securities issuable upon the exercise of such Options.
(d) Dividends and Distributions. In the event the Company
shall, at any time or from time to time after the date hereof, distribute to all
the holders of Common Stock any dividend or other distribution of cash,
evidences of its indebtedness, other securities or other properties or assets
(in each case other than (i) dividends payable in Common Stock, Options or
Convertible Securities and (ii) any cash dividend that, when added to all other
cash dividends paid in the one year prior to the declaration date of such
dividend, does not exceed 5% of the current market price per share of Common
Stock on such declaration date), or any options, warrants or other rights to
subscribe for or purchase any of the foregoing, then (A) the Exercise Price
shall be decreased to a price determined by multiplying the Exercise Price then
in effect by a fraction, the numerator of which shall be the current market
price per share of Common Stock on the record date for such distribution less
the sum of (X) the cash portion, if any, of such distribution per share of
Common Stock outstanding (exclusive of any treasury shares) on the record date
for such distribution plus (Y) the then fair market value (as determined in good
faith by the Board of Directors of the Company) per share of Common Stock
outstanding (exclusive of any treasury shares) on the record date for such
distribution of that portion, if any, of such distribution consisting of
evidences of indebtedness, other securities, properties, assets, options,
warrants or subscription of purchase rights, and the denominator of which shall
be such current market price per share of Common Stock and (B) the number of
shares of Common Stock purchasable upon the exercise of each Warrant shall be
increased to a number determined by multiplying the number of shares of Common
Stock so purchasable immediately prior to the record date for such distribution
by a fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by clause (A) of this sentence and
the denominator of which shall be the Exercise Price in effect immediately after
such adjustment. The adjustments required by this paragraph (d) shall be made
whenever any such distribution occurs retroactive to the record date for the
determination of stockholders entitled to receive such distribution.
(e) Sale of Common Stock Below its Current Market Price. In
the event the Company shall, at any time or from time to time after the date
hereof, issue or sell any shares of Common Stock and the price per share at
which such shares were issued or sold shall be less than the current market
price per share of Common Stock on the date the Company becomes obligated to
make such issuance or sale, then, effective upon such issuance or sale (i) the
Exercise Price shall be reduced to the price (calculated to the nearest 1/1,000
of one cent) determined by multiplying the Exercise Price in effect immediately
prior to such issuance or sale by a fraction, the numerator of which shall be
the sum of (A) the number of shares of Common Stock outstanding (exclusive of
any treasury shares) immediately prior to such issuance or sale multiplied by
the current market price per share of Common Stock on the date of such issuance
or sale plus (B) the consideration received by the Company upon such issuance or
sale and the
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<PAGE> 14
denominator of which shall be the product of (X) the total number of shares of
Common Stock outstanding (exclusive of any treasury shares) immediately after
such issuance or sale multiplied by (Y) the current market price per share of
Common Stock on the date of such issuance or sale and (ii) the number of shares
of Common Stock purchasable upon the exercise of each Warrant shall be increased
to a number determined by multiplying the number of shares of Common Stock so
purchasable immediately prior to the date of such issuance or sale by a
fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by clause (i) of this sentence and
the denominator of which shall be the Exercise Price in effect immediately after
such adjustment.
(f) Current Market Price. For the purpose of any computation
of current market price under this Section 8 and Section 9, the current market
price per share of Common Stock at any date shall be (x) for purposes of Section
9 and any Options granted to the Company's directors and officers under the
Stock Option Plans, the closing price on the business day immediately prior to
the exercise of the applicable Warrant or the grant of any such Options, and (y)
in all other cases, the average of the daily closing prices for the shorter of
(i) the 20 consecutive trading days ending on the last full trading day on the
exchange or market described below prior to the Time of Determination (as
defined below) and (ii) the period commencing on the date next succeeding the
first public announcement of the issuance, sale, distribution or granting in
question through such last full trading day prior to the Time of Determination.
The term "Time of Determination" as used herein shall be the time and date of
the earlier to occur of (A) the date as of which the current market price is to
be computed and (B) the last full trading day on such exchange or market before
the commencement of "ex-dividend" trading in the Common Stock relating to the
event giving rise to the adjustment. The closing price for any day shall be the
last reported sale price regular way or, in case no such reported sale takes
place on such day, the average of the closing bid and asked prices regular way
for such day, in each case (1) on the principal national securities exchange on
which the shares of Common Stock are listed or to which such shares are admitted
to trading or (2) if the Common Stock is not listed or admitted to trading on a
national securities exchange, in the over-the-counter market as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System
("Nasdaq National Market") or any comparable system or (3) if the Common Stock
is not listed on Nasdaq National Market or a comparable system, as furnished by
two members of the NASD selected from time to time in good faith by the Board of
Directors of the Company for that purpose. In the absence of all of the
foregoing, or if for any reason the current market price per share cannot be
determined pursuant to the foregoing provisions of this paragraph (f), the
current market price per share shall be the fair market value thereof as
determined in good faith by the Board of Directors of the Company.
(g) Change in Number of Warrants. The Company may elect, upon
any adjustment of the Exercise Price hereunder, to adjust the number of Warrants
outstanding, in lieu of the adjustment in the number of shares of Common Stock
purchasable upon the exercise of each Warrant as hereinabove provided, so that
each Warrant outstanding after such adjustment shall represent the right to
purchase one share of Common Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of Warrants
(calculated to the nearest tenth) determined by multiplying the number one by a
fraction, the
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<PAGE> 15
numerator of which shall be the Exercise Price in effect immediately prior to
such adjustment and the denominator of which shall be the Exercise Price in
effect immediately after such adjustment. Upon each adjustment of the number of
Warrants pursuant to this Section 8, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates, on the date of such adjustment, Warrant Certificates evidencing,
subject to Section 9 hereof, the number of additional Warrants to which such
Registered Holder shall be entitled as a result of such adjustment or, at the
option of the Company, cause to be distributed to such Registered Holder in
substitution and replacement for the Warrant Certificates held by such
Registered Holder prior to the date of adjustment (and upon surrender thereof,
if required by the Company) new Warrant Certificates evidencing the number of
Warrants to which such Registered Holder shall be entitled after such
adjustment.
(h) Consideration Received. If any shares of Common Stock,
Options or Convertible Securities shall be issued, sold or distributed for a
consideration other than cash, the amount of the consideration other than cash
received by the Company in respect thereof shall be deemed to be the then fair
market value of such consideration (as determined in good faith by the Board of
Directors of the Company). If any Options shall be issued in connection with the
issuance and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
without consideration. If the Company shall pay a dividend or make any other
distribution payable in Options or Convertible Securities, then such Options or
Convertible Securities shall be deemed to have been issued or sold without
consideration.
(i) Deferral of Certain Adjustments. No adjustment to the
Exercise Price (including the related adjustment to the number of shares of
Common Stock purchasable upon the exercise of each Warrant) shall be required
hereunder unless such adjustment, together with other adjustments carried
forward as provided below, would result in an increase or decrease of at least
one percent of the Exercise Price; provided that any adjustments which by reason
of this paragraph (i) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. No adjustment need to be made
for a change in the par value of the Common Stock. All calculations under this
Section 8 shall be made to the nearest 1/1,000 of one cent or to the nearest
1/1000 of a share, as the case may be.
(j) Changes in Options and Convertible Securities. If the
exercise price provided for in any Options referred to in paragraph (c) above,
the additional consideration, if any, payable upon the conversion or exchange of
any Convertible Securities referred to in paragraph (c) above, or the rate at
which any Convertible Securities referred to in paragraph (c) above are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution upon an event which results in a related adjustment pursuant to this
Section 8), the Exercise Price then in effect and the number of shares of Common
Stock purchasable upon the exercise of each Warrant shall forthwith be
readjusted (effective only with respect to any exercise of any Warrant after
such readjustment) to the Exercise Price and number of shares of Common Stock so
purchasable that would then be in effect had the adjustment made upon the
issuance, sale, distribution or granting
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<PAGE> 16
of such Options or Convertible Securities been made based upon such changed
purchase price, additional consideration or conversion rate, as the case may be,
but only with respect to such Options and Convertible Securities as then remain
outstanding.
(k) Expiration of Options and Convertible Securities. If at
any time after any adjustment to the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall have been made pursuant to
paragraph (c) or (j) above or this paragraph (k), any Options or Convertible
Securities shall have expired unexercised, the number of such shares so
purchasable with respect to any then outstanding Warrants shall, upon such
expiration, be readjusted and shall thereafter be such as they would have been
had all of the Warrants outstanding at the time of the original adjustment been
adjusted (or had the original adjustment not been required, as the case may be)
as if (i) the only shares of Common Stock deemed to have been issued in
connection with such Options or Convertible Securities were the shares of Common
Stock, if any, actually issued or sold upon the exercise of such Options or
Convertible Securities and (ii) such shares of Common Stock, if any, were issued
or sold for the consideration actually received by the Company upon such
exercise plus the aggregate consideration, if any, actually received by the
Company for the issuance, sale, distribution or granting of all such Options or
Convertible Securities, whether or not exercised; provided that no such
readjustment shall have the effect of decreasing the number of such shares so
purchasable by an amount (calculated by adjusting such decrease to account for
all other adjustments made pursuant to this Section 8 following the date of the
original adjustment referred to above) in excess of the amount of the adjustment
initially made in respect of the issuance, sale, distribution or granting of
such Options or Convertible Securities.
(l) Other Adjustments. In the event that at any time, as a
result of an adjustment made pursuant to this Section 8, the Registered Holders
shall become entitled to receive any securities of the Company other than shares
of Common Stock, thereafter the number of such other securities so receivable
upon exercise of the Warrants and the Exercise Price applicable to such exercise
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the shares of
Common Stock contained in this Section 8.
(m) Common Stock. As used in this Section 8, the term "Common
Stock" shall mean and include the Common Stock authorized on the date of the
original issue of the shares of Common Stock and Warrants in connection with the
Public Offering and shall also include any capital stock of any class of the
Company thereafter authorized that is not limited to a fixed sum or percentage
in respect of the rights of the holders thereof to participate in dividends and
in the distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include only shares of such class designated in
the Company's Certificate of Incorporation as Common Stock on the date of the
original issue of the shares of Common Stock and Warrants in connection with the
Public Offering or (i) in the case of any reclassification, change,
consolidation, merger, or sale of assets of the character referred to in Section
8(b) hereof, the stock, securities or property provided for in such section or
(ii) in the case of any reclassification or change in the outstanding shares of
Common Stock issuable upon exercise of the Warrants as a result of a subdivision
or combination or consisting of a change in par value, or from par value
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<PAGE> 17
to no par value, or from no par value to par value, such shares of Common Stock
as so reclassified or changed.
(n) Determination of Gross Sales Price. In case of the sale
for cash of any shares of Common Stock, Options, or Convertible Securities, the
consideration received by the Company therefor shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith.
(o) Events Resulting in No Adjustments. No adjustment to the
Exercise Price of the Warrants or to the number of shares of Common Stock
purchasable upon the exercise of each Warrant, however, will be made upon (i)
the sale of any shares of Common Stock or Warrants in the Public Offering
(including the exercise of the over-allotment option granted to the
underwriters), (ii) the exercise of any stock options issued under the Company's
1997 Stock Option Plan, 1996 Stock Option Plan, 1992 Non-Qualified Stock Option
Plan or 1988 Non-Qualified Stock Option Plan (the "Stock Option Plans") to
officers, directors and employees of the Company under the terms of such plans
as they exist on the date hereof, (iii) the exercise of any warrants by officers
and directors of the Company, (iv) the sale of any shares of Common Stock or
Warrants pursuant to the exercise of any Managing Underwriters' Warrant, or (v)
the sale of any shares of Common Stock upon the exercise of any Warrants
(collectively, the "Exempt Securities").
(p) Notice of Change in Exercise Price. Upon any adjustment of
the Exercise Price pursuant to Section 8, the Company shall promptly thereafter
(i) cause to be prepared a certificate of the President and Chief Executive
Officer of the Company setting forth the Exercise Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculations are based and setting forth the number of shares of
Common Stock (or portion thereof) issuable after such adjustment in the Exercise
Price upon exercise of a Warrant and payment of the adjusted Exercise Price,
which certificate shall be conclusive evidence of the correctness of the matters
set forth therein absent manifest error, provided that if the Warrant Agent
reasonably requests, the Company shall engage a firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company (who may be the regular auditors of the Company) to prepare and file
such certificate in lieu of the certificate of the President and Chief Executive
Officer, in which case such certificate shall be conclusive evidence of the
matters set forth therein absent manifest error, and (ii) deliver the Warrant
Agent at its Corporate Office and to each of the Registered Holders of the
Warrant Certificates at the address appearing on the registry books maintained
by the Warrant Agent written notice of such adjustments by first-class mail,
postage prepaid. The Warrant Agent shall be entitled to rely on the
above-referenced certificate and shall be under no duty or responsibility with
respect to any such certificate, except to exhibit the same from time to time to
any Registered Holder desiring an inspection thereof during reasonable business
hours. The Warrant Agent shall not at any time be under any duty or
responsibility to any Registered Holder to determine whether any facts exist
that may require any adjustment of the number of shares of Common Stock or other
stock or property issuable on exercise of the Warrants or the Exercise Price, or
with respect to the nature or extent of any such adjustment when made, or with
respect to the method employed in making such adjustment or the validity or
value (or the kind or amount) of any shares of Common Stock or other stock or
property which may be issuable on exercise of the Warrants.
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<PAGE> 18
(q) Notice of Certain Events. With respect to any Notice
Event, the Company shall cause to be filed with the Warrant Agent and shall
cause to be given to each of the Registered Holders of the Warrant Certificates
at such Registered Holder's address appearing on the registry books maintained
by the Warrant Agent, at least 20 days prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is no
record date, by first class mail, postage prepaid, a written notice stating (i)
the date as of which the holders of record of shares of Common Stock entitled to
receive any such rights, options, warrants or distribution is to be determined,
(ii) the initial expiration date set forth in any tender offer or exchange offer
for shares of Common Stock, or (iii) the date on which any such consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up is expected
to become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 8(q) or any defect therein shall not affect the legality or validity of
any distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, or liquidation or winding up, or the vote upon any
action, provided that the Registered Holders shall retain any right to damages
from the Company with respect to such failure.
SECTION 9. Fractional Warrants and Fractional Shares.
Regardless of whether or not the number of shares of Common Stock purchasable
upon the exercise of each Warrant is adjusted pursuant to Section 8 hereof, the
Company shall nevertheless not be required to issue or sell fractions of shares
upon exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called for
upon the exercise of any Warrants, the Company shall pay to the Registered
Holder an amount in cash equal to such fraction multiplied by the current market
price per share as determined pursuant to Section 8(f) hereof. To the extent
possible, upon a Registered Holder's exercise of more than one Warrant the
shares issuable or transferable shall be aggregated so that the Company shall
only be required to pay for the value of one fractional share.
SECTION 10. Warrant Holders Not Deemed Stockholders. No
Registered Holder shall, as such, be entitled to vote or to receive dividends or
be deemed the holder of Common Stock that may at any time be issuable or
transferable upon exercise of such Warrants for any purpose whatsoever, nor
shall anything contained herein be construed to confer upon the holder of
Warrants, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issue or reclassification
of stock, change of par value or change of stock to no par value, consolidation,
merger or conveyance or otherwise), or to receive notice of meetings, or to
receive dividends or subscription rights, until such Registered Holder shall
have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
18
<PAGE> 19
SECTION 11. Rights of Action. All rights of action with
respect to this Agreement are vested in the respective Registered Holders of the
Warrants, and any Registered Holder of a Warrant, without consent of the Warrant
Agent or of the holder of any other Warrant, may, on his or her own behalf and
for his or her own benefit, enforce against the Company his or her right to
exercise the Warrants for the purchase of shares of Common Stock in the manner
provided in the Warrant Certificate and this Agreement.
SECTION 12. Agreement of Warrant Holders. Every holder of a
Warrant, by his or her acceptance thereof, consents and agrees with the Company,
the Warrant Agent and every other holder of a Warrant that:
(a) Transfer of Warrants. The Warrants are transferable only
on the registry books of the Warrant Agent by the Registered Holder thereof in
person or by his attorney-in-fact duly authorized in writing and only if the
Warrant Certificates representing such Warrants are surrendered at the office of
the Warrant Agent, duly endorsed or accompanied by a proper instrument of
transfer satisfactory to the Warrant Agent in its sole discretion, together with
payment of any applicable transfer taxes; and
(b) Registered Holder Treated as Absolute Owner. The Company
and the Warrant Agent may deem and treat the person in whose name the Warrant
Certificate is registered as the Registered Holder thereof and as the absolute,
true and lawful owner of the Warrants represented thereby for all purposes, and
the Company and the Warrant Agent shall not be affected by any notice or
knowledge to the contrary.
SECTION 13. Cancellation of Warrant Certificates. If the
Company shall acquire any Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be cancelled by the Warrant
Agent, and the Company shall retire such Warrants. The Warrant Agent shall also
cancel Warrant Certificates surrendered to the Warrant Agent following exercise
of any or all of the Warrants represented thereby or delivered to it for
transfer, splitup, combination or exchange.
SECTION 14. Concerning the Warrant Agent. The Warrant Agent
acts hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall account promptly to the Company with
respect to Warrants exercised and concurrently deposit all moneys received by
19
<PAGE> 20
the Warrant Agent upon the exercise of Warrants into an account of the Company
as designated in writing by the Company or as the Company may otherwise direct
in writing. The Warrant Agent shall, upon request of the Company from time to
time, deliver to the Company such complete reports of registered ownership of
the Warrants and such complete records of transactions with respect to the
Warrants as the Company may request. The Warrant Agent shall also make
available to the Company for inspection by their agents or employees, from
time to time as they may request, such original books of accounts and record
as may be maintained by the Warrant Agent in connection with the issuance and
exercise of Warrants hereunder, such inspections to occur at the Warrant
Agent's Corporate Office during normal business hours.
The Warrant Agent shall not at any time be under any duty or
responsibility to any Registered Holder to make or cause to be made any
adjustment of the Exercise Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustments, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. The Warrant Agent shall not be (i)
liable for any recital or statement of facts contained herein or for any action
taken, suffered or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) responsible for
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or
(iii) liable for any act or omission in connection with this Agreement except
for its own negligence or willful misconduct. The Warrant Agent may at any
time consult with counsel satisfactory to it (who may be counsel for the
Company) and shall incur no liability or responsibility for any action taken,
suffered or omitted by it in good faith in accordance with the opinion or
advice of such counsel.
Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument signed
by the Chairman of the Board, the President, any Vice President, the Treasurer,
any assistant Treasurer, the Secretary, or any Assistant Secretary (unless
other evidence in respect thereof is herein specifically prescribed). The
Warrant Agent shall not be liable for any action taken, suffered or omitted by
it in accordance with such notice, statement, instruction, request, direction,
order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder, including reasonable legal fees. The Company further
agrees to indemnify the Warrant Agent and save it harmless against any and
all losses, expenses and liabilities, including judgments, costs and legal
fees, for anything done or omitted by the Warrant Agent in the execution of
its duties and powers hereunder except losses, expenses and liabilities
arising as a result of the Warrant Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or willful misconduct), upon 30
days prior written notice to the Company and the
20
<PAGE> 21
Selling Stockholders and the Company may discharge the Warrant Agent from its
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agent's own negligence or willful misconduct) upon 30 days prior written
notice to the Warrant Agent. At least 15 days prior to the date such resignation
or discharge is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation or discharge to be mailed to the Registered Holder of
each Warrant Certificate at the Company's expense. Upon such resignation or
discharge, or any inability of the Warrant Agent to act as such hereunder, the
Company shall appoint a new warrant agent in writing. If the Company shall fail
to make such appointment within a period of 15 days after it has been notified
in writing of such resignation by the resigning Warrant Agent, or within a
period of 15 days after the Warrant Agent has been notified by the Company of
such discharge, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, the Warrant Agent's
resignation or discharge shall be deemed to be effective and such new warrant
agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named herein as the Warrant Agent, without any
further assurance, conveyance, act or deed; but if for any reason it shall be
necessary or expedient to execute and deliver any further assurance, conveyance,
act or deed, the same shall be done at the expense of the Company and shall be
legally and validly executed and delivered by the resigning Warrant Agent. Not
later than the effective date of any such appointment, the Company shall file
notice thereof with the resigning Warrant Agent and shall forthwith cause a copy
of such notice to be mailed to the Company and the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent may be converted
or merged or any corporation resulting from any consolidation to which the
Warrant Agent shall be a party or any corporation succeeding to the trust
business of the Warrant Agent shall be a successor warrant agent under this
Agreement without any further act, provided that such corporation is eligible
for appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and the
Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 15. Modification of Agreement.
(a) Approval of Registered Holders. Subject to the provisions
of Section 15(b) hereof, the Company and the Warrant Agent may by supplemental
agreement make any
21
<PAGE> 22
changes or corrections in this Agreement that (i) they deem appropriate to cure
any ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained or (ii) they deem necessary or desirable and
which shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that except as otherwise indicated in this
section and this Agreement, this Agreement shall not otherwise be modified,
supplemented or altered in any respect, including the modification of the number
of shares of Common Stock issuable upon exercise of the Warrants, the Exercise
Price and the Warrant Expiration Date, except with the consent in writing of the
Company, the Warrant Agent, and the Registered Holders of Warrant Certificates
representing not less than two-thirds of the Warrants then outstanding.
(b) Decrease in Exercise Price. The Company shall have the
right at any time and from time to time to decrease the Exercise Price for a
period of not less than 30 days on not less than 30 days prior written notice to
the Registered Holders of the Warrants and the Managing Underwriters.
SECTION 16. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 10 Industry Drive, Lancaster, Pennsylvania 17603,
Attention: President (with a copy to: Blau, Kramer, Wactlar & Lieberman, P.C.,
100 Jericho Quadrangle, Jericho, NY 11753, Attention: David Lieberman, Esq.,
Facsimile No.: (516) 822-5609); if to the Warrant Agent, at its Corporate
Office.
SECTION 17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 18. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Company and the Warrant Agent (and their
respective successors and assigns) and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law,
or to impose upon any other person any duty, liability or obligation.
SECTION 19. Termination. This Agreement shall terminate on the
earliest to occur of (a) the Expiration Date, (b) the date upon which all
Warrants have been exercised and (c) the date on which the Company certifies
to the Warrant Agent that no Warrants are outstanding; provided however, that
notwithstanding any such termination, the Warrant Agent shall be obligated to
deliver funds to the Company in accordance with this Agreement.
SECTION 20. Counterparts. This Agreement may be executed in
counterparts, all of which taken together shall constitute a single document.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first above written.
HERLEY INDUSTRIES, INC.
By:_________________________________________
Myron Levy
President
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:_________________________________________
Authorized Officer
23
<PAGE> 24
EXHIBIT A
No. W __________ __________ Warrants
WARRANT CERTIFICATE
HERLEY INDUSTRIES, INC.
This Warrant Certificate certifies that ____________, or its registered
assigns is the registered holder (the "Registered Holder") of the number of
Warrants set forth above, each of which represents the right to purchase one
fully paid and nonassessable share of common stock, par value $.10 per share
(the "Common Stock"), of Herley Industries, Inc., a Delaware corporation (the
"Company"), at any time until the Expiration Date hereinafter referred to, by
surrendering this Warrant Certificate, with the exercise form set forth hereon
duly executed with signatures guaranteed as provided below, at the office
maintained pursuant to the Warrant Agreement hereinafter referred to for that
purpose by American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005, and any other offices of the Warrant Agent or its successor
designated for such purpose (any such warrant agent being herein called the
"Warrant Agent"), and by paying in full the sum of $____ per share if exercised
on or before January ____, 1999, and $____ per share if exercised after January
____, 1999 and on or before the Expiration Date (as defined below) (the
"Exercise Price"), plus transfer taxes, if any. Payment of the Exercise Price
shall be made in United States currency, by certified check or money order
payable to the order of the Company.
Upon certain events provided for in the Warrant Agreement, the Exercise
Price and the number of shares of Common Stock issuable upon the exercise of
each Warrant are required to be adjusted.
No Warrant may be exercised after 5:00 p.m. (New York City time) on
January ___, 2000 or on such expiration date as may be extended to provide the
Registered Holder at least 90 days written notice of such expiration date or to
maintain an effective registration statement under the Securities Act of 1933,
as amended (the "Securities Act") for at least 90 consecutive days prior to such
expiration date (the "Expiration Date"). After the Expiration Date, all Warrants
evidenced hereby shall thereafter become void, and the holders thereof shall
have no rights hereunder. Prior to the Expiration Date, subject to any
applicable laws, rules or regulations restricting transferability and to any
restriction on transferability that may appear on this Warrant Certificate in
accordance with the terms of the Warrant Agreement, the Registered Holder shall
be entitled to transfer this Warrant Certificate in whole or in part upon
surrender of this Warrant Certificate at the office of the Warrant Agent with
the form of assignment set forth hereon duly executed, with signatures
guaranteed by a member firm of a national securities exchange, a commercial
A-1
<PAGE> 25
bank, a savings bank or a savings and loan association or a trust company
located in the United States, a member of the National Association of Securities
Dealers, Inc. or other eligible guarantor institution which is a participant in
a signature guarantee program (as such terms are defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended). Upon any such transfer, a new
Warrant Certificate or Warrant Certificates representing the same aggregate
number of Warrants will be issued in accordance with the instructions in the
form of assignment.
No Warrant is exercisable unless, at the time of such exercise, the
Company has a registration statement in effect under the Securities Act covering
the shares of Common Stock issuable or transferable upon exercise of such
Warrant, and such shares have been registered or qualified under the securities
laws of the state of residence of the exercising Registered Holder, or such
issuance or transfer is exempt from the registration requirements of the
Securities Act and such shares of Common Stock are exempt from such registration
or qualification.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled
to exchange this Warrant Certificate, with or without other Warrant
Certificates, for another Warrant Certificate or Warrant Certificates for the
same aggregate number of Warrants, upon surrender of this Warrant Certificate at
the office maintained for such purpose by the Warrant Agent.
No fractional shares will be issued upon the exercise of Warrants. As
to any final fraction of a share, which the Registered Holder of one or more
Warrant Certificates, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, the
Registered Holder shall be paid the cash value thereof determined as provided in
the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement between the Company and the Warrant Agent (the "Warrant
Agreement") and is subject to the terms and provisions contained in said Warrant
Agreement, to all of which terms and provisions the Registered Holder consents
by acceptance hereof.
This Warrant Certificate shall not entitle the Registered Holder to any
of the rights of a stockholder of the Company, including, without limitation,
the right to vote, to receive dividends and other distributions, or to attend or
receive any notice of meetings of stockholders or any other proceedings of the
Company.
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
A-2
<PAGE> 26
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
DATED _____________________ HERLEY INDUSTRIES, INC.
By:______________________________
President
[SEAL] ______________________________
Treasurer
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST
COMPANY, WARRANT AGENT
By:_________________________
Authorized Officer
A-3
<PAGE> 27
[REVERSE SIDE]
Exercise Form
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive_______________ shares of
Common Stock and herewith makes payment therefor. The undersigned requests that
a certificate for such shares be registered in the name of___________________,
whose address is ____________________and whose social security or other
identifying number is _________________, and that such shares be delivered
to__________________________, whose address is _________________________. If
said number of shares is less than all of the shares of Common Stock purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the balance of such shares be registered in the name of ____________________,
whose address is_______________________ and whose social security or other
identifying number is _________________, and that such Warrant Certificate be
delivered to ___________________________, whose address is
___________________________________.
Date:__________________________________ ______________________________
Signature
Signature Guaranteed:
______________________________
The signature to the exercise form must correspond to the name as
written upon the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever. The signature should be
guaranteed by an eligible guarantor institution (banks, stockbrokers, savings
and loan associations and credit unions with membership in an approved signature
guarantee medallion program), pursuant to Rule 17Ad-15.
A-4
<PAGE> 28
Form of Assignment
For value received, the undersigned hereby sells, assigns and transfers
unto __________________________, whose address is ________________________ and
whose social security or other identifying number is __________________, the
Warrants represented by this Warrant Certificate (or ____ Warrants, if less than
all of the Warrants represented by this certificate), and hereby irrevocably
constitutes and appoints the Warrant Agent as his or her attorney-in-fact to
transfer this Warrant Certificate in the books of the Warrant Agent maintained
for such purpose, with full power of substitution and re-substitution in the
premises. If said number of Warrants is less than all of the Warrants evidenced
by this certificate, the undersigned requests that a new Warrant Certificate
representing the balance of such Warrants be registered in the name of
_____________________, whose address is _______________________________ and
whose social security or other identifying number is ________________, and that
such Warrant Certificate be delivered to ___________________, whose address is
_____________________________.
Date:__________________________________ ______________________________
Signature
Signature Guaranteed:
______________________________
The signature to the assignment form must correspond to the name as
written upon the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever. The signature should be
guaranteed by an eligible guarantor institution (banks, stockbrokers, savings
and loan associations and credit unions with membership in an approved signature
guarantee medallion program), pursuant to Rule 17Ad-15.
A-5
<PAGE> 1
Exhibit 5.1
December 10, 1997
Securities and Exchange Commission
450 Fifth Avenue, N W.
Washington, D.C. 20549
Re: HERLEY INDUSTRIES, INC.
REGISTRATION STATEMENT ON FORM S-1
Gentlemen:
Reference is made to the filing by Herley Industries, Inc. (the
"Company") of a Registration Statement on Form S-1 (the "Registration
Statement"), as amended, with the Securities and Exchange Commission pursuant to
the provisions of the Securities Act of 1933, as amended, covering the
registration of (a) 3,220,000 shares of the Company's common stock, par value
$.001 per share (the "Common Stock"); and (b) 1,610,000 common stock purchase
warrants (the "Warrants").
As counsel for the Company, we have examined its corporate records,
including its Certificate of Incorporation, By-Laws, its corporate minutes, the
form of its Common Stock certificate and Warrant certificate and such other
documents as we have deemed necessary or relevant under the circumstances.
Based upon our examination, we are of the opinion that:
1. The Company is duly organized and validly existing under the laws
of the State of Delaware.
<PAGE> 2
Securities and Exchange Commission
December 10, 1997
Page -2-
2. The shares of Common Stock and the Warrants covered by the
Registration Statement have been duly authorized and, when issued in accordance
with their terms, as more fully described in the Registration Statement, will be
validly issued, fully paid and non-assessable.
3. The shares of Common Stock reserved for issuance upon the exercise
of the Warrants when issued in accordance with the terms and conditions of such
Warrants, will be validly issued, fully paid and non-assessable.
We hereby consent to be named in the Registration Statement and in the
Prospectus which constitutes a part thereof as counsel to the Company, and we
hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement.
Very truly yours,
BLAU, KRAMER, WACTLAR
& LIEBERMAN, P.C.
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 1st day of November, 1997, by and between
HERLEY INDUSTRIES, INC., a Delaware corporation (hereinafter the "Company") and
GERALD I. KLEIN, (hereinafter called the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and Employee entered into Employment Agreements
dated November 1, 1987, April 1, 1990 and January 1, 1992; and
WHEREAS, the Employment Agreement, dated January 1, 1992 was modified
by Letter Agreements, dated November 30, 1992, June 21, 1993, November 28, 1994
and October 8, 1996; and
WHEREAS, the Company and Employee desire to enter into a new employment
agreement (the "Employment Agreement"), which agreement shall supersede all
prior employment agreements and modifications thereto.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, the parties hereto agree as follows:
1. PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes any
employment or consulting agreements, or modifications or amendments thereto,
oral or written, entered into between Employee and the Company or any of its
subsidiaries, prior to the date of this Agreement, including, but not limited
to, (i) the Employment Agreements between Employee and the Company, dated
November 1, 1987, April 1, 1990 and January 1, 1992 and (ii) the modifications
and amendments to the January 1, 1992 Employment Agreement, dated
<PAGE> 2
November 30, 1992, June 21, 1993, November 28, 1994 and October 8, 1996.
2. TERM AND DUTIES. (a) Subject to earlier termination on the terms and
conditions hereinafter provided, the term of the Employment Agreement shall be
comprised of a period of active employment commencing on November 1, 1997 and
ending on October 31, 2001 and a "consulting period" commencing at the end of
the period of active employment and continuing thereafter to December 31, 2010.
Notwithstanding the foregoing, Employee shall have the right to terminate his
active employment and commence his consulting period at any time during his
active employment.
(b) During the period of active employment, Employee shall be employed
as an executive of the Company. In such capacity, Employee agrees that he shall
serve the Company under the direction of the Chief Executive Officer of the
Company to the best of his ability, shall devote full time during normal
business hours to such employment, shall perform all duties incident to his
offices on behalf of the Company, and shall perform such other duties as may
form time to time be assigned to him by the Chief Executive Officer of the
Company.
(c) Effective with the termination of the period of active employment,
Employee shall cease to be an employee of the Company. However, in recognition
of the continued value to the Company of Employee's extensive knowledge and
expertise, Employee shall serve as a consultant to the Company during the
consulting period. In such capacity, Employee shall consult with the Company and
its respective senior executive officers with respect to its respective
businesses and operations. Such consulting services shall not require more than
fifty (50) days in any one year, it being understood and agreed that during the
consulting period Employee shall have the right to undertake full time or part
time employment with any business enterprise which is not a competitor of the
Company. Employee's services as a consultant to the Company shall be required at
such times and such places as shall result in the least
<PAGE> 3
inconvenience to Employee, having in mind his other business commitments which
may obligate him to perform services prior to the performance of his services
hereunder. To the end that there shall be a minimum of interference with
Employee's other commitments, his consulting services shall be rendered by
personal consultation at his residence or office wherever maintained, or by
correspondence through mail, telegram or telephone, or other similar modes of
communications at times, including weekends and evenings, most convenient to
him. During the consulting period, Employee shall not be obligated to serve as a
member of the Board of Directors of the Company or to occupy any office on
behalf of the Employer or any of its subsidiaries or affiliates.
3. RENUMERATION. (a) During the period of active employment, Employee
shall receive the following compensation:
(i) The Company shall pay Employee a basic salary in the total
sum of TWO HUNDRED SEVENTY-FIVE THOUSAND ($275,000) DOLLARS per annum
during the term of his active employment with the Company; which salary
shall be paid in weekly installments or in such other manner as shall
be agreed to by the Company and Employee.
(ii) In addition to his salary set forth in Paragraph 3(a)(i)
above, Employee shall receive an increment in an amount equal to the
cumulative cost of living on his base salary as set forth in paragraph
3(a) (i) hereof as reported in the "Consumer Price Index, New York
Northeastern New Jersey, all items", published by the United States
Department of Labor, Bureau of Labor Statistics (using January 1, 1997
as the base date for computation). Such cost of living increment with
respect to the aforesaid salary of Employee shall be made semi-annually
as follows:
A. With respect to the first six months of each calendar year
during the period of
<PAGE> 4
employment, such increment shall be calculated and payable on or before
the first day of August of such year; and
B. With respect to the last six months of each calendar year
during the period of employment, such increment shall be calculated and
payable on or before the first day of February of the following
calendar year.
If Employee's employment shall terminated during any six month period
referred to in this Paragraph 3(ii), then the cost of living increment provided
for herein shall be prorated accordingly.
(iii) Not later than one hundred twenty (120) days after the
end of the fiscal year of the Company ending July 31, 1998 and for each
subsequent fiscal year of the Company ending during the period of
active employment, the Company shall also pay to Employee, as incentive
compensation, three (3%) percent of the Consolidated Pretax Earnings of
the Company in excess of the Company's Minimum Consolidated Pretax
Earnings, as defined below in this clause (iii), and in no event more
than Employee's annual salary set forth in clause (i) immediately
above. For purposes hereof, the term "Consolidated Pretax Earnings of
the Company" shall mean, with respect to any fiscal year, the
consolidated income if any, of the Company for such fiscal year as set
forth in the audited, consolidated financial statements (the "Financial
Statements") of the Company and its subsidiaries included in its Annual
Report to stockholders for such fiscal year, before deduction of taxes
based on income or of the incentive compensation to be paid to Employee
for such Fiscal year under this Agreement. For the purpose hereof the
term "Minimum Consolidated Pretax Earnings" of the Company shall mean,
with respect to any fiscal year, the amount of Consolidated Pretax
Earnings of the Company equal to ten percent (10%) of (x) the Company's
Stockholders' Equity, as set forth in the Financial
<PAGE> 5
Statements for the beginning of such fiscal year, plus (y) the proceeds
from the sale or acquisition of the Company's equity securities, less
(z) the purchase price from the acquisition of the Company's equity
securities, on a time-proportioned basis, during such fiscal year.
(b) During the consulting period, Employee shall be entitled to a
consulting fee at the rate of ONE HUNDRED THOUSAND ($100,000) DOLLARS per annum
payable in monthly installments or in such other manner as shall be agreeable to
the Company and Employee.
4. EMPLOYEE BENEFITS; EXPENSES. (a) During the period of active
employment, Employee shall receive all fringe benefits in the nature of health,
medical, life, and/or other insurance, a Company car and related expenses as
received by other officers of the Company.
(b) During the term of this Employment Agreement and consulting period,
the Company shall reimburse Employee for all proper expenses incurred by him,
including disbursements made in the performance of his duties to the Company;
provided, however, that no extraordinary expenses and/or disbursements shall be
incurred by Employee without the prior approval of the Chief Executive Officer
of the Company; and
(c) In the event of the death of Employee during the period of active
employment, the Company shall continue to pay to Employee's widow, or to such
other person or persons as may be designated by Employee in his Will, or to his
estate in the event of Employee's intestacy, the salary and compensation to
which Employee in entitled pursuant to Paragraph 3(a) (i) hereunder for the two
(2) year period from date of death and one-half of such salary for the balance
of the period covered by his active employment, and in the year of death a
payment equal to the pro rata amount for said year of the compensation provided
in Paragraph 3(a)(iii) that Employee may be
<PAGE> 6
entitled to.
