<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1997
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HERLEY INDUSTRIES, INC.
(AND WITH RESPECT TO CERTAIN WARRANTS, LEE N. BLATT AND GERALD I. KLEIN)
(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
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SECURITY(2)(3) PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<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.
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 NOVEMBER 7, 1997
PRELIMINARY PROSPECTUS
[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 1,050,000 Warrants are being offered by
Herley Industries, Inc. ("Herley" or the "Company") and 700,000 shares of Common
Stock and 350,000 Warrants 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 or exercise of Securities 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 November , 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 7 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 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. See "Underwriting."
(2) Before deducting other offering expenses payable by the Company estimated at
$ . 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 , 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 , 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 and the Selling Stockholders have 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.
2
<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 is expected to 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 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 Information". With these acquisitions, the
3
<PAGE> 6
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.
The new products and systems that the Company plans to design, manufacture
and sell are data link systems, which encompass telemetry data encoders. Data
link systems and data encoders are currently being sold by others to the
Company's existing customers. To date, the Company's products for commercial and
military applications have represented approximately 5% to 10% and approximately
30% to 40%, respectively, of data-link systems. The Company may now offer
commercial and military 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 approximately
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.
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by:
The Company................................ 700,000 Shares of Common Stock and 1,050,000
Warrants.
Selling Stockholders....................... 700,000 Shares of Common Stock and 350,000
Warrants.
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........................ 4,539,729 Shares(1)
After the Offering......................... 5,239,729 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 1,050,000 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."
5
<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 liabilities net of current portion... 10,525 11,021 2,890
Shareholders' equity........................... $18,988 $21,032 $23,371
</TABLE>
- ---------------
(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."
6
<PAGE> 9
RISK FACTORS
This Prospectus contains forward-looking statements that involve risk 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, 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. 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 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."
7
<PAGE> 10
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 and copyright
laws afford the Company limited protection. 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. 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 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 may enter into letters of intent
and other agreements. After performing due diligence on the acquisition or
investment candidate, the Company may determine that the acquisition or
investment is not in the Company's best interests. In such a case, the Company
will not proceed with such acquisition or investment. No assurance exists that
the Company's failure 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 future acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
8
<PAGE> 11
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 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
9
<PAGE> 12
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 5,239,729 shares of Common Stock. The shares sold in this
offering generally will be freely transferable without restriction. Of the
remaining 4,539,729 shares, 3,804,946 shares are freely transferable, including
313,193 shares previously registered for approximately 85 former stockholders of
Metraplex Corporation ("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 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. 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 issued
by the Company, (ii) the stock options issued under the Company's stock option
plans,
10
<PAGE> 13
(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 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. 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
11
<PAGE> 14
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 sold by the Company. 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 acquisition. See "Risk Factors -- Broad
Discretion of Management to Allocate Offering Proceeds." 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 issued by the Company 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 or exercise of the
Securities sold by the Selling Stockholders.
12
<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 November 4, 1997)................................ 13.88 13.13
</TABLE>
The closing price on November 4, 1997 was $13.63. As of November 4, 1997,
there were approximately 370 record holders and 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 on September
30, 1997. The Company does not intend to pay cash dividends in the foreseeable
future.
13
<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
$2,100,193 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 1,050,000 shares of Common Stock issuable
upon the exercise of the Warrants issued by the Company 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."
14
<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........ 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.
15
<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 $30,000,000 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
16
<PAGE> 19
its effective income tax rate. The Company anticipates that its effective income
tax rate for fiscal 1998 will be approximately 34%.
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 $52,000 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.
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
17
<PAGE> 20
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 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.
18
<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>
19
<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 and 1996
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.
20
<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.
21
<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, 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.
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 Information." 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 an exclusive license agreement for the manufacture,
marketing and sale of the Multiple Aircraft GPS Integrated Command & Control
("MAGIC(2)") systems. 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
22
<PAGE> 25
defenders will fire an instrumented defense weapon, such as a missile, at the
target as it is commanded through 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 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. 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 conversations over long distances were recognized.
Organizations such as the Communications Satellite Corporation
23
<PAGE> 26
("COMSAT") and the International Telecommunications Satellite Organization
("INTELSATF") 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 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, and sub-orbital
launch vehicles 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 a FCC license to build 288 LEO satellites
which is scheduled to be in operation by the year 2002. As a result, Motorola
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.
24
<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 "state-of-the-art" systems and products.
With the 1997 acquisition of Metraplex, the Company has acquired the
digital expertise necessary to manufacture and design additional "state
of the art" 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.
25
<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 many 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 reliable 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.
26
<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-2 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
world wide 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]
27
<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. The FTR can be programmed for
complex combinations of audio tone frequencies so that it will not accidentally
explode the vehicle, but will not fail to explode the vehicle when so commanded.
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 encompass telemetry data encoders. Data
link systems and data encoders are currently being
29
<PAGE> 32
sold by others to the Company's existing customers. To date, the Company's
products for commercial and military applications have represented approximately
5% to 10% and approximately 30% to 40%, respectively, of data-link systems. The
Company may now offer commercial and military 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 approximately 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 has the ability to now 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.
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 costs incurred.
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<PAGE> 33
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 $30,000,000 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 stringent 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
extensive 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 on programs, the Company is sole
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<PAGE> 34
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 October 12, 1997, the Company employed 286 full-time persons. A total
of 203 employees were engaged in manufacturing, 38 in engineering, 20 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 "Business -- 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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<PAGE> 35
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
Raymond Umbarger................... 50 Vice President -- Domestic Marketing
George Hopp........................ 59 Vice President -- International Marketing
Glenn Rosenthal.................... 37 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 1999 annual meeting of stockholders.
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. 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 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. Raymond 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
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
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<PAGE> 36
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 1998 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 1997 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
1998 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 1999
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 the Director of Corporate Strategy for Resource
Consultants, Inc., a member of Gilbert Associates, Inc. which is a professional
services company supporting 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.
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.
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
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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.
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.
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<PAGE> 38
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 excludes 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 $4.6425.
(8) Effective December 1996, Mr. Klein ceased to serve as an executive officer
of the Company.
36
<PAGE> 39
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
--------------------------------------------------- POTENTIAL REALIZED VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS ISSUED STOCK PRICE APPRECIATION
UNDERLYING TO EMPLOYEES EXERCISE OPTION TERM(4)
OPTIONS IN PRICE EXPIRATION -----------------------------------
NAME GRANTED(2) FISCAL YEAR(3) ($/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. This table excludes warrants 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.
37
<PAGE> 40
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table sets forth stock options exercised during fiscal 1997
and all unexercised stock options held by the named executive officers as of
August 3, 1997. This table excludes warrants exercised and held by these
individuals granted outside the stock option plans.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY
SHARES YEAR-END(2) OPTIONS AT 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 -- 177,779 $ -- $ 785,698
Myron Levy......... 264,441 1,255,128 -- 255,558 -- 969,833
Allan Coon......... -- -- 32,222 41,110 109,350 140,202
Anello Garefino.... 41,109 200,659 -- 38,889 -- 153,102
George Hopp........ 4,443 22,442 2,667 18,222 10,261 72,993
Gerald Klein....... 163,330 854,708 -- 83,335 -- 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.
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 an eight year consulting period commencing at the end
of the employment period. 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.
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.
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 $110,000.
38
<PAGE> 41
INDEMNIFICATION AGREEMENTS
The Company has entered into separate indemnification agreements with the
officers and directors of the Company. The Company has agreed to provide
indemnification with regard to certain legal proceedings so long as the
indemnified officer or director has acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interests of the
Company and with respect to any criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The Company only provided
indemnification for expenses, judgments, fines and amounts paid in settlement
actually incurred by the relevant officer or director, or on his or her behalf,
arising out of proceedings brought against such officer or director by reason of
his or her corporate status.
TABLE OF TEN-YEAR OPTION REPRICINGS
The following table sets forth information concerning options of the named
executive officers that were repriced during fiscal 1997.
<TABLE>
<CAPTION>
MARKET PRICE EXERCISE LENGTH OF ORIGINAL
NUMBER OF SECURITIES OF STOCK AT PRICE NEW OPTION TERM
UNDERLYING OPTIONS TIME OF AT TIME OF EXERCISE REMAINING AT DATE OF
REPRICED OR REPRICING OR REPRICING OR PRICE REPRICING OR
NAME DATE AMENDED(#) AMENDMENT($) AMENDMENT($) ($) AMENDMENT(YRS)
- --------------------- ------- -------------------- ------------ ------------ ------- --------------------
<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.
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
39
<PAGE> 42
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 of 1986 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 officers and directors as a
group.
40
<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
UNDERLYING THE
SHARES TO BE WARRANTS TO
SOLD IN THIS BE SOLD IN
OFFERING 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> <C>
Lee N. Blatt(2)(4)(5)............ 913,065 19.3% 550,000 250,000 363,065(7) 6.7%
Myron Levy(4)(5)(8).............. 396,687 8.5% -- -- 396,687 8.5%
Gerald I. Klein(4)(5)............ 356,186 7.7% 75,000 75,000 281,186(7) 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 --
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 25,000 81,309(7) 1.6%
Directors and executive officers
as a group (11 persons)........ 1,518,471 30.3% 550,000 250,000 968,471(7) 17.0%
</TABLE>
- ---------------
(1) No 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, Raymond 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 all the
Warrants sold in this offering.
(7) Includes shares reserved for exercise of Warrants sold in this offering; Lee
N. Blatt - 250,000, Gerald I. Klein - 75,000 and Kathi Thonet - 25,000.
(8) Does not include 12,666 shares owned by Mr. Levy's children, Stephanie Levy
and Ronnie Roth, of which Mr. Levy disclaims beneficial ownership.
41
<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,
4,539,729 of which were issued and outstanding as of November 1, 1997. 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, 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 5,239,729 shares of Common Stock outstanding. Of these shares,
4,504,946, 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 addition, the Company will have issued 1,050,000 Warrants (1,260,000
Warrants if the Underwriters' over-allotment option is exercised in full) that
will be exercisable for 1,050,000 newly issued shares of Common Stock (1,260,000
shares if the Underwriters' over-allotment option is exercised in full) and the
Selling Stockholders will have issued Warrants that will be exercisable for
350,000 outstanding shares of Common Stock. Upon 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
42
<PAGE> 45
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 issue. 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, 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
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") among the Company,
the Selling Stockholders 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 prior to
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 sale by the Company of
shares of its Common Stock or other securities convertible into Common Stock
(exclusive of shares issued upon the exercise or conversion of outstanding
options, warrants and convertible securities and 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 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
43
<PAGE> 46
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.
The 350,000 shares of Common Stock underlying the 350,000 Warrants sold by
the Selling Stockholders in this offering will be deposited with the Warrant
Agent. Upon the exercise of any Warrants, the underlying shares of Common Stock
will be satisfied from newly issued shares by the Company and the deposited
shares in proportion to the number of Warrants sold by the Company and the
Selling Stockholders, respectively. The Warrant Agreement provides that if for
any reason the Warrant Agent cannot transfer the respective shares of Common
Stock deposited by the Selling Stockholders upon the exercise of the Warrants,
the Company will issue the shares of Common Stock to be sold upon the exercise
of such Warrants. In such a case, the Company will receive the exercise price
for such shares and the Selling Stockholders will pay to the Company the
proceeds that they received in connection with the sale of the related Warrants.