5. NON-COMPETITION. Employee agrees that during the term of this
Employment Agreement he will not directly or indirectly enter into or remain in
the employ of any person, firm or corporation, or engage in or have a financial
interest in any business which is then directly or indirectly competitive to the
business of the Company or is then manufacturing any article or product or
performing any service which is the same as, or similar to, any articles or
products manufactured, or service performed by the Company. In the event of a
breach of this covenant not to compete, the parties acknowledge that the Company
may be irreparably damaged and may not have an adequate remedy at law. The
Company may therefore obtain injunctive relief, without the necessity of posting
a bond, for any breach or threatened breach of this covenant. The parties hereto
further acknowledge that this covenant not to compete is intended to conform
with the laws of the State of New York. Any court of competent jurisdiction is
hereby authorized to expend or contract the restrictions of this covenant not to
compete in order to conform with the laws of New York so that it shall bind the
parties hereto.
Employee further agrees that he will not use the name Herley
Industries, Inc. or any variation thereof, or otherwise allow any person to use
such name or permit any member of his family to use such name, or authorize the
use of such name as or in the name of any corporation, partnership, firm or
venture which manufactures any article, product, special process or performs any
service which is the same as, or similar or in competition with any article,
product, special process or service manufactured or performed by the Company, or
as in the name of any such article or product.
6. TERMINATION. Employee's employment hereunder may be terminated by
the Company for a material breach of the terms of this Agreement.
7. CONFIDENTIAL INFORMATION. With respect to any patent, invention,
<PAGE> 7
trademark or copyright hereinafter developed by Employee, Employee shall
promptly notify the Company of any such patent, etc., and shall execute such
documents as the Company may reasonably request in order to evidence the
Company's title to same. In the event Employee determines to develop on his own
time and expense and outside of the Company's facilities any invention,
trademark or copyright not related to the Company's business, he shall notify
the Company in writing of this determination and shall offer the Company an
opportunity to acquire a 50% interest in same upon the Company's agreement to
bear 50% of the costs (exclusive of any payments to Employee) of developing
same. Employee represents and warrants that he does not now own of record or
beneficially and directly or indirectly, any patent, etc.
8. ORDINARY COURSE. Employee shall not, on behalf of the Company, enter
into any contract other than those in the ordinary course of business of the
Company, unless approved by the Board of Directors of the Company.
9. DISABILITY. If during the term of this Employment Agreement,
Employee is unable to serve the Company in accordance with the terms hereof, for
a period of ninety (90) days or any aggregate of six (6) months in any one
calendar year for any reason whatsoever, including, but not limited to, illness
or incapacity, then the Company shall have the right, on ninety (90) days'
written notice, to terminate Employee's employment and consulting services under
this Agreement and, if Employee's employment and consulting services are so
terminated, he shall be entitled to his annual compensation pursuant to
paragraphs 3(a)(i) and 3(b) hereunder for the first year after such notice
period, payable in weekly installments, and thereafter three-fourths of such
compensation (provided that no payment shall be required for any period beyond
October 31, 2001), payable in weekly installments for the balance of the period
covered by this
Agreement.
10. CONSOLIDATION OR MERGER. In the event of any consolidation or
<PAGE> 8
merger of the Company into or with any other corporation during the term of this
Agreement, or the sale of all or substantially all of the assets of the Company
to another corporation during the term of this Agreement, such successor
corporation shall assume this Agreement and become obligated to perform all of
the terms and provisions hereof applicable to the Company, and Employee's
obligations hereunder shall continue in favor of such successor corporation.
11. NOTICES. Notice is to be given hereunder to the parties by telegram
or by certified or registered mail, addressed to the respective parties at the
addresses hereinbelow set forth or to such addresses as may be hereinafter
furnished, in writing:
TO: GERALD I. KLEIN
845 Breneman Road
Manheim, Pennsylvania 17545
TO: HERLEY INDUSTRIES, INC.
10 Industry Drive
Lancaster, Pennsylvania 17603
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon an
inure to the benefit of the successors and assigns of the Company. Unless
clearly inapplicable, reference herein to the Company shall be deemed to include
such other successor. In addition, this Agreement shall be binding upon and
inure to the benefit of the Employee and his heirs, executors, legal
representatives and assigns, provided, however, that the obligations of Employee
hereunder may not be delegated without the prior written approval of the Board
of Directors of the Company.
13. AMENDMENTS. This Agreement may not be altered, modified, amended or
terminated except by a written instrument signed by each of the parties hereto.
14. CHANGE OF CONTROL. In the event there shall be a change in the
present control of the Company as hereinafter defined, or in any person directly
or indirectly presently
<PAGE> 9
controlling the Company, as hereinafter defined, Employee shall have the right
to immediately receive as a lump sum payment an amount equal to (i) two (2)
times his "base amount", within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (hereinafter "the Code"), reduced by (ii)
$100.00.
For the purpose of this Agreement, a change in control of the
Company, or in any person directly or indirectly controlling the Company, shall
mean:
(a) a change in control as such term is presently
defined in Regulation 240.12b-2 under the Securities Exchange
Act of 1934 ("Exchange Act"); or
(b) if any "person" (as such term is used in Section
13(d) and 14(d) of the Exchange Act) other than the Company or
any "person" who on the date of this Employment Agreement is a
director or officer of the Company, becomes the "beneficial
owner" (as defined in Rule 13(d)-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing thirty percent (30%) of the voting power of the
Company's then outstanding securities; or
(c) if during any period of two (2) consecutive years
during the term of this Employment Agreement, individuals who
at the beginning of such period
<PAGE> 10
constitute the Board of Directors cease for any reason to
constitute at least a majority thereof, unless the election of
each director who is not a director at the beginning of such
period has been approved in advance by directors representing
at least two-thirds (2/3) of the directors then in office who
were directors at the beginning of the period.
15. GOVERNING LAW. This Employment Agreement is entered into and shall
be construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
HERLEY INDUSTRIES, INC.
By:____________________________
LEE. N. BLATT
Chairman
_______________________________
GERALD I. KLEIN
Employee
<PAGE> 1
EXHIBIT 10.15
MANAGING UNDERWRITERS' WARRANT AGREEMENT
MANAGING UNDERWRITERS' WARRANT AGREEMENT, dated as of this ____ day of
December 1997, by and between Herley Industries, Inc. (the "Company"), Janney
Montgomery Scott Inc. ("JMS") and Southwest Securities, Inc. ("Southwest") (JMS
and Southwest, collectively, the "Managing Underwriters").
W I T N E S S E T H
WHEREAS, the Company proposes to make a public offering (the
"Offering") of shares of Common Stock (as defined in Section 1) and common stock
purchase warrants (the "Warrants"), each Warrant exercisable to purchase one
share of Common Stock; and
WHEREAS, in relation to the Offering, the Company has filed a
Registration Statement on Form S-1 with the Securities and Exchange Commission
(the "SEC"); and
WHEREAS, in connection with the Offering, the Company desires to sell
and the Managing Underwriters desire to purchase Managing Underwriters' Warrants
(as defined in Section 1), each of which shall be represented by a certificate
(each such certificate, a "Managing Underwriters' Warrant Certificate"), which
the Managing Underwriters may exercise to purchase Underlying Shares (as defined
in Section 1) and Underlying Warrants (as defined in Section 1) pursuant to the
terms of this Agreement and such certificates;
WHEREAS, pursuant to this Agreement, each of the Managing Underwriters
shall receive initially the right to purchase 70,000 Underlying Shares and
70,000 Underlying Warrants;
NOW, THEREFORE, in consideration of $10 paid by the Managing
Underwriters to the Company and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and for the purpose of
defining the terms and provisions of the Managing Underwriters' Warrants and the
Managing Underwriters' Warrant Certificates and the respective rights and
obligations thereunder of the Company, the Managing Underwriters and the
Managing Underwriters' Warrant Holders (as defined in Section 1), the parties
hereto hereby agree as follows:
SECTION 1. Definitions. The following terms as used in this Agreement
shall have the meanings set forth below:
(a) "Business Day" means a day other than a Saturday, Sunday or
other day on which banks in the State of New York are authorized by law to
remain closed;
<PAGE> 2
(b) "Common Stock" shall mean the Company's common stock, par value
$.10 per share;
(c) "Company" shall have the meaning set forth in the introductory
paragraph;
(d) "Convertible Securities" shall have the meaning set forth in
Section 4(c);
(e) "Exempt Securities" shall have the meaning set forth in Section
4(o);
(f) "Exercise Date" shall mean the date on which the Company shall
have received both (i) the Managing Underwriters' Warrant Certificate
representing the Managing Underwriters' Warrant, with the exercise form
thereon duly executed by the Warrant Holder, or his attorney-in-fact duly
authorized in writing, and (ii) payment in cash, or by official bank or
certified check made payable to the Company, of an amount in lawful money
of the United States of America equal to the Underlying Share Purchase
Price and/or the Underlying Warrant Purchase Price, as the case may be,
plus transfer taxes, if any;
(g) "JMS" shall have the meaning set forth in the introductory
paragraph;
(h) "Managing Underwriters" shall have the meaning set forth in the
introductory paragraph;
(i) "Managing Underwriters' Warrant" shall mean the right to
purchase the Underlying Shares and the Underlying Warrants pursuant to this
Agreement, together with any divisions thereof;
(j) "Managing Underwriters' Warrant Certificate" shall have the
meaning set forth in the recitals hereto;
(k) "Managing Underwriters' Warrant Holder" means a person or
entity in whose name a Managing Underwriters' Warrant shall be registered
upon the books to be maintained by the Company for such purpose.
(l) "Nasdaq National Market" shall have the meaning set forth in
Section 4(f);
(m) "Notice Event" shall mean (i) any authorization by the Company
of the issuance to all holders of shares of Common Stock of rights, options
or warrants to subscribe for or purchase shares of Common Stock or of any
other subscription rights or
2
<PAGE> 3
warrants, or (ii) any authorization by the Company of the distribution
to all holders of shares of Common Stock of evidences of its
indebtedness or assets (other than cash dividends or distributions
payable out of consolidated earnings or earned surplus or dividends
payable in shares of Common Stock), (iii) any consolidation or merger
to which the Company is a party and for which approval of any
stockholders of the Company is required, or of the conveyance or
transfer of the properties and assets of the Company substantially as
an entirety, or of any reclassification or change of Common Stock
issuable upon exercise of a Managing Underwriters' Warrant (other than
a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common
Stock, (iv) any voluntary or involuntary dissolution, liquidation or
winding up of the Company, or (v) any proposal by the Company to take
any other action that would require an adjustment of the Underlying
Share Purchase Price or the number of Underlying Shares pursuant to
Section 4;
(n) "Offering" shall have the meaning set forth in the
recitals hereto;
(o) "Option Issuance" shall have the meaning set forth in
Section 4(c);
(p) "Options" shall have the meaning set forth in Section
4(c);
(q) "Registrable Securities" means the Managing Underwriters'
Warrant and the Underlying Securities;
(r) "Registration Rights Agreement" means that certain
Registration Rights Agreement, dated as of the date hereof, by and
between the Company and the Managing Underwriters;
(s) "SEC" means the Securities and Exchange Commission;
(t) "SEC Reports" shall have the meaning set forth in Section
3(d) hereof;
(u) "Southwest" shall have the meaning set forth in the
introductory paragraph;
(v) "Stock Option Plans" shall have the meaning set forth in
Section 4(o);
(w) "Time of Determination" shall have the meaning set forth
in Section 4(f);
(x) "Transfer Agent" means American Stock Transfer & Trust
Company, as transfer agent;
3
<PAGE> 4
(y) "Underlying Securities" shall mean, collectively, the
Underlying Shares, the Underlying Warrants and the Underlying Warrant
Shares;
(z) "Underlying Share Expiration Date" means 5:00 p.m., New York
City time, on December ___, 2002 (or as may be extended pursuant to Section
3(c)), or if such expiration date is not a Business Day, at or before 5:00
p.m. New York City time on the next following Business Day;
(aa) "Underlying Share Purchase Price" shall mean the purchase
price to be paid upon the exercise of this Managing Underwriters' Warrant
with respect to the Underlying Shares in accordance with the terms hereof,
which price shall be $_____ per Underlying Share, subject to adjustment
from time to time pursuant to the provisions of Section 4;
(bb) "Underlying Shares" means the 140,000 shares of Common Stock
that are the subject of this Managing Underwriters' Warrant, subject to
adjustment from time to time as provided herein;
(cc) "Underlying Warrant Expiration Date" means 5:00 p.m. New York
City time on January ___, 2000 (or as may be extended pursuant to Section
3(c)), or if such expiration date is not a Business Day, at or before 5:00
p.m. New York City time on the next following Business Day provided that
such date shall not be later than the "Expiration Date" for the Warrants
under the Warrant Agreement;
(dd) "Underlying Warrant Purchase Price" shall mean the purchase
price to be paid upon the exercise of this Managing Underwriters' Warrant
with respect to the Underlying Warrants in accordance with the terms
hereof, which price shall be $_____ per Underlying Warrant;
(ee) "Underlying Warrants" means the 140,000 Warrants that are the
subject of this Managing Underwriters' Warrant, subject to adjustment from
time to time as provided in the Warrant Agreement and Section 5 hereof;
(ff) "Underlying Warrant Shares" means the shares of Common Stock
issuable upon exercise of the Underlying Warrants;
(gg) "Warrant Agent" shall mean American Stock Transfer & Trust
Company, as warrant agent;
(hh) "Warrant Agreement" shall mean that certain Warrant Agreement,
dated as of the date hereof, by and between the Company, certain selling
stockholders of the Company, and the Warrant Agent;
(ii) "Warrant Notice Event" shall mean (i) any authorization by the
Company of the issuance to all holders of Warrants of rights, options or
warrants to
4
<PAGE> 5
subscribe for or purchase shares of Common Stock, Warrants or of any
other subscription rights or warrants, (ii) any authorization by the
Company of the distribution to all holders of Warrants of evidences of
its indebtedness or assets (other than cash dividends or distributions
payable out of consolidated earnings or earned surplus or dividends
payable in shares of Common Stock), (iii) any reclassification or
change of Underlying Warrants issuable upon exercise of a Managing
Underwriters' Warrant, or a tender offer or exchange offer for
Warrants, or (iv) any proposal by the Company to take any other action
that would require an adjustment of the Underlying Warrant Purchase
Price or the number of Underlying Warrants pursuant to Section 5;
(jj) "Warrants" shall have the meaning set forth in the
recitals hereto.
SECTION 2. Duration And Exercise
(a) Duration. Subject to the provisions of Section 4 hereof,
a Managing Underwriters' Warrant may be exercised from time to time,
upon the terms and subject to the conditions set forth herein, on or
after 9:00 a.m., New York City time, on the first anniversary hereof
and (a) before the Underlying Share Expiration Date to purchase the
Underlying Shares, and (b) before the Underlying Warrant Expiration
Date to purchase the Underlying Warrants. If a Managing Underwriters'
Warrant is not exercised before the Underlying Share Expiration Date to
purchase the Underlying Shares or the Underlying Warrant Expiration
Date to purchase the Underlying Warrants, the Managing Underwriters'
Warrant Holder shall no longer be entitled to purchase Underlying
Shares or Underlying Warrants and all rights hereunder to purchase such
Underlying Shares and such Underlying Warrants shall thereupon cease.
(b) Exercise.
(i) A Managing Underwriters' Warrant Holder may exercise a
Managing Underwriters' Warrant, in whole or in part, to purchase
Underlying Shares or Underlying Warrants, or both, in such amounts as
may be elected upon surrender of such Managing Underwriters' Warrant
Certificate with the subscription form thereon duly executed, to the
Company at its corporate office at 10 Industry Drive, Lancaster,
Pennsylvania 17603, together with the full Underlying Share Purchase
Price for each Underlying Share to be purchased and the full Underlying
Warrant Purchase Price for each Underlying Warrant to be purchased, in
lawful money of the United States, or by certified check or bank draft
payable in United States Dollars to the order of the Company and upon
compliance with and subject to the conditions set forth herein.
(ii) Upon receipt of a Managing Underwriters' Warrant
Certificate with the subscription form thereon duly executed and
accompanied by payment of the Underlying Share Purchase Price for the
number of Underlying Shares and/or the Underlying Warrant Purchase
Price for the number of Underlying Warrants for which such Managing
Underwriters' Warrant is then being exercised, the Company, subject to
5
<PAGE> 6
Section 6(b), will cause to be issued and delivered promptly to the
Managing Underwriters' Warrant Holder certificates for such shares of
Common Stock or Warrants, respectively, in such denominations as are
requested by the Managing Underwriters' Warrant Holder.
(iii) In case a Managing Underwriters' Warrant Holder shall
exercise a Managing Underwriters' Warrant with respect to less than all
of the Underlying Shares and/or Underlying Warrants that may be
purchased pursuant to such Managing Underwriters' Warrant, the Company
will execute a new Managing Underwriters' Warrant Certificate, as
represented by a warrant certificate substantially in the form attached
hereto as Exhibit A, exercisable for the balance of the Underlying
Shares and/or Underlying Warrants that may be purchased upon exercise
of such Managing Underwriters' Warrant and deliver such new Managing
Underwriters' Warrant Certificate to the Managing Underwriters' Warrant
Holder. Managing Underwriters' Warrant Certificates shall be executed
on behalf of the Company by the Company's Chairman of the Board,
President or any Vice President and by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary.
(iv) A Managing Underwriters' Warrant shall be deemed to have
been exercised immediately prior to the close of business on the
Exercise Date, and the person entitled to receive Underlying Shares
and/or Underlying Warrants and any Managing Underwriters' Warrant
Certificate representing the unexercised portion of such Managing
Underwriters' Warrant deliverable upon such exercise shall be treated
for all purposes as the holder of such Underlying Shares, Underlying
Warrants and unexercised Managing Underwriters' Warrant upon such
exercise as of the close of business on the Exercise Date.
(v) The Company covenants and agrees that it will pay when
due and payable any and all taxes that may be payable in respect of the
issue of this Managing Underwriters' Warrant or the issue of any
Underlying Securities. The Company shall not, however, be required to
pay any tax that may be payable in respect of any transfer of a
Managing Underwriters' Warrant or of any Underlying Security to a
person other than the Managing Underwriters' Warrant Holder at the time
of surrender, and until the payment of such tax, shall not be required
to issue such Underlying Security.
SECTION 3. Covenants
(a) Issuance and Sale of Underlying Shares and Underlying
Warrants. The Company covenants that it will at all times reserve and
keep available, free from preemptive rights, out of its authorized
Common Stock, solely for the purpose of issuance upon exercise of the
Managing Underwriters' Warrants, such number of shares of Common Stock
as shall equal the aggregate of the Underlying Shares and the
Underlying Warrant Shares. The Company covenants that all shares of
Common Stock that shall be issuable upon exercise of the Managing
Underwriters' Warrants shall, at the time of
6
<PAGE> 7
delivery, be duly and validly issued, fully paid, nonassessable and
free from all taxes, liens and charges with respect to the issue
thereof. The Company covenants that the Underlying Warrants that shall
be issuable upon exercise of the Managing Underwriters' Warrants shall
be validly issued and the legal, valid and binding obligations of the
Company.