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, 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 Representative. 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, 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. 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.
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.
44
<PAGE> 47
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.
45
<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. ..................................
Southwest Securities, Inc. ....................................
--------- ---------
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 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
46
<PAGE> 49
otherwise effect transactions in such Securities. Such market-making activity
may be discontinued at any time. During the period beginning , 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 transaction 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 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 their 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 and the
Warrants 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 among the Company, the
Selling Stockholders, 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
47
<PAGE> 50
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 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, 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 certain events, including stock dividends, stock splits,
combinations and the issuance of Common Stock for consideration less than the
offering price of the Common Stock in this offering, subject to certain
exceptions. The Managing Underwriters' Warrant may not be sold, transferred,
assigned or hypothecated for a period of one year after the closing 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 Managing Underwriters' Warrant and the
shares of Common Stock issuable upon exercise of the Managing Underwriters'
Warrant. 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 Managing Underwriters' Warrant
(including all divisible portions thereof) and all shares of Common Stock
issuable upon the exercise of the Managing Underwriters' Warrants at the
Company's expense (subject to a maximum expense of $5,000 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 two years. After such two 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
48
<PAGE> 51
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. The Company also has granted the Managing Underwriters one demand
registration right with respect to the Managing Underwriters' Warrant, the
Warrants issuable upon the exercise of the Managing Underwriters' Warrant, and
the shares of Common Stock issuable upon the exercise of such Warrants. 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 Managing Underwriters' Warrant (including all
divisible portions thereof), all Warrants issuable upon the exercise thereof,
and all shares of Common Stock issuable upon the exercise of such Warrants at
the Company's expense (subject to a maximum expense of $5,000 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 two years. After such two 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 include such holder's Registrable Securities in such
registration statement and maintain the effectiveness of such registration
statement for at least one year.
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.
49
<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 items.................................... -- -- 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 15, 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>
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 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.
F-15
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 - 5.254.88
---------- ------------- -------- -------- -------------
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 - 5.254.83 (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 - 9.018.67 --
---------- ------------- -------- -------- -------------
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 29, 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 Portioning 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 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................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 12
Price Range of Common Stock........... 13
Dividend Policy....................... 13
Capitalization........................ 14
Selected Financial Data............... 15
Management's Discussion and Analysis
and of Financial Condition and
Results of Operations............... 16
Business.............................. 22
Management............................ 33
Principal and Selling Stockholders.... 41
Description of Securities............. 42
Underwriting.......................... 46
Legal Matters......................... 49
Experts............................... 49
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
, 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............................................................ 2,695
NASDAQ National Market Fees................................................ *
Blue Sky Fees and Expenses (including legal fees).......................... *
Transfer Agent and Warrant Agent Fees...................................... *
Accounting Fees and Expenses............................................... *
Legal Fees and Expenses.................................................... *
Printing and Engraving..................................................... *
Managing Underwriters' Financial
Advisory Fee............................................................. *
Miscellaneous..............................................................
-------
Total.................................................................... $ *
=======
</TABLE>
- ---------------
* To be filed by amendment
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 that 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, Registrant purchased all of the outstanding common stock of
Metraplex Corporation, a Delaware corporation, in exchange for 313,193 shares of
Registrant's 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 Registrant's Common Stock was a
transaction by the issuer not involving any public offering which was exempt
from the registration requirements under the Act pursuant to Section 4(2)
thereof.
II-2
<PAGE> 74
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBITS
- --------
<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.*
4.3 Form of Warrant Agreement among the Company, the Selling Stockholders, the
Representative, and the Warrant Agent.*
4.4 Form of Deposit Agreement between the Selling Stockholders and the Warrant Agent.*
5.1 Form of 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>
EXHIBITS
- --------
<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 Managing Underwriters and the
Company.
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 hereto).
</TABLE>
- ---------------
* To be filed by amendment.
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.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-4
<PAGE> 76
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 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Lancaster, Pennsylvania on the 5th
day of November, 1997.
HERLEY INDUSTRIES, INC.
By: /s/ LEE N. BLATT
------------------------------------
Lee N. Blatt
Chairman of the Board
(Chief Executive Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on November 5, 1997, by the
following persons in the capacities indicated. Each person whose signature
appears below also constitutes and appoints Lee N. Blatt and Myron Levy, and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE/CAPACITY
- ------------------------------------------ -------------------------------------------------
<C> <S>
/s/ LEE N. BLATT Chairman of the Board (Chief Executive Officer)
- ------------------------------------------ and Issuer of Certain Warrants
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.
/s/ GERALD I. KLEIN Issuer of Certain Warrants
- ------------------------------------------
Gerald I. Klein
/s/ KATHI THONET Issuer of Certain Warrants
- ------------------------------------------
Kathi Thonet
</TABLE>
II-6
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- --------
<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.*
4.3 Form of Warrant Agreement among the Company, the Selling Stockholders, and the
Warrant Agent.*
4.4 Form of Deposit Agreement between the Selling Stockholders and the Warrant Agent.*
5.1 Form of 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>
EXHIBITS
- --------
<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 Managing Underwriters and the
Company.
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 hereto).
</TABLE>
- ---------------
* To be filed by amendment.
<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
_______________, 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 1,050,000 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 and 350,000 Common Stock Purchase Warrants. 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." All the warrants included in the Securities as the
"Warrants" and all of the shares of Common Stock to be issued or sold upon
exercise of the Warrants as the "Warrant Shares." The Warrant Agreement, the
Deposit 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-_____), 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 $___________ 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 Warrants for the 25 months
immediately after the Closing Date. 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
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 _____________ __, 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 date of the Prospectus. 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. Neither the Company nor any Selling Stockholder
will 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
-5-
<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
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 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 and the Selling Stockholders, to the
extent applicable, 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 and the Selling Stockholders will use
their best efforts to qualify or register their respective shares of
Common Stock 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 National
Association of Securities Dealers, Inc. 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 (other than
in connection with a conversion, exercise or exchange in which the
holder retains the Shares of Common Stock) therefor 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 ___ 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 and the Selling
Stockholders will enter into the Warrant Agreement with American Stock
Transfer & Trust Company ("American Stock Transfer" or the "Warrant
Agent").
bb. At the Closing, the Selling Stockholders will
enter into the Deposit Agreement with American Stock Transfer in the
form set forth as an exhibit to the Registration Statement on the date
hereof (the "Deposit Agreement"), and pursuant to the Deposit Agreement
the Selling Stockholders will deposit their shares of Common Stock
subject to the Warrants that they sell in escrow for transfer upon the
exercise of such Warrants.
cc. 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 best 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) that 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 has 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 has 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 constitutes 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 has 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 to be issued by the Company 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
obligation 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 to be issued by the Company (including the Warrant Shares
underlying the Warrants to be sold by the Selling Stockholders based
upon the Company's contingent obligation to issue such shares if the
Selling Stockholders fail to deliver them) and has duly and validly
authorized the issuance of such Warrant Shares upon the exercise of
such Warrants. Upon the exercise of such 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 Warrants to be issued by the Selling
Stockholders, when issued and countersized in accordance with the terms
of the Warrant Agreement and delivered against payment therefor in
accordance with the terms hereof and thereof, will be the legal, valid
and binding obligations of the Selling Stockholders. At the Closing,
the Selling Stockholders will deposit with the Warrant Agent a
sufficient number of shares of Common Stock for the transfer of the
Warrant Shares upon exercise of the Warrants to be issued by the
Selling Stockholders. Such Warrant Shares were duly authorized and
validly issued, are fully paid and nonassessable, and were not issued
in violation of any preemptive or similar rights.
o. 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.
p. 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.
q. 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.
r. 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.
s. 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.
t. 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.
u. 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.
v. 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.
w. 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.
x. 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.
y. 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 best
knowledge of the Company after reasonable investigation and inquiry, is
any such dispute threatened.
z. 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.
aa. 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.
bb. 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, 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.
cc. 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.
dd. 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 that the Company will issue in this
offering upon exercise of the Warrants that the Company will issue in
this offering. 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 subject to the Warrants that the
Selling Stockholders will sell and shares 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.
ee. 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 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
ff. 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.
gg. 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 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.
hh. 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.
ii. 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.
jj. 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.
kk. 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.
ll. 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.
mm. The Company has amended and restated the Bylaws
as set forth as an exhibit to the Registration Statement on the date
hereof.
nn. 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.
oo. 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.
pp. 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 any of the Operative Documents.
qq. The Company has applied for and obtained a CUSIP
number for the Warrants.
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<PAGE> 22
rr. 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.
ss. The Company has terminated its agreement with
Stonegate Securities, Inc., dated July 25, 1997, pursuant to its terms.
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, the Power of Attorney (the "Power of Attorney")
referred to in the last paragraph of this Section 7, the Warrant
Agreement and the Deposit Agreement, and for the sale and delivery of
the Firm Securities 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, the Power of Attorney, the Warrant Agreement and the Deposit
Agreement, and to sell, assign, transfer and deliver the Firm
Securities 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. At the Closing, the Warrant Agreement and the
Deposit Agreement will be duly executed and delivered by such Selling
Stockholder and constitute the valid and legally binding agreements of
such Selling Stockholder, enforceable against such Selling Stockholder
in accordance with their respective terms subject to the Enforceability
Exceptions.
d. The performance of this Agreement, the Power of
Attorney, the Warrant Agreement and the Deposit Agreement 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.
e. Such Selling Stockholder has, and immediately
prior to the Closing Date (and any Additional Closing Date) such
Selling Stockholder will have, good and valid title to the Firm
Securities 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 Securities and payment therefor pursuant hereto, good and
valid title to such Firm Securities, free and clear of all liens,
encumbrances, equities, stockholder agreements, voting trusts or claims
of any nature whatsoever, will pass to the several Underwriters.
f. 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 a 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.
g. 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.
h. 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, in the Power of
Attorney, the Warrant Agreement or the Deposit Agreement, except such
as have been obtained under the Securities Act and such as may be
required under state securities or Blue Sky laws or the by-laws and
rules of the NASD in connection with the purchase and distribution by
the Underwriters of the Firm Securities to be sold by such Selling
Stockholder.
i. 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.
j. 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
k. On the Closing Date, and any Additional 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 Securities 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.
l. The Firm Shares to be sold to the Underwriters by
such 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.
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, the Warrant Agreement, the Deposit
Agreement and any other agreements or documents related to this offering on
behalf of such Selling Stockholder, authorize the delivery of the Firm
Securities 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 and the Warrant Shares
underlying the Warrants 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 and Warrant Shares to the Warrant
Agent, or if this Agreement is terminated prior to such delivery, to return such
Firm Shares and Warrant Shares to such Selling Stockholder. Each Selling
Stockholder specifically agrees that the Firm Shares and Warrant 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
such Selling Stockholder's agent pursuant to the Powers of Attorney, and
delivered to the Representative or counsel for the Representative shall be
deemed to be a representation and warranty by the Company and 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 and the Deposit 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 therein 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 Selling Stockholders, 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 (and any Additional
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 has 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 has 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 has 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 to be issued by the Company 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 to be issued by the Company (including the Warrant
Shares underlying the Warrants to be sold by the Selling
Stockholders based upon the Company's contingent obligation to
issue such shares if the Selling Stockholders fail to deliver
them); the Company has duly and validly authorized the
issuance of such Warrant Shares upon the exercise of such
Warrants; upon the exercise of such 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 Warrants to be issued by the Selling
Stockholders, 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 the legal, valid and binding obligation of
the Selling Stockholders. The respective Warrant Shares were
duly authorized and validly issued, are fully paid and
nonassessable, and were not issued in violation of any
preemptive or similar rights.