The Transfer Agent for the Common Stock will be irrevocably
authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company
will keep a copy of this Agreement on file with the Transfer Agent. The
Company will supply such Transfer Agent with duly executed certificates
for such purposes and will provide or otherwise make available any cash
which may be payable as provided in Section 6(b). The Company will
furnish such Transfer Agent and the Warrant Agent a copy of all notices
of adjustments and certificates related thereto, transmitted to each
Managing Underwriters' Warrant Holder pursuant to Section 4(p) hereof.
Before taking any action which would cause an adjustment
pursuant to Section 4 hereof that would reduce the Underlying Share
Purchase Price below the then par value (if any) of the shares of
Common Stock, the Company will take any corporate action which may, in
the opinion of its counsel (which may be counsel employed by the
Company), be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock at
the Underlying Share Purchase Price as so adjusted.
(b) Registration Statement. A registration statement will be
required to be filed and declared effective by the SEC before the sale
or exercise of the Registrable Securities, unless such sale or exercise
is exempt from the registration requirements of the Securities Act of
1933, as amended. In addition, before the sale or exercise of the
Registrable Securities, the Registrable Securities must also be
registered or qualified for such sale or exercise or exempt from such
registration or qualification under the applicable state securities
laws. The Company covenants to execute, deliver and perform the
Registration Rights Agreement, pursuant to which the Company agrees to,
among other things, file and maintain the effectiveness of certain
registration statements and register or qualify the Registrable
Securities under state securities laws.
(c) Notices. The Company shall give notice not less than 90,
and not more than 120, days prior to each of the Underlying Share
Expiration Date and the Underlying Warrant Expiration Date to each
Managing Underwriters' Warrant Holder to the effect that the Managing
Underwriters' Warrants with respect to the Underlying Shares and with
respect to the Underlying Warrants, as the case may be, will terminate
and become void as of 5:00 p.m., New York City time, on each of the
Underlying Share Expiration Date and the Underlying Warrant Expiration
Date. If the Company fails to give such notice, the Managing
Underwriters' Warrants with respect to the Underlying Shares and with
respect to the Underlying Warrants, as the case may be, will not expire
until 90 days after the Company gives such notice, provided, however,
in no event will a
7
<PAGE> 8
Managing Underwriters' Warrant Holder be entitled to any
damages or other remedy for the Company's failure to give such notice
other than any such extension. In addition, notwithstanding anything to
the contrary in this Agreement, if the Company has not maintained an
effective registration statement under the Securities Act with respect
to the sale or issuance of the Registrable Securities during the 90
days immediately before each of the Underlying Share Expiration Date
and the Underlying Warrant Expiration Date (and maintained the
registration or qualification of such Registrable Securities under
applicable state securities laws during such periods), the Managing
Underwriters' Warrants with respect to the Underlying Shares and with
respect to the Underlying Warrants, as the case may be, shall not
expire until the Company maintains such effective registration
statement (and such registrations and qualifications) for 90
consecutive days beginning with the first day after 90 days before the
Underlying Share Expiration Date or Underlying Warrant Expiration Date,
as the case may be, that such registration statement (and such
registrations and qualifications) is effective. In the circumstances
described in this paragraph, the extended Underlying Share Expiration
Date and Underlying Warrant Expiration Date shall be considered the
Underlying Share Expiration Date and Underlying Warrant Expiration
Date, respectively, for purposes of this Agreement. Notwithstanding
anything to the contrary in this Agreement, the Company shall issue any
Underlying Shares, Underlying Warrants, or Underlying Warrant Shares to
the holder of the respective right to acquire such security upon the
exercise of such right and such holder's representation that such
holder is a "sophisticated investor" under the federal securities laws
if a registration statement is not effective with respect to such
issuance.
(d) SEC Reports. So long as the Managing Underwriters'
Warrants remain outstanding, the Company shall cause copies of all
quarterly and annual financial reports and of the information,
documents, and other reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe) which the
Company is required to file with the SEC pursuant to Section 13 or
15(d) of the Exchange Act ("SEC Reports") to be mailed to each Managing
Underwriters' Warrant Holder at his or her address appearing in the
register of the Managing Underwriters' Warrant Holders maintained by
the Company, in each case, within 15 days of filing with the SEC. If
the Company is not subject to the requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall nevertheless continue to cause
SEC Reports, comparable to those which it would be required to file
pursuant to Section 13 or 15(d) of the Exchange Act if it were subject
to the requirements of either such section, to be so filed with the SEC
(but only if the SEC permits such filings) and mailed to each Managing
Underwriters' Warrant Holder, in each case, within the same time
periods as would have applied (including under the preceding sentence)
had the Company been subject to the requirements of Section 13 or 15(d)
of the Exchange Act.
(e) Restrictive Legend. Each Managing Underwriters' Warrant
Certificate shall bear the following restrictive legend until such time
as the transfer of such security is not restricted under the federal
securities laws:
"THE ISSUANCE OF THIS SECURITY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THIS SECURITY
BEEN REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THIS
SECURITY MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF THE REGISTRATION
OF SUCH
8
<PAGE> 9
TRANSACTION UNDER THE SECURITIES ACT AND THE REGISTRATION OR
QUALIFICATION OF THIS SECURITY UNDER APPLICABLE STATE SECURITIES LAWS
UNLESS SUCH TRANSACTION IS EXEMPT FROM SUCH REGISTRATION AND THIS
SECURITY IS EXEMPT FROM SUCH REGISTRATION OR QUALIFICATION."
SECTION 4. Adjustment Of Underlying Share Purchase Price and
Number of Underlying Shares. The number of Underlying Shares purchasable upon
the exercise of this Managing Underwriters' Warrant and the Underlying Share
Purchase Price shall be subject to adjustment from time to time as follows:
(a) Stock Splits, Combinations, etc. In case the Company shall
hereafter (i) pay a dividend or make a distribution on its Common Stock
in shares of its capital stock (whether shares of Common Stock or of
capital stock of any other class), (ii) subdivide its outstanding
shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares, or (iv) issue by
reclassification of its shares of Common Stock any shares of capital
stock of the Company, the Underlying Share Purchase Price in effect and
the number of Underlying Shares issuable upon exercise of a Managing
Underwriters' Warrant immediately prior to such action shall be
adjusted so that the Managing Underwriters' Warrant Holder of such
Managing Underwriters' Warrant thereafter exercised shall be entitled
to receive the number of shares of capital stock of the Company at the
same aggregate Underlying Share Purchase Price that such Managing
Underwriters' Warrant Holder would have owned immediately following
such action had such Managing Underwriters' Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this
paragraph shall become effective immediately after the record date in
the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to
this paragraph, the Managing Underwriters' Warrant Holder of the
Managing Underwriters' Warrant thereafter exercised shall become
entitled to receive shares of two or more classes of capital stock of
the Company, the Board of Directors of the Company (whose determination
shall be conclusive) shall determine the allocation of the adjusted
Underlying Share Purchase Price between or among shares of such classes
of capital stock.
(b) Reclassification, Combinations, Mergers, etc. In case of
any reclassification or change of outstanding shares of Common Stock
issuable upon exercise of the Managing Underwriters' Warrants (other
than as set forth in paragraph (a) above and other than a change in par
value, or from par value to no par value, or from no par value to par
value or as a result of a subdivision or combination), or in case of
any consolidation or merger of the Company with or into another
corporation or entity (other than a merger in which the Company is the
continuing corporation and which does not result in any
reclassification or change of the then outstanding shares of Common
Stock or other capital stock issuable upon exercise of the Managing
Underwriters' Warrants), or
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in the case of any sale or conveyance of all or substantially all of
the assets of the Company followed by a related distribution to holders
of shares of Common Stock of cash, securities or other property, then
as a condition of such reclassification, change, consolidation, merger,
or sale of assets, the Company or such a successor corporation or
entity, as the case may be, shall forthwith make lawful and adequate
provision whereby each Managing Underwriters' Warrant Holder of each
Managing Underwriters' Warrant then outstanding shall have the right
thereafter to receive on exercise of a Managing Underwriters' Warrant
the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation,
merger, or sale of assets, by a holder of the number of shares of
Common Stock issuable upon exercise of such Managing Underwriters'
Warrant immediately prior to such reclassification, change,
consolidation, merger, or sale of assets, and enter into a supplemental
warrant agreement so providing. Such provisions shall include provision
for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4. If the
issuer of securities deliverable upon exercise of a Managing
Underwriters' Warrant under the supplemental warrant agreement is an
affiliate of the formed or surviving corporation or other entity, that
issuer shall join in the supplemental warrant agreement. The above
provisions of this paragraph (b) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to
successive consolidations or mergers.
(c) Issuance of Options or Convertible Securities. In the
event the Company shall, at any time or from time to time after the
date hereof, issue, sell, distribute or otherwise grant in any manner
(including by assumption) any rights to subscribe for or to purchase,
or any warrants or options for the purchase of, Common Stock or any
stock or securities convertible into or exchangeable for Common Stock
(any such rights, warrants or options being herein called "Options" and
any such convertible or exchangeable stock or securities being herein
called "Convertible Securities"), whether or not such Options or the
rights to convert or exchange such Convertible Securities are
immediately exercisable, and the price per share at which Common Stock
is issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i) the
aggregate amount, if any, received or receivable by the Company as
consideration for the issuance, sale, distribution or granting of such
Options or any such Convertible Security, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon
the exercise of all such Options or upon conversion or exchange of all
such Convertible Securities, plus, in the case of Options to acquire
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the conversion or exchange of all
such Convertible Securities, by (ii) the total maximum number of shares
of Common Stock issuable upon the exercise of all such Options or upon
the conversion or exchange of all such Convertible Securities or upon
the conversion or exchange of all Convertible Securities issuable upon
the exercise of all such Options) shall be less than the current market
price per share of Common Stock on the record date that the Company
becomes obligated to make such issuance, sale, distribution or granting
of such Options or Convertible Securities (any such event being herein
called an "Option Issuance"), then,
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<PAGE> 11
effective upon such Option Issuance, (I) the Underlying Share Purchase
Price shall be reduced to the price (calculated to the nearest 1/1,000
of one cent) determined by multiplying the Underlying Share Purchase
Price in effect immediately prior to such Option Issuance by a
fraction, the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding (exclusive of any treasury shares)
immediately prior to such Option Issuance multiplied by the current
market price per share of Common Stock on the date of such Option
Issuance plus (ii) the consideration, if any, received by the Company
upon such Option Issuance, and the denominator of which shall be the
product of (A) the total number of shares of Common Stock outstanding
(exclusive of any treasury shares) immediately after such Option
Issuance multiplied by (B) the current market price per share of Common
Stock on the record date for such Option Issuance and (II) the number
of Underlying Shares purchasable upon the exercise of a Managing
Underwriters' Warrant shall be increased to a number determined by
multiplying the number of Underlying Shares so purchasable immediately
prior to the record date for such Option Issuance by a fraction, the
numerator of which shall be the Underlying Share Purchase Price in
effect immediately prior to the adjustment required by clause (I) of
this sentence and the denominator of which shall be the Underlying
Share Purchase Price in effect immediately after such adjustment. For
purposes of the foregoing, the total maximum number of shares of Common
Stock issuable upon exercise of all such Options or upon conversion or
exchange of all such Convertible Securities or upon the conversion or
exchange of the total maximum amount of the Convertible Securities
issuable upon the exercise of all such Options shall be deemed to have
been issued as of the date of such Option Issuance and thereafter shall
be deemed to be outstanding and the Company shall be deemed to have
received as consideration therefor such price per share, determined as
provided above. Except as provided in paragraphs (j) and (k) below, no
additional adjustment of the Underlying Share Purchase Price shall be
made upon the actual exercise of such Options or upon conversion or
exchange of the Convertible Securities or upon the conversion or
exchange of the Convertible Securities issuable upon the exercise of
such Options.
(d) Dividends and Distributions. In the event the Company
shall, at any time or from time to time after the date hereof,
distribute to all the holders of Common Stock any dividend or other
distribution of cash, evidences of its indebtedness, other securities
or other properties or assets (in each case other than (i) dividends
payable in Common Stock, Options or Convertible Securities and (ii) any
cash dividend that, when added to all other cash dividends paid in the
one year prior to the declaration date of such dividend, does not
exceed 5% of the current market price per share of Common Stock on such
declaration date), or any options, warrants or other rights to
subscribe for or purchase any of the foregoing, then (A) the Underlying
Share Purchase Price shall be decreased to a price determined by
multiplying the Underlying Share Purchase Price then in effect by a
fraction, the numerator of which shall be the current market price per
share of Common Stock on the record date for such distribution less the
sum of (X) the cash portion, if any, of such distribution per share of
Common Stock outstanding (exclusive of any treasury shares) on the
record date for such distribution plus (Y) the then fair market value
(as determined in good faith by the Board of Directors of the Company)
per share
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<PAGE> 12
of Common Stock outstanding (exclusive of any treasury shares) on the
record date for such distribution of that portion, if any, of such
distribution consisting of evidences of indebtedness, other securities,
properties, assets, options, warrants or subscription of purchase
rights, and the denominator of which shall be such current market price
per share of Common Stock and (B) the number of Underlying Shares
purchasable upon the exercise of a Managing Underwriters' Warrant shall
be increased to a number determined by multiplying the number of
Underlying Shares so purchasable immediately prior to the record date
for such distribution by a fraction, the numerator of which shall be
the Underlying Share Purchase Price in effect immediately prior to the
adjustment required by clause (A) of this sentence and the denominator
of which shall be the Underlying Share Purchase Price in effect
immediately after such adjustment. The adjustments required by this
paragraph (d) shall be made whenever any such distribution occurs
retroactive to the record date for the determination of stockholders
entitled to receive such distribution.
(e) Sale of Common Stock Below its Current Market Price. In
the event the Company shall, at any time or from time to time after the
date hereof, issue or sell any shares of Common Stock and the price per
share at which such shares were issued or sold shall be less than the
current market price per share of Common Stock on the date the Company
becomes obligated to make such issuance or sale, then, effective upon
such issuance or sale (i) the Underlying Share Purchase Price shall be
reduced to the price (calculated to the nearest 1/1,000 of one cent)
determined by multiplying the Underlying Share Purchase Price in effect
immediately prior to such issuance or sale by a fraction, the numerator
of which shall be the sum of (A) the number of shares of Common Stock
outstanding (exclusive of any treasury shares) immediately prior to
such issuance or sale multiplied by the current market price per share
of Common Stock on the date of such issuance or sale plus (B) the
consideration received by the Company upon such issuance or sale and
the denominator of which shall be the product of (X) the total number
of shares of Common Stock outstanding (exclusive of any treasury
shares) immediately after such issuance or sale multiplied by (Y) the
current market price per share of Common Stock on the date of such
issuance or sale and (ii) the number of Underlying Shares purchasable
upon the exercise of each Managing Underwriters' Warrant shall be
increased to a number determined by multiplying the number of
Underlying Shares so purchasable immediately prior to the date of such
issuance or sale by a fraction, the numerator of which shall be the
Underlying Share Purchase Price in effect immediately prior to the
adjustment required by clause (i) of this sentence and the denominator
of which shall be the Underlying Share Purchase Price in effect
immediately after such adjustment.
(f) Current Market Price. For the purpose of any computation
of current market price under this Section 4 and Section 6(b), the
current market price per share of Common Stock at any date shall be (x)
for purposes of Section 6(b) and any Options granted to the Company's
directors and officers under the Stock Option Plans, the closing price
on the business day immediately prior to the exercise of a Managing
Underwriters' Warrant or the grant of any such Options and (y) in all
other cases, the
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<PAGE> 13
average of the daily closing prices for the shorter of (i) the 20
consecutive trading days ending on the last full trading day on the
exchange or market described below prior to the Time of Determination
(as defined below) and (ii) the period commencing on the date next
succeeding the first public announcement of the issuance, sale,
distribution or granting in question through such last full trading day
prior to the Time of Determination. The term "Time of Determination" as
used herein shall be the time and date of the earlier to occur of (A)
the date as of which the current market price is to be computed and (B)
the last full trading day on such exchange or market before the
commencement of "ex-dividend" trading in the Common Stock relating to
the event giving rise to the adjustment. The closing price for any day
shall be the last reported sale price regular way or, in case no such
reported sale takes place on such day, the average of the closing bid
and asked prices regular way for such day, in each case (1) on the
principal national securities exchange on which the shares of Common
Stock are listed or to which such shares are admitted to trading or (2)
if the Common Stock is not listed or admitted to trading on a national
securities exchange, in the over-the-counter market as reported by the
National Association of Securities Dealers, Inc. Automated Quotation
System ("Nasdaq National Market") or any comparable system or (3) if
the Common Stock is not listed on Nasdaq National Market or a
comparable system, as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time in
good faith by the Board of Directors of the Company for that purpose.
In the absence of all of the foregoing, or if for any reason the
current market price per share cannot be determined pursuant to the
foregoing provisions of this paragraph (f), the current market price
per share shall be the fair market value thereof as determined in good
faith by the Board of Directors of the Company.
(g) Change in the Number of Managing Underwriters' Warrants.
The Company may elect, upon any adjustment of the Underlying Share
Purchase Price hereunder, to adjust the number of Managing
Underwriters' Warrants with respect to the Underlying Shares
outstanding, in lieu of the adjustment in the number of shares of
Common Stock purchasable upon the exercise of a Managing Underwriters'
Warrant as hereinabove provided, so that each Managing Underwriters'
Warrant to purchase Underlying Shares outstanding after such adjustment
shall represent the right to purchase one share of Common Stock. Each
Managing Underwriters' Warrant to purchase Underlying Shares held of
record prior to such adjustment of the number of Managing Underwriters'
Warrants shall become that number of Managing Underwriters' Warrants
(calculated to the nearest tenth) determined by multiplying the number
one by a fraction, the numerator of which shall be the Underlying Share
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Underlying Share Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the
number of Managing Underwriters' Warrants pursuant to this Section 4,
the Company shall, as promptly as practicable, cause to be distributed
to each Managing Underwriters' Warrant Holder, on the date of such
adjustment, a Managing Underwriters' Warrant Certificate evidencing,
subject to Section 6(b) hereof, the number of additional Managing
Underwriters' Warrants to purchase Underlying Shares to which such
Managing Underwriters' Warrant Holder shall be entitled as a result of
such
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<PAGE> 14
adjustment or, at the option of the Company, cause to be distributed to
such Managing Underwriters' Warrant Holder in substitution and
replacement for the Managing Underwriters' Warrant Certificate held by
such Managing Underwriters' Warrant Holder prior to the date of
adjustment (and upon surrender thereof, if required by the Company) new
Managing Underwriters' Warrant Certificates evidencing the number of
Managing Underwriters' Warrants to purchase Underlying Shares to which
such Managing Underwriters' Warrant Holder shall be entitled after such
adjustment.