(xv) 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 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.
(xvi) 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.
(xvii) 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.
(xviii) 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.
(xix) 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.
(xx) 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.
(xxi) 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.
(xxii) 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.
(xxiii) 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.
(xxiv) To the knowledge of such counsel, no consent,
approval, authorization or order has been or is required for
the performance of this Agreement, the Powers of Attorney, the
Warrant Agreement and the Deposit Agreement by each of the
Selling Stockholders or the consummation of the transactions
contemplated by this Agreement, the Powers of Attorney, the
Warrant Agreement and the Deposit Agreement in connection with
the Firm Securities 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.
(xxv) This Agreement, the Powers of Attorney, the
Warrant Agreement and the Deposit Agreement have been duly
executed and delivered by each Selling Stockholder; the Powers
of Attorney, the Warrant Agreement and the Deposit Agreement
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, the Powers of Attorney, the
Warrant Agreement and the Deposit Agreement 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.
(xxvi) Each Selling Stockholder has good and valid
title to the Firm Securities 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 Securities and payment therefor pursuant hereto, good and
valid title to such Firm Securities, 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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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, the Selling Stockholders, the
Representative 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 Selling Stockholders and American shall have
entered into the Deposit Agreement and the Representative shall have
received counterparts, conformed as executed, thereof.
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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 the
Additional Closing Date of the conditions set forth in this Section 10, except
that if the Additional Closing Date is other than the Closing Date, the
certificates, opinions and letters shall be as of the 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 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
-41-
<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.........
Southwest Securities, Inc ..........
--------- ---------
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 1,050,000 210,000 210,000
--------- --------- ------- -------
Selling Stockholders:
Lee N. Blatt .... 550,000 250,000 -- --
Gerald I. Klein . 75,000 75,000 -- --
Kathi Thonet .... 75,000 25,000 -- --
--------- --------- ------- -------
Total Selling
Stockholders .... 700,000 350,000 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 2.4
PURCHASE AND SALE AGREEMENT
Between
STEWART WARNER ELECTRONICS CORPORATION, as Seller
and
STEWART WARNER ELECTRONICS CO., as Purchaser
Dated as of July 28, 1995
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS
1.1 Assets ........................................................... 1
1.2 Business Day ..................................................... 2
1.3 Closing .......................................................... 2
1.4 Closing Date ..................................................... 2
1.5 Code ............................................................. 2
1.6 Contracts ........................................................ 2
1.7 ERISA ............................................................ 2
1.8 Environmental Laws ............................................... 2
1.9 Excluded Assets .................................................. 3
1.10 Intellectual Property Rights ..................................... 3
ARTICLE II - PURCHASE AND SALE OF ASSETS
2.1 Transfer of Assets ............................................... 3
2.2 Purchase Price ................................................... 4
2.3 Purchase Price Adjustment ........................................ 4
2.4 Assumption of Liabilities ........................................ 4
2.5 Taxes ............................................................ 6
ARTICLE III - CLOSING; TERMINATION
3.1 Closing .......................................................... 6
3.2 Termination ...................................................... 6
3.3 Deliveries of Seller ............................................. 7
3.4 Deliveries of Purchaser .......................................... 8
3.5 Further Assurances ............................................... 8
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF SELLER
4.1 Status Authority ................................................. 9
4.2 Execution; Valid and Binding Agreements .......................... 9
4.3 Absence of Conflicts ............................................. 9
4.4 Title to Properties .............................................. 10
4.5 Litigation ....................................................... 10
4.6 Brokerage Commissions ............................................ 10
4.7 Patents and Trademarks ........................................... 10
4.8 Compliance with Laws ............................................. 10
4.9 Employee Benefit Plans ........................................... 10
4.10 Conflict of Interest ............................................. 11
4.11 Compliance with Law .............................................. 11
4.12 Disclaimers ...................................................... 11
<PAGE> 3
4.13 Environmental Matters ............................................ 11
4.14 Accounts Receivable .............................................. 12
4.15 No Undisclosed Liabilities ....................................... 12
4.16 Government Contracts ............................................. 12
4.17 Labor Matters .................................................... 12
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 Status; Authority ................................................ 12
5.2 Execution; Valid and Binding Agreements .......................... 12
5.3 Brokerage ........................................................ 13
5.4 Consents; Approval ............................................... 13
5.5 Litigation ....................................................... 13
5.6 Absence of Conflicts ............................................. 13
ARTICLE VI - INDEMNIFICATION
6.1 Indemnification by Seller ........................................ 14
6.2 Indemnification by Purchaser ..................................... 15
6.3 Notice and Payment of Claims ..................................... 15
6.4 Defense of Third-Party Claims .................................... 16
6.5 Survival of Representations and Warranties ....................... 16
6.6 Limitations on Indemnification ................................... 16
ARTICLE VII - EMPLOYEES
7.1 Purchaser's Obligations .......................................... 17
7.2 Employee Benefit Plans ........................................... 17
7.3 Severance ........................................................ 17
ARTICLE VIII - CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
8.1 Accuracy of Representations and Warranties and
Performance of Obligations ....................................... 17
8.2 Consents ......................................................... 17
8.3 No Litigation or Contrary Judgment ............................... 17
8.4 Deliveries ....................................................... 18
ARTICLE IX - CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
9.1 Accuracy of Representations and Warranties and
Performance of Obligations ....................................... 18
9.2 Consents ......................................................... 18
9.3 No Litigation or Contrary Judgment ............................... 18
9.4 Deliveries ....................................................... 18
9.5 Letters of Credit, etc. .......................................... 18
ii
<PAGE> 4
ARTICLE X - ADDITIONAL COVENANTS
10.1 Intercompany Accounts ............................................ 18
10.2 Access Pending Closing ........................................... 19
10.3 Books and Records ................................................ 19
10.4 Confidentiality .................................................. 19
10.5 Filings; Cooperation ............................................. 21
10.6 Risk of Loss ..................................................... 21
10.7 Conflicting Proprietary Right; Assignment; License ............... 21
10.8 Transitional Use of Trademarks ................................... 21
10.9 Contracts ........................................................ 22
10.10 Stewart Warner South Wind Contract ............................... 22
10.11 Letters of Credit ................................................ 23
ARTICLE XI - MISCELLANEOUS
11.1 Expenses ......................................................... 23
11.2 Notices .......................................................... 23
11.3 Entire Agreement ................................................. 24
11.4 Severability ..................................................... 24
11.5 Assignability .................................................... 24
11.6 Captions ......................................................... 24
11.7 Governing Law .................................................... 24
11.8 Counterparts ..................................................... 24
11.9 Remedies Cumulative .............................................. 24
iii
<PAGE> 5
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (together with all Schedules and Exhibits
referred to herein, the "Agreement") made and entered into as of July 28, 1995,
among Stewart Warner Electronics Corporation, a Delaware corporation,
(hereinafter referred to as "Seller"), and Stewart Warner Electronics Co., a
Pennsylvania corporation, (hereinafter referred to as "Purchaser"),
WITNESSETH:
WHEREAS, Seller is engaged in the business of manufacturing and selling
electronic equipment for military applications (the "Business"); and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, certain of the assets of Seller related to the Business,
all on the terms and conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter set forth, and intending to be legally bound hereby,
Seller and Purchaser hereby agree as follows:
ARTICLE I - DEFINITIONS
1.1 "Assets" shall mean all of the assets, properties and rights (other
than the Excluded Assets) that are used in or arise out of the Business as of
the Closing Date, whether owned, leased or licensed by Seller, including, but
not limited to, the following:
(a) all accounts, notes and other receivables;
(b) all inventories of supplies, merchandise, packaging, advertising
and promotional materials, and other materials and products, including raw
materials, work in process and finished goods;
(c) all tangible personal property, including but not limited to,
all fixtures, furnishings, furniture, office supplies, computers and
computer software, vehicles, rolling stock, machinery, equipment, tools,
leasehold improvements, goods, spare parts and other similar personal
property;
(d) all right, title and interest to and under the Contracts;
(e) all research and development and commercially practiced
processes, and manufacturing, engineering, computer software (including
source codes) and other technical information, and all notebooks, records,
reports and data relating thereto, subject to existing licenses;
<PAGE> 6
(f) all Intellectual Property Rights (as hereinafter defined);
(g) all of the books, records and data including, but not limited
to, all books, records and data relating to the purchase of materials,
supplies and services, sale of products, customers, invoices, records of
employees, commercial data, research done by or for Seller, credit
information, catalogues, brochures, training and other manuals, sales
literature, advertising and other sales and promotional materials,
maintenance records and drawings except for the 1995 general ledger and
related journals and records necessary to prepare Seller's tax returns or
filings, which may be copied by Purchaser upon request; and
(h) all rights or choses in action arising out of occurrences before
of after the Closing, including, without limitation, all rights under
express or implied warranties relating to the Assets.
1.2 "Business Day" shall mean any day other than a Saturday or Sunday on
which commercial banks in the Chicago, Illinois are open for business.
1.3 "Closing" shall mean the act of completing the transactions
contemplated by this Agreement.
1.4 "Closing Date" shall mean July 28, 1995, or such other date as shall
be agreed upon by the parties.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended, and
all regulations promulgated thereunder.
1.6 "Contracts" shall mean all contracts, subcontracts, leases, options,
purchase orders, sales orders, guarantees, arrangements, undertakings,
agreements, understandings, obligations and other commitments of any kind,
written or oral, relating to the Business other than the Agreement dated
December 2, 1993 between Seller and the United Electrical, Radio and Machine
Workers of America and the United Workers Association - UE Local 1154 (the
"Union Contract").
1.7 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and all regulations promulgated thereunder.
1.8 "Environmental Laws" shall mean all U.S., federal, state, and local
laws, ordinances, regulations, orders, judgments, and injunctions relating to
pollution or protection of the environment, including, but not limited to, laws
relating to emissions, discharges, releases of pollutants, contaminates,
chemicals, toxic or hazardous substances, wastes or other substances or
materials into the environment (land, water or air) or otherwise relating to the
manufacturing, processing, distribution, use, treatment, burial, storage,
disposal, transport or handling of
2
<PAGE> 7
pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes
and all permits, approvals, consents or other authorizations by or pursuant to
any of the foregoing laws.
1.9 "Excluded Assets" shall mean;
(a) all trademarks and trade names now or previously used in
connection with the Business other than those expressly included in
Schedule 4.7;
(b) all cash, bank balances, moneys in possession of banks and other
depositories and similar cash property of, owned or held by or for the
account of Seller as at the Closing;
(c) non-trade balances with affiliates of Seller (set forth on
Schedule 1.9(c) hereto);
(d) the Seller's leased vehicles;
(e) proprietary financial management software of BTR, Inc. or its
affiliates;
(f) assets specifically related to the commercial line tracing and
cutting systems business of Seller (the "Line Tracing Business");
(g) the corporate records of Seller;
(h) any tax refunds due to Seller; and
(i) all real property of Seller including, without limitation, the
real property located at 1300 North Kostner Avenue, Chicago, Illinois (the
"Facility").