(h) Consideration Received. If any shares of Common Stock,
Options or Convertible Securities shall be issued, sold or distributed
for a consideration other than cash, the amount of the consideration
other than cash received by the Company in respect thereof shall be
deemed to be the then fair market value of such consideration (as
determined in good faith by the Board of Directors of the Company). If
any Options shall be issued in connection with the issuance and sale of
other securities of the Company, together comprising one integral
transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have
been issued without consideration. If the Company shall pay a dividend
or make any other distribution payable in Options or Convertible
Securities, then such Options or Convertible Securities shall be deemed
to have been issued or sold without consideration.
(i) Deferral of Certain Adjustments. No adjustment to the
Underlying Share Purchase Price (including the related adjustment to
the number of Underlying Shares) shall be required hereunder unless
such adjustment, together with other adjustments carried forward as
provided below, would result in an increase or decrease of at least one
percent of the Underlying Share Purchase Price; provided that any
adjustments which by reason of this paragraph (i) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment. No adjustment need be made for a change in the
par value of the Common Stock. All calculations under this Section 4
shall be made to the nearest 1/1,000 of one cent or to the nearest
1/1000 of a share, as the case may be.
(j) Changes in Options and Convertible Securities. If the
exercise price provided for in any Options referred to in paragraph (c)
above, the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
paragraph (c) above, or the rate at which any Convertible Securities
referred to in paragraph (c) above are convertible into or exchangeable
for Common Stock shall change at any time (other than under or by
reason of provisions designed to protect against dilution upon an event
which results in a related adjustment pursuant to this Section 4), the
Underlying Share Purchase Price then in effect and the number of
Underlying Shares purchasable upon the exercise of a Managing
Underwriters' Warrant shall forthwith be readjusted (effective only
with respect to any exercise of the Managing Underwriters' Warrant
after such readjustment) to the Underlying Share Purchase Price and
number of Underlying Shares so purchasable that would then be in effect
had the adjustment made upon the issuance, sale, distribution or
granting of such Options or Convertible Securities been made based upon
such changed purchase price,
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<PAGE> 15
additional consideration or conversion rate, as the case may be, but
only with respect to such Options and Convertible Securities as then
remain outstanding.
(k) Expiration of Options and Convertible Securities. If, at
any time after any adjustment to the number of Underlying Shares
purchasable upon the exercise of a Managing Underwriters' Warrant shall
have been made pursuant to paragraph (c) or (j) above or this paragraph
(k), any Options or Convertible Securities shall have expired
unexercised, the number of Underlying Shares so purchasable with
respect to any then outstanding Managing Underwriters' Warrants shall,
upon such expiration, be readjusted and shall thereafter be such as
they would have been had all of the Managing Underwriters' Warrants
outstanding at the time of the original adjustment been adjusted (or
had the original adjustment not been required, as the case may be) as
if (i) the only shares of Common Stock deemed to have been issued in
connection with such Options or Convertible Securities were the shares
of Common Stock, if any, actually issued or sold upon the exercise of
such Options or Convertible Securities and (ii) such shares of Common
Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the aggregate
consideration, if any, actually received by the Company for the
issuance, sale, distribution or granting of all such Options or
Convertible Securities, whether or not exercised; provided that no such
readjustment shall have the effect of decreasing the number of such
Underlying Shares so purchasable by an amount (calculated by adjusting
such decrease to account for all other adjustments made pursuant to
this Section 4 following the date of the original adjustment referred
to above) in excess of the amount of the adjustment initially made in
respect of the issuance, sale, distribution or granting of such Options
or Convertible Securities.
(l) Other Adjustments. In the event that at any time, as a
result of an adjustment made pursuant to this Section 4, each Managing
Underwriters' Warrant Holder shall become entitled to receive any
securities of the Company other than Underlying Shares, thereafter the
number of such other securities so receivable upon exercise of a
Managing Underwriters' Warrant and the Underlying Share Purchase Price
applicable to such exercise shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the shares of Common Stock contained in
this Section 4.
(m) Common Stock. As used in this Section 4, the term "Common
Stock" shall mean and include the Common Stock authorized on the date
of the original issue of the shares of Common Stock and Warrants in
connection with the Offering and shall also include any capital stock
of any class of the Company thereafter authorized that is not limited
to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends and in the distribution of assets
upon the voluntary liquidation, dissolution or winding up of the
Company; provided, however, that the Underlying Shares shall include
only shares of such class designated in the Company's Certificate of
Incorporation as Common Stock on the date of the original issue of the
shares of Common Stock and Warrants in connection with the Offering or
(i) in the case of any reclassification, change, consolidation, merger,
or sale of assets of the character referred to in Section 4(b) hereof,
the stock, securities or property provided for in such section or (ii)
in the case of any reclassification or change in the number of
Underlying Shares as a
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<PAGE> 16
result of a subdivision or combination or consisting of a change in par
value, or from par value to no par value, or from no par value to par
value, such Underlying Shares as so reclassified or changed.
(n) Determination of Gross Sales Price. In case of the sale
for cash of any shares of Common Stock, Options, or Convertible
Securities, the consideration received by the Company therefor shall be
deemed to be the gross sales price therefor without deducting therefrom
any expense paid or incurred by the Company or any underwriting
discounts or commissions or concessions paid or allowed by the Company
in connection therewith.
(o) Events Resulting in no Adjustments. No adjustment to the
Underlying Share Purchase Price or to the number of Underlying Shares,
however, will be made upon (i) the sale of any shares of Common Stock
or Warrants in the Offering (including the exercise of the
over-allotment option granted to the underwriters), (ii) the exercise
of any stock options issued under the Company's 1997 Stock Option Plan,
1996 Stock Option Plan, 1992 Non-Qualified Stock Option Plan or 1988
Non-Qualified Stock Option Plan (the "Stock Option Plans") to officers,
directors and employees of the Company under the terms of such plans as
they exist on the date hereof, (iii) the exercise of any warrants by
officers and directors of the Company that are outstanding as of the
date hereof, (iv) the sale of any shares of Common Stock or Warrants
pursuant to the exercise of any Managing Underwriters' Warrant, or (v)
the sale of any shares of Common Stock upon the exercise of any
Warrants (collectively, the "Exempt Securities").
(p) Notice of Change in Underlying Share Purchase Price. Upon
any adjustment of the Underlying Share Purchase Price pursuant to
Section 4, the Company shall promptly thereafter (i) cause to be
prepared a certificate of the President and Chief Financial Officer of
the Company setting forth the Underlying Share Purchase Price after
such adjustment and setting forth in reasonable detail the method of
calculation and the facts upon which such calculations are based and
setting forth the number of Underlying Shares (or portion thereof)
issuable after such adjustment in the Underlying Share Purchase Price,
upon exercise of a Managing Underwriters' Warrant and payment of the
adjusted Underlying Share Purchase Price, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein
absent manifest error, provided that if a Managing Underwriters'
Warrant Holder reasonably requests, the Company shall engage a firm of
independent public accountants of recognized standing selected by the
Board of Directors of the Company (who may be the regular auditors of
the Company) to prepare and file such certificate in lieu of the
certificate of the President and Chief Financial Officer, in which case
such certificate shall be conclusive evidence of the matters set forth
therein, absent manifest error, and (ii) send to each of the Managing
Underwriters' Warrant Holders at the address appearing on the registry
books maintained by the Company written notice of such adjustments by
first-class mail, postage prepaid.
(q) Notice of Certain Events. With respect to any Notice
Event, the Company shall cause to be given to each Managing
Underwriters' Warrant Holder at such
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<PAGE> 17
Managing Underwriters' Warrant Holder's address appearing on the
registry books maintained by the Company, at least 20 days prior to the
applicable record date hereinafter specified, or promptly in the case
of events for which there is no record date, by first class mail,
postage prepaid, a written notice stating (i) the date as of which the
holders of record of shares of Common Stock entitled to receive any
such rights, options, warrants or distribution is to be determined,
(ii) the initial expiration date set forth in any tender offer or
exchange offer for shares of Common Stock, or (iii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that holders of
record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up. The failure to give the notice
required by this Section 4(q) or any defect therein shall not affect
the legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, or
liquidation or winding up, or the vote upon any action, provided that
each Managing Underwriters' Warrant Holder shall retain any right to
damages from the Company with respect to such failure.
SECTION 5. Change in Number of the Underlying Warrants and the
Underlying Warrant Purchase Price.
(a) Adjustment. Under the Warrant Agreement, the Company may
elect, upon any adjustment of the exercise price of the Warrants, to
adjust the number of Warrants outstanding in lieu of adjusting the
number of shares of Common Stock purchasable upon the exercise of each
Warrant, so that each Warrant outstanding after such adjustment shall
represent the right to purchase one share of Common Stock. In such a
case (i) the Underlying Warrant Purchase Price shall become that price
(calculated to the nearest 1/1,000 of one cent) determined by
multiplying the Underlying Warrant Purchase Price in effect immediately
prior to such adjustment by a fraction, the numerator of which shall be
the exercise price of the Warrants in effect immediately prior to such
adjustment and the denominator of which shall be the exercise price of
the Warrants in effect immediately after such adjustment and (ii) each
Underlying Warrant under this Managing Underwriters' Warrant that has
not been purchased pursuant to the exercise of such Managing
Underwriters' Warrant prior to such adjustment of the number of
Warrants shall become that number of Underlying Warrants (calculated to
the nearest tenth) determined by multiplying the number one by a
fraction, the numerator of which shall be the exercise price of the
Warrants in effect immediately prior to such adjustment and the
denominator of which shall be the exercise price of the Warrants in
effect immediately after such adjustment. Upon each adjustment of such
Underlying Warrants pursuant to this Section 5, the Company shall, as
promptly as practicable, cause to be distributed to each Managing
Underwriters' Warrant Holder, on the date of such adjustment, Managing
Underwriters' Warrant Certificates evidencing, subject to Section 6(b)
hereof, the number of additional Underlying Warrants to which such
Managing
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<PAGE> 18
Underwriters' Warrant Holder shall be entitled as a result of such
adjustment or, at the option of the Company, cause to be distributed to
such Managing Underwriters' Warrant Holder in substitution and
replacement for the Managing Underwriters' Warrant Certificates held by
such Managing Underwriters' Warrant Holder prior to the date of
adjustment (and upon surrender thereof, if required by the Company) new
Managing Underwriters' Warrant Certificates evidencing the number of
Underlying Warrants to which such Managing Underwriters' Warrant Holder
shall be entitled after such adjustment.
(b) Warrant Notice Event. With respect to any Warrant Notice
Event, the Company shall cause to be given to each Managing
Underwriters' Warrant Holder at such Managing Underwriters' Warrant
Holder's address appearing on the registry books maintained by the
Company, at least 20 days prior to the applicable record date
hereinafter specified, or promptly in the case of events for which
there is no record date, by first class mail, postage prepaid, a
written notice stating (i) the date as of which the holders of record
of the Warrants entitled to receive any such rights, options, warrants
or distribution is to be determined, (ii) the initial expiration date
set forth in any tender offer or exchange offer for Warrants, or (iii)
the date on which any such reclassification or change is expected to
become effective or consummated, and the date as of which it is
expected that holders of record of Warrants shall be entitled to
exchange such shares for securities or other property, if any,
deliverable upon such reclassification or change. The failure to give
the notice required by this Section 5(b) or any defect therein shall
not affect the legality or validity of any distribution, right, option,
warrant, or reclassification, or the vote upon any action, provided
that each Managing Underwriters' Warrant Holder shall retain any rights
to damages from the Company with respect to such failure.
SECTION 6. Other Provisions Relating to Rights of a Managing
Underwriters' Warrant Holder.
(a) Managing Underwriters' Warrant Holders not Stockholders.
The Managing Underwriters' Warrant Holders, as such, shall not be
entitled to vote or receive dividends or be deemed holders of Common
Stock or Warrants for any purpose, nor shall anything contained in this
Agreement be construed to confer upon the Managing Underwriters'
Warrant Holders, as such, any of the rights of a stockholder or holder
of a Warrant of the Company or any right to vote, give or withhold
consent to any action by the Company (whether upon any
recapitalization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of
meetings or other action affecting stockholders or Warrant holders
(except for notices provided for in this Agreement), receive dividends
or subscription rights, or otherwise until the Managing Underwriters'
Warrant shall have been exercised to purchase the Underlying Shares or
the Underlying Warrants, at which time the person or persons in whose
name or names the certificate or certificates for the shares of Common
Stock or Warrants are registered shall be deemed the holder or holders
of record of such shares of Common Stock or Warrants for all purposes.
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<PAGE> 19
(b) Fractional Shares or Warrants. Anything contained herein
to the contrary notwithstanding, the Company shall not be required to
issue any fractional shares of Common Stock or Underlying Warrants in
connection with the exercise of a Managing Underwriters' Warrant. In
any case where a Managing Underwriters' Warrant Holder would, except
for the provisions of this Section 6(b), be entitled under the terms of
this Agreement to receive a fraction of a share of Common Stock or an
Underlying Warrant upon the exercise of this Managing Underwriters'
Warrant, the Company shall, upon the exercise of the Managing
Underwriters' Warrant and receipt of the Underlying Share Purchase
Price or the Underlying Warrant Purchase Price, as the case may be,
issue the largest number of whole shares of Common Stock or Underlying
Warrants, as the case may be, purchasable upon exercise of this
Managing Underwriters' Warrant. The Managing Underwriters' Warrant
Holder expressly waives his or her right to receive a certificate of
any fraction of a share of Common Stock or an Underlying Warrant upon
the exercise hereof. However, with respect to any fraction of a share
of Common Stock or Underlying Warrant called for upon any exercise
hereof, the Company shall pay to the Managing Underwriters' Warrant
Holder an amount in cash equal to such fraction multiplied by the
current market price per share of Common Stock or Underlying Warrant,
as the case may be, determined pursuant to Section 4(f) hereof
(substituting "Warrant" for "share of Common Stock" in the case of
Underlying Warrants).
(c) Absolute Owner. Prior to due presentment for registration
of transfer of any Managing Underwriters' Warrant Certificate, the
Company may deem and treat each Managing Underwriters' Warrant Holder
as the absolute owner of its Managing Underwriters' Warrant for the
purpose of any exercise thereof and for all other purposes and the
Company shall not be affected by any notice to the contrary.
SECTION 7. Division, Split-Up, Combination, Exchange and Transfer of
Warrants
(a) Request. A Managing Underwriters' Warrant may be divided,
split up, combined or exchanged for another Managing Underwriters'
Warrant of like tenor to purchase a like aggregate number of Underlying
Shares and Underlying Warrants. If a Managing Underwriters' Warrant
Holder desires to divide, split up, combine or exchange a Managing
Underwriters' Warrant, he or she shall make such request in writing
delivered to the Company at its office in Lancaster, Pennsylvania and
shall surrender such Managing Underwriters' Warrant Certificates to be
so divided, split up, combined or exchanged at said office. Upon any
such surrender for a division, split-up, combination or exchange, the
Company shall execute and deliver to the person entitled thereto a new
Managing Underwriters' Warrant Certificate as so requested. The Company
may require such Managing Underwriters' Warrant Holder to pay a sum
sufficient to cover any tax or governmental charge that may be imposed
in connection with any division, split-up, combination or exchange of
Managing Underwriters' Warrants.
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<PAGE> 20
(b) Initial Issuance to JMS and Southwest. The Company
initially shall issue the right to purchase 70,000 Underlying Shares
and 70,000 Underlying Warrants to each of JMS and Southwest, as
represented by a Managing Underwriters' Warrant Certificate issued to
each of JMS and Southwest in the form attached hereto as Exhibit A, or
to such officers of JMS and/or Southwest as such Managing Underwriters
may direct.
(c) Assignment; Replacement of Managing Underwriters' Warrant
Certificate. The Managing Underwriters' Warrants may not be sold,
transferred, assigned, or hypothecated by each Managing Underwriter, in
whole or in part, for a period of one year from the effective date of
the Offering except to the officers of such Managing Underwriter.
Thereafter, the Managing Underwriters' Warrants may be sold,
transferred, assigned or hypothecated, in whole or in part, subject to
federal and state securities laws. Any division or assignment permitted
of a Managing Underwriters' Warrant shall be made by surrender of the
respective Managing Underwriters' Warrant Certificate to the Company at
its principal office with the Form of Assignment attached hereto duly
executed and with funds sufficient to pay any transfer tax. In such
event, the Company shall, without charge, execute and deliver a new
Managing Underwriters' Warrant Certificate in the name of the assignee
named in such instrument of assignment and the surrendered Managing
Underwriters' Warrant Certificate shall promptly be canceled. Upon
receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of a Managing Underwriters' Warrant
Certificate and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of such Managing
Underwriters' Warrant Certificate, the Company will execute and deliver
a new Managing Underwriters' Warrant Certificate of like tenor and date
and any such lost, stolen or destroyed Managing Underwriters' Warrant
Certificate shall thereupon become void. Any such new Managing
Underwriters' Warrant Certificate executed and delivered shall
constitute an additional contractual obligation on the part of the
Company, whether or not the Managing Underwriters' Warrant Certificate
so lost, stolen, destroyed or mutilated shall be at any time
enforceable by anyone.
SECTION 8. Other Matters.
(a) Taxes and Charges. The Company will from time to time
promptly pay, subject to the provisions of paragraph (v) of Section
2(b), all taxes and charges that may be imposed upon the Company in
respect of the issuance or delivery, but not the transfer, of the
Managing Underwriters' Warrants or the Underlying Securities.
(b) Notices. Notice or demand pursuant to this Agreement to be
given or made by the any Managing Underwriters' Warrant Holder to or on
the Company shall be sufficiently given or made if delivered or sent by
registered or certified mail, postage prepaid, return receipt
requested, and addressed, until another address is designated in
writing by the Company, or by facsimile transmission, as follows:
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<PAGE> 21
Herley Industries, Inc.
10 Industry Drive
Lancaster, Pennsylvania 17603
Attention: President
Facsimile No.: (717) 397-9503
with a copy to:
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, NY 11753
Attention: David Lieberman, Esq.
Facsimile No.: (516) 822-5609
Notices to the Managing Underwriters' Warrant Holders provided
for in this Agreement shall be deemed given or made by the Company if
delivered or sent by mail, certified or registered, return receipt
requested, postage prepaid, or overnight courier or facsimile
transmission addressed to each Managing Underwriters' Warrant Holder at
his or her last known address or facsimile number as shall appear on
the registry books of the Company and at the following addresses for
JMS and Southwest:
(i) if to JMS:
Janney Montgomery Scott Inc.
26 Broadway
New York, New York 10004
Attention: Herbert M. Gardner
Phone No.: (212) 510-0600
Facsimile No.: (212) 510-0683
(ii) if to Southwest:
Southwest Securities, Inc.
1201 Elm Street
Suite 3500
Dallas, Texas 75270
Attention: C. William Dedmon, Jr.
Phone No.: (214) 651-1800
Facsimile No.: (214) 658-9441
(c) Governing Law. The validity, interpretation and
performance of this Agreement shall be governed by the laws of the
State of New York without giving effect to the conflicts of laws
principles thereof.