1.10 "Intellectual Property Rights" shall mean the patents, trademarks and
other intellectual property specifically listed on Schedule 4.7 and all other
inventions, know how, trade secrets, trade names, package designs, trade dress,
service marks, copyrights, business names, advertisements, promotional
materials, designs, models, registrations and applications and rights to apply
for any of the foregoing, and all similar proprietary rights which may subsist
in any part of the world, to the extent that all of the above exclusively belong
to Seller and are used in the Business, along with the good will associated
therewith.
ARTICLE II - PURCHASE AND SALE OF ASSETS
2.1 Transfer of Assets. Subject to the terms and conditions of this
Agreement and in reliance on the representations, warranties, and covenants
herein, at the Closing, Seller shall sell, assign, transfer, convey and deliver
the Assets to Purchaser, and Purchaser shall purchase,
3
<PAGE> 8
acquire and accept the Assets from Seller, free and clear of all mortgages,
liens, pledges, security interests, charges, claims, restrictions and
encumbrances of any nature whatsoever.
2.2 Purchase Price. On the terms and subject to the conditions set forth
in this Agreement, on the Closing Date Seller agrees to sell, and Purchaser
agrees to purchase, all of the Assets for a total cash purchase price in the
amount of $250,000 (the "Purchase Price").
2.3 Purchase Price Adjustment. On the Closing Date, Seller shall deliver a
preliminary statement to Purchaser showing the Seller's good faith estimate of
the aggregate amount of (i) trade payables (other than intercompany payments to
affiliates of Seller), (ii) payroll costs less payments related to accruals for
periods prior to July 1, 1995 and (iii) other cash disbursements (other than
intercompany payments to affiliates of Seller) made in the normal course of
business paid by Seller less the accounts receivable and customer deposits
received by Seller from and after July 1, 1995 (the "Effective Time") through
the Closing Date (such statement not to include amounts incurred or received in
connection with the Line Tracing Business). On the Closing Date the Purchase
Price shall be adjusted dollar for dollar for such net amount, it being intended
that Seller and Purchaser be placed in the same position on a cash basis as if
the Closing Date had occurred on June 30, 1995. Promptly after the Closing Date
(but no later than 10 business days after such date) Seller and Purchaser shall
make a final adjustment to reflect any variation between Seller's good faith
estimate and the actual cash adjustment required to effect the intent of this
Section 2.3.
2.4 Assumption of Liabilities. Notwithstanding anything to the contrary
set forth herein, in no event shall Purchaser assume or incur any liability or
obligation under this Agreement or otherwise become responsible in respect of
the following (hereinafter collectively referred to as the "Excluded
Liabilities"):
(a) Any liability or obligation of any nature whatsoever which
arises out of or is related to any action, suit, claim or legal,
administrative, arbitration, governmental or other proceeding or
investigation now pending or hereafter instituted relating to the Business
or Assets to the extent the principal event giving rise thereto occurred
prior to the Closing Date or which results from or arises out of any
action or inaction prior to the Closing Date of Seller or any affiliate,
officer, director, employee, agent, representative or subcontractor of
Seller;
(b) Any federal, state or local income, sales, use, excise, ad
valorem, intangibles or other tax and any and all penalties and interest
relating thereto (i) payable with respect to the business, assets,
properties or operations (including, but not limited to, the Business or
Assets) of Seller, any member of any affiliated group of which Seller is a
member or any other person for whose taxes Seller may be liable for any
period prior to the Closing, or (ii) incident to or arising as a
consequence of the negotiations or consummation by Seller or any member of
any affiliated group of which Seller is a member of this Agreement and the
transactions contemplated hereby;
4
<PAGE> 9
(c) Any liability or obligation arising under or relating to any of
the Excluded Assets;
(d) Any liability or obligation of any nature whatsoever arising
prior to or as a result of the Closing to any employee, agent or
independent contractor of the Seller, whether or not employed by Purchaser
after the Closing, or under any benefit plan or arrangement with respect
thereto, including, but not limited to, severance obligations and accruals
for vacation pay, sick pay and similar accruals other than liabilities
expressly assumed by Purchaser pursuant to Section 2.4(e);
(e) Any liability or obligation of Seller arising or incurred in
connection with the negotiation, preparation and execution of this
Agreement and the transactions contemplated hereby and any fees and
expenses of counsel, accountants or other experts of Seller or any of its
affiliates;
(f) Any liabilities or obligations of either Seller or any
subsidiary under any debts, notes, negotiable instruments and written or
oral commitments to repay indebtedness, including, without limitation, any
intercompany debt; or
(g) Any mortgage, security interest, lien or encumbrance of Seller
or any subsidiary of any kind.
In addition to hiring those persons set forth on Schedule 7.1, Purchaser
shall assume on the Closing Date, subject to the terms and conditions of this
Agreement:
(a) all duties and obligations required to be performed after the
Closing Date pursuant to the Contracts (including, without limitation, all
warranty liabilities);
(b) all trade payables (which, for the purposes of identification
only, were [$77,997] on June 30, 1995 minus any amount representing legal
fees incurred by Seller in connection with the DOD subpoena referenced in
Schedule 4.5 ($30,136 as of June 30, 1995));
(c) except as otherwise set forth in this Agreement, all liabilities
of whatsoever type or nature arising out of or associated with the
ownership of the Assets or the operation of the Business after the
Closing. Without limiting the foregoing, Purchaser shall be liable for all
product liability claims for products shipped after the Closing by
Purchaser and workers' compensation claims relating to the Business for
occurrences taking place after the Closing Date;
(d) any liability associated with customer deposits to the extent
accrued on Seller's books (which, for the purposes of identification
only, were $360,000 on June 30, 1995); and
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(e) any liability relating to accruals for vacation pay, sick pay
and similar accruals for those employees listed in Schedule 7.1 arising
from and after July 1, 1995 and, for all employees accepting employment
with Purchaser, all liability for severance payments for such employees.