(d) Exclusive Benefit. Nothing in this Agreement expressed or
nothing that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or give to, any person
or corporation other than the Company, JMS, Southwest, and the Managing
Underwriters' Warrant Holders any right, remedy or claim hereunder, and
all covenants, conditions, stipulations, promises and agreements
contained in this Agreement shall be for the sole and exclusive benefit
of such persons and their successors, survivors and permitted assigns
hereunder. This Agreement is for the benefit of and is enforceable by
any subsequent Managing Underwriters' Warrant Holder.
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<PAGE> 22
(e) Headings. The article headings herein are for convenience
only and are not part of this Agreement and shall not affect the
interpretation hereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
HERLEY INDUSTRIES, INC.
By:______________________________________
Myron Levy
President
JANNEY MONTGOMERY SCOTT INC.
By:______________________________________
Herbert M. Gardner
Senior Vice President
SOUTHWEST SECURITIES, INC.
By:______________________________________
C. William Dedmon, Jr.
Senior Vice President
23
<PAGE> 24
EXHIBIT A
THE ISSUANCE OF THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, NOR HAS THIS SECURITY BEEN REGISTERED OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THIS SECURITY MAY NOT BE OFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF THE
REGISTRATION OF SUCH TRANSACTION UNDER THE SECURITIES ACT AND THE REGISTRATION
OR QUALIFICATION OF THIS SECURITY UNDER APPLICABLE STATE SECURITIES LAWS UNLESS
SUCH TRANSACTION IS EXEMPT FROM SUCH REGISTRATION AND THIS SECURITY IS EXEMPT
FROM SUCH REGISTRATION OR QUALIFICATION.
No.__________
MANAGING UNDERWRITERS' WARRANT CERTIFICATE
HERLEY INDUSTRIES, INC.
This warrant certificate certifies that __________________________, or
its registered assigns, is the registered holder of a Managing Underwriters'
Warrant representing the right to purchase ________ shares (the "Underlying
Shares") of common stock, par value $.10 per share (the "Common Stock") of
Herley Industries, Inc. (the "Company") and ________ Common Stock Purchase
Warrants of the Company (the "Underlying Warrants") issuable under the Warrant
Agreement (as defined in the Managing Underwriters' Warrant Agreement) in
accordance with the terms of the Managing Underwriters' Warrant Agreement. This
Managing Underwriters' Warrant with respect to the Underlying Shares expires on
December ______, 2002 (the "Underlying Share Expiration Date") and with respect
to the Underlying Warrants expires on January _______, 2000 (the "Underlying
Warrant Expiration Date"), or on such expiration dates as may be extended
pursuant to the terms of the Managing Underwriters' Warrant Agreement.
This Managing Underwriters' Warrant entitles the registered holder,
upon exercise from time to time from 9:00 a.m. New York City time on or after
December _____, 1998 until 5:00 p.m. New York City time on the Underlying Share
Expiration Date (with respect to the Underlying Shares) and the Underlying
Warrant Expiration Date (with respect to the Underlying Warrants), to purchase
Underlying Shares at $_____ per Underlying Share (the "Underlying Share Purchase
Price") and Underlying Warrants at $________ per Underlying Warrant (the
"Underlying Warrant Purchase Price") in lawful money of the United States of
America upon surrender of this certificate and payment of the Underlying Share
Purchase Price and/or the Underlying Warrant Purchase Price in accordance with
the terms of the Managing Underwriters'
A-1
<PAGE> 25
Warrant Agreement. The Underlying Share Purchase Price, the number of Underlying
Shares issuable upon exercise of this Managing Underwriters' Warrant, the
Underlying Warrant Purchase Price, and the number of Underlying Warrants
issuable upon exercise of this Managing Underwriters' Warrant are subject to
adjustment upon the occurrence of certain events set forth in the Managing
Underwriters' Warrant Agreement.
This Managing Underwriters' Warrant with respect to the Underlying Shares
may not be exercised after 5:00 p.m. on the Underlying Share Expiration Date and
with respect to the Underlying Warrants may not be exercised after 5:00 p.m. on
the Underlying Warrant Expiration Date, and to the extent not exercised by such
time such Managing Underwriters' Warrant shall become void.
This warrant certificate shall be governed by and construed in accordance
with the internal laws of the State of New York.
IN WITNESS WHEREOF, Herley Industries, Inc. has caused this warrant
certificate to be signed by its President and its Secretary.
Dated:___________
HERLEY INDUSTRIES, INC.
__________________________________
President
__________________________________
Secretary
A-2
<PAGE> 26
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto _______________________, whose address is ______________________ and whose
social security or other identifying number is _______________, the right to
purchase __________ Underlying Shares and _________ Underlying Warrants
evidenced by the within Managing Underwriters' Warrant, and hereby irrevocably
constitutes and appoints the Secretary of the Company as his, her or its
attorney-in-fact to transfer the same on the books of Herley Industries, Inc.
with full power of substitution and re-substitution. If said number of
Underlying Shares and/or Underlying Warrants is less than all of the Underlying
Shares and/or Underlying Warrants purchasable hereunder, the undersigned
requests that a new warrant certificate representing the right to purchase the
balance of such Underlying Shares and/or Underlying Warrants be registered in
the name of _______________, whose address is ________________________ and whose
social security or other identifying number is ___________________, and that
such warrant certificate be delivered to _________________, whose address is
_________________.
Dated:______________________ ______________________________________
Signature
A-3
<PAGE> 27
SUBSCRIPTION FORM
The undersigned hereby irrevocably elects to exercise the right,
represented by this warrant certificate, to purchase ______________ Underlying
Shares and/or _______________ Underlying Warrants and tenders payment herewith
in the amount of $________. The undersigned requests that a certificate for such
Underlying Shares and/or Underlying Warrants be registered in the name of
_______________, whose address is ______________ and whose social security or
other identifying number is _____________________, and that such Underlying
Shares and/or Underlying Warrants be delivered to _________________, whose
address is ____________________. If said number of Underlying Shares and/or
Underlying Warrants is less than all of the Underlying Shares and/or Underlying
Warrants purchasable hereunder, the undersigned requests that a new warrant
certificate representing the right to purchase the balance of such Underlying
Shares and/or Underlying Warrants be registered in the name of
__________________, whose address is ____________________ and whose social
security or other identifying number is ____________________, and that such
warrant certificate be delivered to ______________________, whose address is
_____________________.
Date:_______________ ______________________________________
Signature
A-4
<PAGE> 1
Exhibit 10.16
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of December ___, 1997 by and among Herley Industries, Inc., a
Delaware corporation (the "Company"), Janney Montgomery Scott Inc. ("Janney
Montgomery"), and Southwest Securities, Inc. ("Southwest"). Janney Montgomery
and Southwest are hereafter referred to collectively as the "Managing
Underwriters."
W I T N E S S E T H
In connection with the public offering by the Company and certain
selling stockholders (the "Selling Stockholders") of the Company's common stock,
par value $.10 per share (the "Common Stock"), and Common Stock Purchase
Warrants (the "Warrants") under that certain Warrant Agreement (the "Warrant
Agreement"), dated as of the date hereof, between the Company and the Warrant
Agent (as defined in Section 1), the Managing Underwriters purchased a warrant
(the "Managing Underwriters' Warrant") entitling the holder thereof to purchase
up to (i) 140,000 shares of Common Stock (the "Underlying Shares") and (ii)
140,000 Warrants (the "Underlying Warrants"), which shall entitle the holder(s)
thereof to purchase up to 140,000 shares of Common Stock (the "Underlying
Warrant Shares"), each subject to adjustment as specified in the Managing
Underwriters' Warrant Agreement (as defined in Section 1) or the Warrant
Agreement, respectively.
In order to induce the Managing Underwriters to purchase the Managing
Underwriters' Warrant, the Company has agreed to provide the registration rights
set forth in this Agreement for the benefit of (i) the Managing Underwriters,
and (ii) the Persons owning the record or beneficial interest in any Registrable
Securities from time to time (the "Holders").
The parties hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following
capitalized terms shall have the following meanings:
(a) "Affiliate" of any specified Person means any other Person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with such specified Person. For purposes of this definition, control of
a Person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such Person whether by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
(b) "Agreement" shall have the meaning set forth in the introductory
paragraph hereto.
(c) "Business Day" shall mean any day except a Saturday, Sunday or
other day in the City of New York on which banks are authorized to close.
(d) "Commission" shall mean the Securities and Exchange Commission.
(e) "Common Stock" shall have the meaning set forth in the recitals
hereto.
(f) "Company" shall have the meaning set forth in the introductory
paragraph hereto.
<PAGE> 2
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Holders" shall have the meaning set forth in the recitals hereto.
(i) "Janney Montgomery" shall have the meaning set forth in the
introductory paragraph hereto.
(j) "Managing Underwriters" shall have the meaning set forth in the
introductory paragraph hereto.
(k) "Managing Underwriters' Warrant" shall have the meaning set forth
in the recitals hereto.
(l) "Managing Underwriters' Warrant Agreement" shall mean the Managing
Underwriters' Warrant Agreement, dated as of the date hereof, between the
Company and the Managing Underwriters.
(m) "Material Event" shall have the meaning set forth in Section 4(c)
hereof.
(n) "NASD" shall mean the National Association of Securities Dealers,
Inc.
(o) "Person" shall mean an individual, partnership, corporation,
limited liability company, joint venture, association, trust or other
organization whether or not a legal entity, or a government or agency or
political subdivision thereof.
(p) "Prospectus" shall mean the prospectus included in a Registration
Statement, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, and all material
incorporated by reference into such prospectus.
(q) "Registrable Securities" shall mean the Managing Underwriters'
Warrant, the Underlying Shares, the Underlying Warrants, and the Underlying
Warrant Shares. All of the Registrable Securities are divisible. A Registrable
Security ceases to be a Registrable Security after it has been sold pursuant to
an effective registration statement under the Securities Act, provided that any
underlying security shall remain a Registrable Security until such underlying
security has also been sold pursuant to an effective registration statement
under the Securities Act.
(r) "Registration Statement" shall mean any Shelf Registration
Statement pursuant to Section 2 hereof and any piggyback registration statement
pursuant to Section 3 hereof (including any amendments and supplements to such
registration statement, including any post-effective amendments).
(s) "Securities Act" shall mean the Securities Act of 1933, as amended.
(t) "Shelf Registration Statement" shall mean a shelf registration
statement of the Company pursuant to Section 2 hereof filed with the Commission
on an appropriate form under Rule 415 under the Securities Act, or any similar
rule that may be adopted by the Commission, any amendments and supplements to
such registration statement, including any post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
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<PAGE> 3
(u) "Southwest" shall have the meaning as set forth in the introductory
paragraph hereto.
(v) "Underlying Shares" shall have the meaning set forth in the
recitals hereto.
(w) "Underlying Warrants" shall have the meaning set forth in the
recitals hereto.
(x) "Underlying Warrant Shares" shall have the meaning set forth in the
recitals hereto.
(y) "Warrant Agent" shall mean American Stock Transfer & Trust Company,
as warrant agent.
(z) "Warrant Agreement" shall mean that certain Warrant Agreement,
dated as of the date hereof, between the Company and the Warrant Agent.
SECTION 2. Shelf Registration Statement.
(a) Demand Registration Right. The Managing Underwriters have one
demand registration right with respect to the Registrable Securities under this
Section 2. Either Managing Underwriter may exercise this demand right during the
period beginning on the first anniversary of the date hereof and ending on the
fifth anniversary of the date hereof or the expiration of the Managing
Underwriters' Warrant, if later. Such demand right must be exercised in writing
and must satisfy the notice requirements to the Company as set forth in Section
10(d) herein. A Managing Underwriter need not be a Holder to exercise this
demand right. This demand right shall continue to exist until it expires
pursuant to this Section 2(a), or a Shelf Registration Statement demanded under
this Section 2(a) becomes effective.
(b) Filing of a Shelf Registration Statement. Upon such written demand
pursuant to Section 2(a), the Company shall within 30 days following receipt of
such written demand, file with the Commission a Shelf Registration Statement
relating to the issuance and/or resale of the Registrable Securities from time
to time in accordance with the methods of distribution set forth in such Shelf
Registration Statement (including securities deemed registered pursuant to Rule
416 under the Securities Act), and thereafter use its reasonably best efforts to
cause such Shelf Registration Statement to be declared effective under the
Securities Act within 75 days following receipt of such written demand; provided
that no Holder shall be entitled to have its Registrable Securities covered by
such Shelf Registration Statement unless such Holder is in compliance with
Section 5 hereof.
(c) Effective Period. The Company shall use its reasonably best efforts
to keep such Shelf Registration Statement continuously effective in order to
permit the Prospectus forming a part thereof to be usable until the fourth
anniversary of the date that such Shelf Registration Statement was declared
effective (or if later, until the Warrants expire).
(d) Identification of Holders. After the effectiveness of the Shelf
Registration Statement, the Company shall promptly upon the request of any
Holder, use its reasonably best efforts to take any action necessary to identify
such Holder as a selling security holder to the extent such Holder is required
but not already identified as such in the Prospectus.
(e) Additional Demand Registration Rights. After the expiration of the
effective
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<PAGE> 4
period in Section 2(c) hereof, each Managing Underwriter may make one additional
demand registration for the Registrable Securities upon the terms set forth in
this Section 2, provided that the demanding Managing Underwriter pay all of the
Company's out-of-pocket fees and expenses, including reasonable legal fees, in
connection with such filing.
SECTION 3. Piggyback Registration Rights.
(a) Notice to Holders. If at any time on or after the first anniversary
of the date hereof and on or before the fifth anniversary of the date hereof or
such later time as the Managing Underwriters Warrant expires, the Company
proposes to file a registration statement with the Commission (other than on a
Form S-4 or a Form S-8), it will give written notice by registered mail, at
least 30 days prior to the filing of each such registration statement, to the
Holders of its intention to do so. If any Holders shall notify the Company
within 20 days after receipt of such notice of their desire to include any of
their Registrable Securities (including any security underlying their
Registrable Securities) in such proposed registration statement, the Company
shall include such Registrable Securities in such registration statement,
provided that if the managing underwriter, if any, of such offering delivers an
opinion to the Holders that the total amount of securities that they and the
holders of other piggyback rights intend to include in such registration
statement could adversely affect the success of such offering, then the amount,
the number or kind of securities to be offered for the account of such Holders
and the holders of such other piggyback rights will be reduced pro rata among
such Holders and the holders of such other piggyback rights to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount, number or kind recommended by the managing underwriter.
(b) Effectiveness of Registration Statement. The Company shall use its
reasonably best efforts to cause any registration statement filed pursuant to
Section 3(a) hereof to be declared effective and shall maintain the
effectiveness thereof for a period of not less than one year after such
effective date.
SECTION 4. Registration Procedures. In connection with each
Registration Statement and any related Prospectus, the Company shall:
(a) Provided Required Information. Use its reasonably best efforts to
keep such Registration Statement continuously effective and provide all
requisite financial statements for the periods required hereunder; upon the
occurrence of any event that would cause such Registration Statement or the
Prospectus contained therein (i) to contain a material misstatement or omission
or (ii) not to be effective and usable during the period required by this
Agreement, the Company shall file promptly an appropriate amendment to such
Registration Statement, in the case of clause (i), correcting any such
misstatement or omission, and in the case of either clause (i) or (ii), use its
best efforts to cause such amendment to be declared effective and such
Registration Statement and the related Prospectus to become usable for their
intended purposes as soon as reasonably practicable thereafter;
(b) Amendments. Prepare and file with the Commission such amendments
and post-effective amendments to such Registration Statement as may be necessary
to keep such Registration Statement effective for the periods required
hereunder, the related Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act, and to comply fully with the applicable provisions of Rules 424
and 430A under the Securities Act in a timely manner; and comply with the
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<PAGE> 5
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Registration Statement in accordance with
the intended method or methods of distribution set forth in such Registration
Statement or supplement to such Prospectus;
(c) Material Events. Advise promptly the Managing Underwriters, the
Holders and any underwriters involved in the offering, and if requested by such
Persons, confirm such advice in writing, (i) when such Registration Statement or
Prospectus supplement or post-effective amendment has been filed, and with
respect to any post-effective amendment, when the same has become effective,
(ii) of any request by the Commission for amendments to such Registration
Statement or amendments or supplements to such Prospectus or for additional
information relating thereto, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of such Registration Statement under the
Securities Act or of the suspension by any state securities commission of the
qualification of the Registrable Securities for offering or sale
in any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes or (iv) of the existence of any fact or the happening of any
event that makes any statement of a material fact made in such Registration
Statement, the related Prospectus, any amendment or supplement thereto, or any
document incorporated by reference therein untrue, or that requires the making
of any additions to or changes in such Registration Statement or the related
Prospectus in order to make the statements of material fact therein not
misleading (a "Material Event"); if at any time the Commission shall issue any
stop order suspending the effectiveness of such Registration Statement, or any
state securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Registrable
Securities under state securities or Blue Sky laws, the Company shall use its
best efforts to obtain the withdrawal or lifting of such order at the earliest
practicable time;
(d) Opportunity to Comment. Furnish to the Managing Underwriters, the
Holders and any underwriters involved in the offering, before filing with the
Commission, copies of such Registration Statement and the Prospectus included
therein and any amendments or supplements to such Registration Statement or
Prospectus (including all documents incorporated by reference), which documents
will be subject to the review of such Managing Underwriters, Holders and
underwriters for a period of at least three Business Days, and the Company will
not file such Registration Statement or Prospectus or any amendment or
supplement to such Registration Statement or Prospectus (including all documents
incorporated by reference) to which any of such Managing Underwriters, Holders
or underwriters reasonably object within five Business Days after the receipt
thereof; such Managing Underwriters, Holders and underwriters shall be deemed to
have reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission or fails to comply with the
applicable requirements of the Securities Act;
(e) Opportunity to Ask Questions. Prior to the filing of such
Registration Statement, any amendment thereto, or any document that is to be
incorporated by reference therein, if requested by the Managing Underwriters,
the Holders and any underwriters involved in the offering within three Business
Days after receipt of notification thereof from the Company, make the Company's
representatives available for discussion of such document and other customary
due diligence matters, and include such information in such document prior to
the filing thereof as such Managing Underwriters, Holders and underwriters
reasonably may request;
(f) Opportunity to Review Documents. Make available at reasonable times
for
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<PAGE> 6
inspection by the Managing Underwriters, the Holders and any underwriters
involved in the offering, and any attorney or accountant retained by any of
them, all financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Managing
Underwriters, Holders and underwriters, attorney or accountant in connection
with such Registration Statement, any amendment thereto, or any document that is
to be incorporated therein prior to the filing thereof;
(g) Post-Effective Amendments. If requested by the Managing
Underwriters, the Holders or any underwriters involved in the offering, promptly
include in such Registration Statement or Prospectus, pursuant to a supplement
or post-effective amendment if necessary, such information as such Managing
Underwriters, Holders or underwriters may reasonably request to have included
therein, including, without limitation, information relating to the "Plan of
Distribution" of the Registrable Securities; and make all required filings of
such Prospectus supplement or post-effective amendment as soon as practicable
after the Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(h) Copies of Registration Statement. Furnish to each Managing
Underwriter, Holder and any underwriter involved in the offering, without
charge, at least one copy of such Registration Statement, as first filed with
the Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(i) Copies of Prospectus. Deliver to each Managing Underwriter, Holder
and any underwriter involved in the offering, without charge, as many copies of
the Prospectus related to such Registration Statement (including each
preliminary Prospectus) and any amendment or supplement thereto as such Persons
may request; the Company hereby consents to the use of such Prospectus and any
amendment or supplement thereto by each of the Managing Underwriters, Holders
and underwriters, if any, in connection with the offering and the sale of the
Registrable Securities covered by such Prospectus or any amendment or supplement
thereto;
(j) Legal Opinion. Obtain an opinion of outside counsel to the Company
and updates thereof in form and substance reasonably satisfactory to the
Managing Underwriters, the Holders and any underwriters involved in the
offering, addressed to such Managing Underwriters, Holders and underwriters
covering the matters customarily covered in opinions requested in offerings and
such other matters as may be reasonably requested by such Managing Underwriters,
Holders and underwriters, including a statement to the effect that such counsel
has participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the Company,
and such other Persons as may participate in such conferences at which the
contents of such Registration Statement and related Prospectus were discussed,
and although such counsel has not undertaken to investigate or independently
verify and does not assume any responsibility for the accuracy, completeness, or
fairness of the statements therein, such counsel advises that no facts came to
such counsel's attention that caused such counsel to believe that such
Registration Statement and related Prospectus, at the time that such
Registration Statement became effective or the date of such counsel's opinion,
contained an untrue statement of material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading;
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(k) Underwriting Agreement. In connection with any underwritten
offering of Registrable Securities pursuant to such Registration Statement,
enter into an underwriting agreement as is customary in underwritten offerings
and take all such other actions as are reasonably requested by the underwriters
in such offering to expedite or facilitate the registration and disposition of
such Registrable Securities, and in connection therewith make such
representations and warranties to the underwriters, and provide such indemnities
as are customarily made and provided by issuers to underwriters in underwritten
offerings;
(l) Blue Sky Filings. Prior to any public offering of Registrable
Securities, cooperate with the Managing Underwriters, the Holders and any
underwriters involved in the offering, and their respective counsel in
connection with the registration and qualification of the Registrable Securities
under the securities or Blue Sky laws of such jurisdictions as such Managing
Underwriters, Holders and underwriters may reasonably request and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by such Registration
Statement; provided, however, that the Company shall not be required to register
or qualify as a foreign corporation where it is not required to be qualified or
to take any action that would subject it to service of process in suits or to
taxation in any jurisdiction where it is not now so subject;
(m) Certificates. Cooperate with the Managing Underwriters, the Holders
and any underwriters involved in the offering to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any restrictive legends; and to register such
Registrable Securities in such denominations and such names as the Managing
Underwriters, the Holders and any underwriters involved in the offering may
request at least two Business Days prior to such sale of Registrable Securities
made by such Managing Underwriters, Holders and underwriters;
(n) Approvals. Use its reasonably best efforts to cause the Registrable
Securities covered by such Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the Managing Underwriters, the Holders and any underwriters involved
in the offering to consummate the disposition of such Registrable Securities;
(o) Post-Effective Amendments. If any Material Event shall exist or
have occurred, promptly prepare a supplement or post-effective amendment to
such Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Registrable Securities, such Prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(p) CUSIP Numbers. Provide a CUSIP number or numbers for all
Registrable Securities not later than the effective date of such Registration
Statement to the extent that any Registrable Security does not already have a
CUSIP number;
(q) NASD Filings. Cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence investigation by
the Managing Underwriters, the Holders and any underwriters involved in the
offering (including any "qualified independent underwriter") that is required to
be retained in accordance with the rules and regulations of the NASD;
(r) Earnings Statement. Otherwise use its best efforts to comply with
all applicable
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<PAGE> 8
rules and regulations of the Commission, and make generally available to its
security holders as soon as practicable, but not later than 45 days after the
end of the 12 month period beginning at the end of the fiscal quarter of the
Company during which the date on which the Commission declares such Registration
Statement effective, or 90 days if such 12 month period coincides with the
Company's fiscal year, a consolidated earnings statement (in form complying with
the provisions of Section 11(a) of the Securities Act and Rule 158 under the
Securities Act), which need not be audited, covering such 12 month period;
(s) Exchange Act Filings. Provide promptly to each Managing Underwriter
and each Holder upon request each document filed with the Commission pursuant to
the requirements of Section 13 or Section 15 of the Exchange Act;
(t) Conduct Rules. In the event that any broker-dealer registered under
the Exchange Act shall underwrite any Registrable Securities or participate as a
member of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of the Conduct Rules and the By-Laws of the
NASD) thereof, whether as a Holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, assist such broker-dealer in complying with the
requirements of such Conduct Rules and By-Laws, including, without limitation,
by (i) engaging a "qualified independent underwriter" (as defined in such
Conduct Rules) to participate in the preparation of such Registration Statement
relating to such Registrable Securities and to exercise usual standards of due
diligence in respect thereto, (ii) indemnifying any such qualified independent
underwriter to the same extent as the Company indemnifies the Holders under
Section 8 hereof, and (iii) providing such information to such broker-dealer as
may be required in order for such broker-dealer to comply with the requirements
of the Conduct Rules of the NASD; and
(u) Exchange Listing. Use its reasonably best efforts to cause all
Registrable Securities covered by such Registration Statement to be listed on
each securities exchange or automated quotation system on which similar
securities issued by the Company are then listed.
SECTION 5. Holder Information. No Holder may include any of its
Registrable Securities in a Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to the Company in writing such
information as the Company may reasonably request specified in Items 507 and 508
of Regulation S-K under the Securities Act for use in connection with such
Registration Statement or Prospectus or preliminary Prospectus included therein.
Each Holder agrees to furnish promptly to the Company all information required
to be disclosed to make the information previously furnished to the Company by
such Holder not materially misleading.
SECTION 6. Restrictions On Holders. Each Holder agrees by acquisition
of a Registrable Security that, upon receipt of any notice from the Company of
the existence of any Material Event not adequately described in a Registration
Statement, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to such Registration Statement until such Holder's receipt
of the copies of the related supplemented or amended Prospectus contemplated by
Section 4(o) hereof, or until such Holder is advised in writing by the Company
that the use of such Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in such
Prospectus.
SECTION 7. Registration Expenses
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(a) Company Expenses. Except as provided in Section 9 hereof, all expenses
incident to the Company's performance of or compliance with this Agreement will
be borne by the Company, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all fees, disbursements and
expenses of the Company's counsel and accountants and all other expenses in
connection with the registration, printing and filing of a Registration
Statement and the related Prospectus and any amendments and supplements thereto
and the mailing and delivery of copies thereof and of any final Prospectus to
the Managing Underwriters, Holders, and any underwriters involved in the
offering, (ii) all registration and filing fees of the Commission, (iii) all
printing and delivery (including, without limitation, postage, air freight
charges and charges for counting and packaging) of copies of such Registration
Statement, Prospectus, and each final Prospectus, Blue Sky memoranda, any
agreements among underwriters, any selected dealer agreements, any ancillary
agreements and documents, and all amendments or supplements to any of them as
may be reasonably requested for use in connection with the offering related to
such Registration Statement, (iv) all expenses incurred in connection with the
qualification under state securities laws or Blue Sky laws, including the
reasonable fees of the counsel for the Managing Underwriters not to exceed
$5,000, Holders, and any underwriters involved in the offering in connection
therewith not to exceed $5,000, (v) all listing, designation and other filing
fees in connection with listing the Registrable Securities on a national
securities exchange or automated quotation system pursuant to the requirements
hereof, (vi) all filing fees incident to securing a review of the terms of the
sale of the Registrable Securities by the association or organization that
supervises, oversees or regulates such exchange or system, (vii) all costs of
preparing certificates for the securities, including the Registrable Securities,
offered in such offering, (viii) all costs and charges of any transfer agent,
warrant agent or registrar, (ix) all costs of the tax stamps, if any, in
connection with the issuance and delivery of the Registrable Securities, (x) if
the Company elects to make the offering related to such Registration Statement
an underwritten offering, all out-of-pocket expenses in connection with "road
shows" in connection with any underwritten offering, and (xi) if the Company
elects to make the offering related to such Registration Statement an
underwritten offering, all out-of-pocket other out-of-pocket costs and expenses
incurred in the performance of the obligations of the Company hereunder that are
not otherwise specifically provided for in this paragraph; provided, however,
that if any Managing Underwriter makes an additional demand registration
pursuant to Section 2(e), such Managing Underwriter shall bear the out-of-pocket
expenses noted in this paragraph incurred in connection with such registration.
The Company will bear internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expenses of any annual audit and the fees and expenses
of any Person, including special experts, retained by the Company.
(b) Counsel for the Managing Underwriters and the Holders. In addition
to the expenses described in Section 7(a) above, in connection with a Shelf
Registration Statement filed pursuant to Section 2 at the Company's expense, the
Company will reimburse the demanding Managing Underwriter for the reasonable
fees and disbursements of not more than one counsel; provided, however, that the
Company shall not be liable for such attorneys' fees in excess of $10,000.
SECTION 8. Indemnification
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Managing Underwriter, Holder, the respective directors,
officers, partners, employees, and agents of each Managing Underwriter or
Holder, and each Person, if any, who controls any Managing Underwriter or Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages,
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<PAGE> 10
liabilities and expenses (including reasonable attorneys' fees and costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
related Prospectus, or in any amendment or supplement thereto, or in any
application or other document executed by the Company, or arising out of or
based upon any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or arising
out of or based upon any inaccuracy in the representations and warranties of the
Company contained in an underwriting agreement related to such Registration
Statement or any failure of the Company to perform its obligations under such
underwriting agreement, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon an untrue statement or
omission or alleged untrue statement or omission that has been made in any
Registration Statement or related Prospectus or omitted therefrom in reliance
upon and in conformity with the information furnished in writing to the Company
by or on behalf of any Managing Underwriters or Holders expressly for use in
connection therewith; provided, however, that with respect to any untrue
statement or omission made in any preliminary Prospectus, this indemnity shall
not inure to the benefit of a Managing Underwriter or Holder (or to the benefit
of any other person entitled to such indemnification) from whom the person
asserting such losses, claims, damages or liabilities purchased the Registrable
Securities concerned if both: (i) a copy of the final Prospectus was not sent or
given to such person as required by the Securities Act, and (ii) the untrue
statement or omission in such preliminary Prospectus was corrected in such final
Prospectus. This indemnity will be in addition to any liability that the Company
may otherwise have, including under this Agreement.
(b) Indemnification by the Holders. Each Holder agrees, severally and
not jointly, to indemnify and hold harmless the Company, its directors, its
officers who sign the Registration Statement, and any Person who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, to the same extent as the foregoing indemnity from the Company
in Section 8(a) hereof, but only with respect to information furnished in
writing to the Company by or on behalf of such Holder expressly for use in such
Registration Statement or related Prospectus. This indemnity will be in addition
to any liability which any Holder may otherwise have, including under this
Agreement.
(c) Indemnification Procedure. If any claim or action shall be brought
under this Section 8(a) or Section 8(b), the indemnified party shall promptly
notify in writing the indemnifying parties, and such indemnifying parties shall
assume the defense thereof, including the employment of counsel reasonably
acceptable to the indemnified party and payment of all fees and expenses. The
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying parties have agreed to pay such fees and expenses, (ii) the
indemnifying parties have failed to assume the defense and employ counsel
reasonably acceptable to the indemnified party, or (iii) the named parties to
any such action (including any impleaded parties) include the indemnified party
and the indemnifying parties, and the indemnified party shall have been advised
by its counsel that one or more legal defenses may be available to the
indemnified party that may be unavailable to the indemnifying parties, or that
representation of such indemnified party and any indemnifying parties by the
same counsel would be inappropriate under applicable standards of professional
conduct due to actual or potential differing interests between them (in which
case the indemnifying parties shall not have the right to assume the defense of
such action on behalf of the indemnified party (notwithstanding their obligation
to bear the fees and expenses of such counsel)). The indemnifying parties shall
not be liable for any settlement of any such action effected without their
written consent, which may not be unreasonably withheld, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, the indemnifying parties agree to indemnify and hold harmless any
indemnified party from and
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against any loss, claim, damage, liability or expense by reason of such
settlement or judgment, but in the case of a judgment only to the extent
provided in this Section 8.
(d) Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in this Section 8 is for any reason
held to be unavailable or is insufficient (other than by reason of the terms
thereof) to hold harmless a party indemnified hereunder, the Company, on the one
hand, and the Holders for whose benefit the Company filed the subject
Registration Statement, on the other hand, shall contribute to the aggregate
losses, claims, damages, liabilities and expenses of the nature contemplated by
such indemnification provision (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claims asserted, but after deducting in the
case of losses, claims, damages, liabilities and expenses suffered by the
Company any contribution received by the Company from Persons, other than such
Holders, who may also be liable for contribution, including Persons who control
the Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) to which the Company and such Holders may be subject, in
such proportion as is appropriate to reflect the relative benefits received by
the Company, on the one hand, and such Holders, on the other hand, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company, on the one hand, and such Holders, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and such Holders, on the other hand, shall be deemed to be in the same
proportion as (x) the total proceeds from the offering of the shares of Common
Stock and the Warrants, which have been registered pursuant to a Registration
Statement on Form S-1 (Registration Statement No. 333-39767) (net of discounts
but before deducting expenses) received by the Company plus proceeds received by
the Company in connection with the securities covered by the Registration
Statement and (y) the total proceeds received by such Holders upon their sale of
Registrable Securities covered by the Registration Statement plus the
underwriting discounts and commissions received by the Managing Underwriters
pursuant to the offering registered pursuant to the Registration Statement on
Form S-1 (Registration Statement No. 333-39767). The relative fault of the
Company and such Holders 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 or which should have been supplied by the Company, on the one hand, or
to information supplied by such Holders, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by a pro
rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to above. The amount paid or payable as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in this
Section 8, any legal or other expenses reasonably incurred in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8 (i) no Holder shall be required to contribute any
amount in excess of the dollar amount by which the proceeds received by such
Holder with respect to the sale of its Registrable Securities covered by the
subject Registration Statement exceeds the amount of any damages which such
Holder has otherwise been required to pay by
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reason of such untrue statement or alleged untrue statement or omission or
alleged omission and (ii) 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.
For purposes of this Section 8, each Person, if any, who controls a
Managing Underwriter or Holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of a Managing
Underwriter or Holder or any controlling Person shall have the same rights to
contribution as such Managing Underwriter or Holder, and each Person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act and the respective officers, directors,
partners, employees, representatives and agents of the Company, or any such
controlling Person shall have the same rights to contribution as the Company,
subject in each case to the limitations on contribution described in this
Section 8(d). Any Person entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such Person
in respect of which a claim for contribution may be made against another Person
under this Section 8, notify such Person from whom contribution may be sought,
but the failure to so notify such Person shall not relieve the Person from whom
contribution may be sought from any obligation such Person may have under this
Section 8.
SECTION 9. Underwritten Offering. A Managing Underwriter may require
that any Shelf Registration Statement filed pursuant to Section 2 hereof be an
underwritten offering; provided, however, that such Managing Underwriter shall
bear those out-of-pocket expenses set forth in Section 7(a) that arise solely
because such Managing Underwriter required such Shelf Registration Statement to
be an underwritten offering, including underwriting discounts and commissions
with respect to the Registrable Securities and fees of any "qualified
independent underwriter" engaged pursuant to Section 4(t) hereof with respect to
the Registrable Securities. In any such underwritten offering, the investment
banker or investment bankers and manager or managers that will administer the
offering will be selected by the demanding Managing Underwriter; provided that
such investment bankers and managers must be reasonably satisfactory to the
Company (it being understood that Janney Montgomery and Southwest are reasonably
satisfactory). No Holder may participate in any underwritten offering hereunder
unless such Holder agrees to sell such Holder's Registrable Securities on the
basis provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements. The Company shall not bear any
underwriting discounts and commissions with respect to the Registrable
Securities in connection with an underwritten offering relating to a
Registration Statement filed pursuant to Section 2 or 3 hereof.
SECTION 10. Miscellaneous.
(a) Remedies. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Managing Underwriters and
Holders in this Agreement or otherwise conflicts with the provisions hereof. The
Company represents and warrants that the rights
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granted to the Managing Underwriters and Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of the Managing Underwriters.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), facsimile transmission,
telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to Janney Montgomery:
Janney Montgomery Scott Inc.
26 Broadway
New York, New York 10004
Attention: Herbert M. Gardner
Phone No.: (212) 510-0600
Facsimile No.: (212) 510-0683
(ii) if to Southwest:
Southwest Securities, Inc.
1201 Elm Street
Suite 3500
Dallas, Texas 75270
Attention: C. William Dedmon, Jr.
Phone No.: (214) 651-1800
Facsimile No.: (214) 658-9441
(iii) if to a Holder, at the address set forth on the
records of (A) the Company with respect to a Holder of the Managing
Underwriters' Warrant, (B) the Warrant Agent with respect to the Holder
of any Underlying Warrants, with a copy to the Warrant Agent, or (C)
the Company's stock transfer agent with respect to the Holder of any
Underlying Shares or Underlying Warrant Shares, with a copy to the
stock transfer agent; and
(iv) if to the Company:
Herley Industries, Inc.
10 Industry Drive
Lancaster, Pennsylvania 17603
Attention: President
Phone No.: (717) 397-2777
Facsimile No.: (717) 397-9503
with copy to:
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, NY 11753
Attention: David Lieberman, Esq.
Facsimile No.: (516) 822-5609
with a copy to:
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, NY 11753
Attention: David Lieberman, Esq.
Facsimile No.: (516) 822-5609
All such notices and communications shall be deemed to have been duly
delivered: at the time delivered by hand, if personally delivered; three
Business Days after being deposited in the mail, postage prepaid, if mailed;
upon receipt of a confirmation notice, if sent by facsimile transmission; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on
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<PAGE> 14
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment, all
subsequent Holders of any Registrable Securities, provided that only a Managing
Underwriter may demand the filing of a Shelf Registration Statement under
Section 2 hereof.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflicts of laws rules thereof.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality or enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as the
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
HERLEY INDUSTRIES, INC.
By:
Myron Levy
President
JANNEY MONTGOMERY SCOTT INC.
By:
Herbert M. Gardner
Senior Vice President
SOUTHWEST SECURITIES, INC.
By:
C. William Dedmon, Jr.
Senior Vice President and
Managing Director
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EXHIBIT 10.20
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 4th day of August, 1997, among METRAPLEX
CORPORATION, a Delaware corporation ("Metraplex"), HERLEY INDUSTRIES, INC., a
Delaware corporation ("Herley"), and GLENN ROSENTHAL, residing at 4614 Granite
Drive, Middletown, Maryland 21769 (the "Executive").
WITNESSETH:
WHEREAS, pursuant to the terms of a certain Agreement and Plan of
Reorganization dated July 8, 1997 (the "Agreement and Plan of Reorganization")
among the Metraplex, Herley and Metraplex Acquisition Corp. ("Merger Sub"),
Merger Sub will merge with and into Metraplex, with Metraplex as the surviving
corporation and Metraplex will become a wholly-owned subsidiary of Herley (such
surviving corporation being hereinafter referred to as the "Employer"); and
WHEREAS, Executive has been a key executive officer and employee of
Employer and Herley wishes to retain the services of Executive as an employee
and officer of Employer, and Executive desires to render such services; and
WHEREAS, a condition of the closing of the transactions contemplated in
the Agreement and Plan of Reorganization is that Executive enter into with and
deliver this Employment Agreement to, the Employer;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. PRIOR AGREEMENTS SUPERSEDED; EFFECTIVENESS.
(a) This Agreement supersedes any employment agreements, oral or
written, entered into between Executive and Employer prior to the date of this
Agreement.
(b) This Agreement shall have no validity or force and effect
unless and until the Closing of the Agreement and Plan of Reorganization.
2. RETENTION OF SERVICES.
The Employer hereby agrees to employ the Executive and the Executive
agrees to accept employment on, and subject to, the terms and conditions
hereinafter set forth.
<PAGE> 2
3. TERM OF EMPLOYMENT.
Subject to earlier termination in accordance with Section 6 hereof, the
term of this Agreement shall commence on the effective date of Closing of the
Agreement and Plan of Reorganization and end three (3) years from that date,
unless extended by mutual agreement of the parties ("Term of Employment").
4. DUTIES.
(a) During the Term of Employment, the Executive shall be employed
by the Employer as the President of Metraplex and a Vice President of Herley
industries, Inc. The Executive agrees that he will devote his full business time
and best efforts exclusively to the faithful and diligent performance of all of
the duties and responsibilities incident to that position as well as all such
other executive duties and responsibilities for or on behalf of the Employer
and/or its subsidiaries or Herley and/or its subsidiaries as in that or any
other executive capacity he may be assigned or required to perform from time to
time by the Board of Directors or President of Herley.
(b) Notwithstanding the foregoing, neither the Employer nor Herley
will require the Executive to be employed in a location outside the Frederick,
Maryland area unless the Executive consents in writing to such other employment
location.
5. COMPENSATION.
For so long as the Executive is employed on a full time basis by the
Employer, in consideration of the services to be rendered by the Executive
hereunder, the Employer agrees to pay to the Executive during the Term of
Employment, and the Executive agrees to accept as compensation,
(a) a salary at the annual rate of not less than One Hundred
Thirty Thousand and 00/100 ($130,000.00) Dollars per annum (the "Salary"),
payable in bi-weekly installments or more frequently in accordance with the
Employer's normal payroll policies.
(b) not later than one hundred twenty (120) days after the end of
each fiscal year of the Employer, which shall be the same date as Herley
Industries, Inc. fiscal year end, the Employer shall pay to the Executive, as
incentive compensation, an amount equal to three percent (3%) of the Employer's
Pre-Tax income for such immediately preceding fiscal year. For purposes hereof,
the term "Pre-Tax Income" of the Employer shall mean, with respect to any fiscal
year, the income, if any, of the Employer, for such fiscal year as set forth in
the financial statements of the Employer, before deduction of taxes based on
income or of the incentive compensation to be paid to Executive for such fiscal
year under this Agreement. For the purpose of calculating Pre-Tax Income for
this subsection (b), a portion of the general expenses of Herley shall be
allocated to the Employer in accordance with the Generally Accepted Accounting
Principles which shall include interest from either bank loans or loans from
Herley, accounting and corporate legal charges
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consistent with Employer's previous costs, insurance and such other charges as
would usually be incurred by a separately managed subsidiary.
(c) upon execution of this Agreement, the Executive shall receive
$25,000.
(d) upon execution of this Agreement and the surrender of options
owned by the Executive to purchase 10,000 shares of Metraplex common stock, the
Executive shall receive non-qualified options to purchase Twenty-Five Thousand
(25,000) shares of Herley Common Stock, exercisable over a ten-year period,
subject to vesting over a five-year period in twenty percent (20%) increments
beginning July 31, 1998 at an exercise price per share equal to the closing
price of Herley Common Stock on the day prior to the execution of the Agreement
and Plan of Reorganization.
(e) upon execution of this Agreement and upon his request, the
Executive shall receive a loan from Herley in the principal amount of $25,000
with interest accruable at the rate or rates per annum equal to the rate
announced from time to time by Dauphin Bank as its "prime rate", payable at
maturity. Such loan shall be memorialized in a promissory note payable to
Herley, which shall mature on the second anniversary of the date of the
Agreement and Plan of Reorganization.
(f) During the Term of Employment, Executive shall be entitled to
the following benefits and perquisites:
(i) Participation, subject to qualification requirements,
in all fringe benefits, including disability,
medical, dental and hospitalization plans, presently
in effect by Employer or hereinafter instituted by
Employer and applicable to its executive employees
generally.
(ii) Term life insurance on the Executive's life
consistent with the insurance plan presently in
effect or hereafter instituted by Employer.
(iii) Reimbursement of reasonable and necessary expenses
incurred by the Executive in performing his
employment hereunder, provided such expenses are
adequately documented in accordance with Employer's
policy.
(iv) The use of an automobile comparable to those
automobiles provided to other Vice-Presidents of
Herley with reimbursement for repairs, fuel and
insurance.
(v) Vacation in accordance with Employer's policies in
effect from time to time for executives of the
Employer; provided, however, that the Executive shall
not be entitled to additional cash compensation for
any unused vacation time.
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(vi) Participation in Herley's stock option plans to the
extent determined and approved by the Board of
Directors of Herley.
(vii) Participation in the existing or any successor
401(K) and pension and profit sharing plans of the
Employer ("Employer's Plans");
6. TERMINATION OF EMPLOYMENT.
This Agreement and, accordingly, the Term of Employment, may be
terminated earlier than as specified in Section 3 hereof, upon the happening of
any of the following events:
(a) Whenever Employer and the Executive shall mutually agree in
writing to terminate this Agreement.
(b) Upon the death of the Executive.
(c) At the option of the Employer, if the Executive shall:
(i) be in breach of or default under any material
provision of this Agreement for a period of thirty
(30) days after notice of such breach is given by
Employer to the Executive; or
(ii) be convicted or have acknowledged the commission of
fraud, misappropriation or embezzlement; or
(d) if during the Term of Employment the Executive becomes unable
for four and one-half(4-1/2) consecutive months or six (6) months during a
continuous twelve (12) month period, due to ill health or other incapacitation,
to perform his duties hereunder, then Herley has the right to terminate this
employment agreement.
(e) At the Executive's option, if Herley or the Employer shall be
in breach of or default under any material provision of this Agreement for a
period of thirty (30) days after notice of such breach is given by the Executive
to the Employer.
(f) At the Executive's option, if Employer or Executive is
relocated as set forth in paragraph 7(d) hereof
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7. EFFECTS OF TERMINATION
(a) In the event that the Executive's Term of Employment is
terminated for reasons other than set forth in Section 6(c) of this Agreement,
Executive shall receive any accrued but unpaid compensation which Executive is
entitled to pursuant to Section 5(a) and Section 5(f) of this Agreement in
regularly scheduled payments as if he were a continuing employee. Executive
shall have a duty to mitigate the Employer's damages hereunder, and there shall
be deducted from the amounts payable by the Employer hereunder an amount equal
to any compensation earned by Executive from other employment subsequent to such
termination of his employment hereunder.
(b) In the event the Executive's Term of Employment is terminated
pursuant to Section 6(c), Executive shall not be entitled to receive any amounts
from the Employer other than any salary and accrued fringe benefits as set forth
in Section 5(f) then due but unpaid; provided, that if the reason for such
termination is the commission of any fraudulent act or felony against the
Employer or Herley, Executive shall not be entitled to receive any salary or
accrued fringe benefits then due but unpaid.
(c) In the event the Executive's Term of Employment is terminated
pursuant to Sections 6(b) or 6(d) of this Agreement, Executive shall receive any
accrued but unpaid compensation which Executive is entitled to pursuant to
Section 5(a) and Section 5(f) of this Agreement in regularly scheduled payments
as if he were a continuing employee. In such event. Executive also shall be
entitled to receive any amounts subsequently due and payable under Section 5(b)
of this Agreement prorated and payable for only that part of the year during
which Executive was employed by Employer.
(d) If the Employer or Executive is relocated out of Frederick,
Maryland, and the Executive terminates the Term of Employment pursuant to
Section 6(f) ("Termination for Relocation"), Executive shall receive the
following payments only:
(i) If Termination for Relocation is during the first year
of this Agreement, the Executive shall receive an amount equal to $260,000,
payable thirty (30) days after such Termination for Relocation.
(ii) If Termination for Relocation is during the second year
of this Agreement, the Executive shall receive an amount equal to $195,000,
payable thirty (30) days after such Termination for Relocation.
(iii) If Termination for Relocation is during the third year
of this Agreement or the fourth year of the Executive's employment, assuming the
Executive's employment with the Employer or Herley continues after the
expiration of this Agreement, the Executive shall receive an amount equal to
$130,000, payable thirty (30) days after such Termination for Relocation.
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8. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES.
The Executive shall (without any additional compensation) promptly
disclose in writing to the Boards of Directors of Employer and Herley all new
ideas, processes, devices, inventions and discoveries (hereinafter referred to
collectively as "discoveries"), whether or not patentable or copyrightable,
which he, while employed by the Employer or Herley or any of their affiliates
(collectively the "Group"), conceives, makes, develops, acquires or reduces to
practice, whether alone or with others and whether during or after usual working
hours, and which are related to the Group's business or interests, or are used
or usable by the Group, or arise out of or in connection with the duties
performed by him hereunder; and the Executive hereby transfers and assigns to
the Employer and Herley all right, title and interest in and to such
discoveries, including any and all domestic and foreign copyrights and patent
rights therein and any renewals thereof. On request of the Employer or Herley,
the Executive shall (without any additional compensation), from time to time
during or after the expiration or termination of his employment, execute such
further instruments (including, without limitation, applications for copyrights,
letters patent and assignments thereof) and do all such other acts and things as
may be deemed necessary or desirable by the Employer or Herley to protect and/or
enforce their rights in respect of such discoveries. All expenses of filing or
prosecuting any patent or copyright applications shall be borne by the Employer
and Herley, but the Executive shall cooperate in filing and/or prosecuting any
such applications.
9. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
The Executive represents that he has been informed that it is the
policy of the Employer and Herley to maintain as secret and confidential all
information (i) relating to the products, processes, designs and/or business
concepts used by the Group and (ii) relating to the customers, suppliers and
employees of the Group, including, without limitation, the names, addresses,
requirements of, or credit terms extended to or by, customers or suppliers (all
such information hereinafter referred to as "Confidential Information"), and the
Executive further acknowledges that such Confidential Information is of great
value to the Group. The parties recognize that the services to be performed by
the Executive are special and unique, and that by reason of his employment by
the Employer, he has and will acquire Confidential Information as aforesaid. The
parties confirm that it is reasonably necessary to protect the goodwill of the
Employer and Herley that the Executive agree, and accordingly, the Executive
does agree, that at any time during or after he ceases to be employed by the
Employer, he will not directly or indirectly (except where authorized by the
Board of Directors of the Employer or Herley for the benefit of either of those
Companies or the Group, divulge to any persons, firms or corporations, other
than the Group (hereinafter referred to collectively as "third parties"), or use
or cause to authorize any third parties to use, any such Confidential
Information, or any other information regarded as confidential and valuable by
the Employer or Herley which he knows or should know is regarded as confidential
and valuable by the Employer or Herley. The non-disclosure obligations of this
section shall not be imposed with regard to information which is or subsequently
becomes, through no fault of Executive, generally available to the public or is
disclosed as required by court order or by an order of a Regulatory Agency.
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10. NON-COMPETITION.
(a) During the term of employment and any extensions thereof, and
for a period of two (2) years after the Executive leaves Employer's employment,
the Executive will not, anywhere in the United States or Canada:
(i) engage, directly or indirectly, either individually
or as stockholder, partner, officer, director,
employee, consultant, agent or otherwise, in any
business which is in competition with Metraplex,
provided that nothing shall preclude Executive from
being a stockholder only in a publicly traded
corporation in competition with Metraplex provided
that such stock ownership is less than 2% of the
outstanding capital stock of the publicly traded
corporation.
(ii) solicit or accept, or cause or authorize directly or
indirectly to be solicited or accepted, for or on
behalf of himself or third parties, any business
which is directly competitive with the business
conducted by the Employer at the time the Executive's
employment ends, from third parties who were
customers of the Employer at any time within one year
prior to the end of the Executive's employment:
and/or
(iii) solicit for employment or employ, or cause or
authorize directly or indirectly to be solicited for
employment or employ, for or on behalf of himself or
third parties, any persons who were at the time the
Executive's employment hereunder ended, employees of
the Employer.
(b) The Executive agrees that he will not, at any time, remove
from the Employer's premises any drawings, notebooks, data and other documents
and materials relating to the business and procedures of the Employer, except as
reasonably necessary to the discharge of his duties hereunder.
(c) In the event of a breach of this covenant not to compete, the
parties acknowledge that the Employer and Herley may be irreparably damaged and
may not have an adequate remedy at law. Therefore, either Employer or Herley may
obtain injunctive relief, without the necessity of posting a bond, for any
breach or threatened breach of this covenant. The parties hereto further
acknowledge that this covenant not to compete is intended to conform to the
extent required with the laws of the State of Delaware. Any court of competent
jurisdiction is hereby authorized to expand or contract the geographical,
temporal or other restrictions of this covenant not to compete in order to
conform with the laws of the State of Delaware so that it shall bind the parties
hereto and be enforceable by that court.
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11. INJUNCTIVE RELIEF AND OTHER REMEDIES.
(a) Executive agrees that any breach or threatened breach by him
of any provision of Sections 8, 9 and 10 shall entitle either the Employer or
Herley, on a non-mutually exclusive basis, in addition to any other legal
remedies available to it, to apply to any court of competent jurisdiction to
enforce specifically the terms of this Agreement or enjoin such breach or
threatened breach. The parties understand and intend that each restriction
agreed to by the Executive above and elsewhere herein will be construed as
separable and divisible from every other restriction and that the
unenforceability, in whole or in part, of any other restriction will not affect
the enforceability of the remaining restriction and that one or more or all of
such restrictions may be enforced in whole or in part, as the circumstances
warrant.
(b) Executive acknowledges that he is fully aware of the
restrictions placed upon him under Sections 8, 9 and 10 and that he also has
agreed to such restrictions in order to induce Herley to enter into the
Agreement and Plan of Reorganization, this Agreement, and the Merger.
(c) If any of the covenants contained in Sections 8, 9 and 10 or
any aspects thereof are construed to be invalid or unenforceable, the same shall
not affect the remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid parts.
12. HERLEY'S GUARANTY OF PERFORMANCE.
Herley hereby covenants and agrees with the Executive that Herley shall
cause Employer to perform and comply with all of its covenants and agreements
contained in this Agreement. In the event that the Employer is unable to perform
its obligations hereunder, Herley shall perform all of the Employer's duties and
obligations hereunder, including, without limitation, payment obligations to the
Executive. In the event of a breach of this Agreement by Employer, the Executive
shall be entitled to seek enforcement of the terms of this Agreement against
Herley without exhausting his remedies against the Employer.
13. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and shall be binding upon
the parties hereto and the Employer's successors or assigns (whether resulting
from any reorganization, consolidation or merger of the Employer) and the
Executive's heirs, executors and legal representatives.
14. ENTIRE AGREEMENT.
This Agreement contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings with respect thereto and cannot be modified,
amended, waived or terminated, in whole or in part, except in accordance with
the terms hereof or by a writing signed by all of the parties. No course of
dealings
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between the parties during the term of this Agreement shall be deemed to amend
or expand the obligations of any of the parties hereto unless incorporated in a
written instrument as aforesaid.
15. NOTICE.
Any notice to a party hereto pursuant to this Agreement shall be in
writing, shall be deemed given when received, and be delivered personally or
sent by certified mail return receipt requested, or by nationally recognized
overnight courier service, or by telecopier addressed as follows (or to such
other address as any party shall designate by written notice to the other
parties):
If to Herley or the Employer to:
Metraplex Corporation
7435 New Technology Way
Frederick, Maryland 21703-9458
Attention: Myron Levy
Fax: (301)663-3661
and
Herley Industries, Inc.
10 Industry Drive
Lancaster, Pennsylvania 17603
Attention: Lee Blatt
Fax: (717)397-4475
with a copy to:
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Suite 225
Jericho, New York 11753
Attention: David H. Lieberman, Esq.
Fax: (516) 822-4824
If to the Employee to:
Glenn K. Rosenthal
Metraplex Corporation
7435 New Technology Way
Frederick, Maryland 21703-9458
Fax: (301) 663-3661
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with a copy to:
Glenn D. Solomon, Esq.
Offit & Kurman, P.A.
8 Park Center Court
Suite 200
Owings Mills, Maryland 21117
Fax:(410) 356-0602
16. GOVERNING LAW.
This Agreement and all issues regarding the validity, construction,
interpretation. performance and enforceability thereof, shall be governed and
construed exclusively in accordance with the laws of the State of Delaware
regardless of the laws that might otherwise govern this Agreement under
applicable conflicts of laws principle.
17. JURISDICTION AND VENUE.
The Employer, Herley and the Executive each irrevocably consent that
any legal action or proceeding against any of them under, arising out of or in
any manner relating to, this Agreement, may be brought in any court of the State
of Delaware or in the United States District Court for the District of Delaware.
Employer, Herley and the Executive by the execution and delivery of this
Agreement, expressly and irrevocably consent and submit to the personal
jurisdiction of any of such courts in any such action or proceeding. The said
parties further irrevocably consent to the service of any complaint, summons,
notice or other process relating to any such action or proceeding by delivery
thereof to him or it by hand, by certified mail, return receipt requested, or by
any other manner provided for in the Delaware Rules of Civil Procedure. The
Employer, Herley and the Executive hereby expressly and irrevocably waive any
claim or defense in any such action or proceeding based on any alleged lack of
personal jurisdiction, improper venue or forum non conveniens or any similar
basis.
18. MISCELLANEOUS.
This Agreement:
(a) may not (except as specifically provided in Section 13 hereof)
be assigned by any party hereto without the prior written consent of the other
parties (any purported assignment hereof in violation of this provision being
null and void); and
(b) may be executed in various counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
employment agreement this 22nd day of July, 1997.
METRAPLEX CORPORATION
By: /s/ Glenn K. Rosenthal
--------------------------------
Name: Glenn K. Rosenthal
Title: President
HERLEY INDUSTRIES, INC
By: /s/ Myron Levy
--------------------------------
Name: Myron Levy
Title: President
/s/ Glenn K. Rosenthal
-----------------------------------
Glenn Rosenthal, Executive
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ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Herley Industries, Inc.:
As independent public accountants, we hereby consent to the use of our report
dated September 17, 1997 and to all references to our Firm included in this
Amendment No. 1 to Form S-1 Registration Statement (File No. 333-39767).
Arthur Andersen LLP
Lancaster, PA
November 18, 1997