2.5 Taxes.
(a) All sales, use, value-added, stamp duty, transfer or other
similar taxes incurred in connection with the transfer and sale of the
Assets to Purchaser shall be borne by Seller. All property ad valorem
taxes which have accrued or have been assessed or liened against the
Assets shall be paid by Seller. Any taxes on net income resulting from the
sale of the Assets to Purchaser or with respect to the operation of the
Business prior to Closing shall be borne by Seller. All taxes collected by
Seller from third parties prior to Closing including, but not limited to,
sales and use taxes and all payroll withholding taxes, including both
employee and employer portions of F.I.C.A., shall be paid by Seller to the
appropriate governmental authority and Purchaser shall bear no
responsibility for any portion thereof.
(b) Purchaser and Seller agree to furnish or cause to be furnished
to each other, upon request, as promptly as practical, such information
(including access to books and records) and assistance as is reasonably
necessary for the filing of any tax return, the preparation for any tax
audit, and for the prosecution or defense of any claim, suit or proceeding
relating to any tax matter. Seller and Purchaser shall cooperate with each
other in the conduct of any tax audit or other tax proceedings and each
shall execute and deliver such powers of attorney and other documents as
are necessary to carry out the intent of this Agreement.
(c) Seller and Purchaser will mutually agree to the allocation of
the Purchase Price among the Assets in accordance with Section 1060 of the
Code. Seller and Purchaser will each be bound by such allocation in
preparing their respective tax returns.
ARTICLE III - CLOSING; TERMINATION
3.1 Closing. The Closing shall take place at 12:00 noon local time on the
Closing Date, at the offices of Seller, or at such other place, time and date as
Seller and Purchaser may mutually agree. Such Closing shall be deemed effective
at 11:59 p.m. local time on the Closing Date.
3.2 Termination. This Agreement may be terminated on written notice at any
time prior to Closing:
(a) by mutual consent of Seller and Purchaser;
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(b) by either Purchaser or Seller if there has been a material
misrepresentation or breach of warranty on the part of any party in the
representations and warranties set forth in this Agreement, or if there
has been a material breach of any of the covenants on the part of any
party as set forth in this Agreement, which breach has not been cured
within a reasonable time after notice thereof;
(c) by either Purchaser or Seller if on the Closing Date any of the
conditions to their respective obligations to perform has not been met or
waived;
(d) by either Purchaser or Seller if the Closing has not occurred on
or prior to August 15, 1995.
Upon any such termination, the parties shall be released from all
obligations or liabilities arising hereunder except for liabilities arising out
of pre-termination breaches hereof, and liabilities arising out of the failure
or refusal of either party to consummate the Closing if all conditions precedent
set forth in either Article VIII or Article IX, as appropriate, have been met or
waived.
3.3 Deliveries of Seller. Seller shall deliver to Purchaser at or prior to
the Closing the following documents:
(a) certified copies of resolutions adopted by the Board of
Directors and sole shareholder of Seller authorizing this Agreement and
the transactions contemplated hereby;
(b) an opinion of the Assistant General Counsel of Seller, addressed
to Purchaser, and dated as of the Closing Date, substantially in the form
of Exhibit A attached hereto;
(c) such bills of sale, endorsements, assignments, deeds and other
good and sufficient instruments of conveyance and transfer, in form and
substance reasonably satisfactory to the Purchaser, and its counsel, as
shall be necessary and effective to vest in Purchaser good and marketable
title to the Assets, including, without limitation, (i) good and valid
title in and to all of the Assets owned by Seller, (ii) good and valid
leasehold interest in and to all of the Assets leased by Seller as lessee,
and (iii) all of Seller's rights under all agreements, contracts,
commitments, leases, plans, bids, quotations, proposals, instruments and
other documents included in the Assets to which Seller is a party or by
which it has rights on the Closing Date;
(d) a lease agreement covering the Facility between Seller and
Purchaser in the form of Exhibit 3.3(d) (the "Lease");
(e) such other documents, instruments or certificates as shall be
reasonably requested by Purchaser;
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(f) all of the agreements, contracts, commitments, leases, plans,
bids, quotations, proposals, instruments, computer programs and software,
data bases whether in the form of computer tapes or otherwise, related
objects and sources codes, manuals and guidebooks, price books and price
lists, customer and subscriber lists, supplier lists, sales records,
files, correspondence, legal opinions, rulings issued by governmental
entities, and other documents, books, records, papers, files, office
supplies and data belonging to Seller which are part of the Assets; and
(g) Guaranties of BTR Dunlop, Inc. and Stewart Warner Corporation in
the form of Exhibit 3.3(f).
3.4 Deliveries of Purchaser. Purchaser shall deliver to Seller at the
Closing the following:
(a) $250,000 plus or minus Seller's initial estimate of the cash
adjustment contemplated by Section 2.3, by wire transfer in immediately
available funds;
(b) an opinion of counsel to the Purchaser, addressed to Seller and
dated as of the Closing Date, substantially in the form of Exhibit B
attached hereto;
(c) certified copies of resolutions adopted by the Board of
Directors and shareholder of Purchaser authorizing this Agreement and the
transactions contemplated hereby;
(d) the Lease;
(e) a Guaranty of Herley Industries, Inc. in the form of Exhibit
3.4(f); and
(f) such other documents, instruments or certificates as shall be
reasonably requested by Seller.
3.5 Further Assurances. Seller from time to time after the Closing, at
Purchaser's request, will execute, acknowledge and deliver to Purchaser such
other instruments of conveyance and transfer and will take such other actions
and execute and deliver such other documents, certifications and further
assurances as Purchaser may reasonably request in order to vest more effectively
in Purchaser, or to put Purchaser more fully in possession of, any of the
Assets, or to better enable Purchaser to complete, perform or discharge any of
the Assumed Obligations. Each of the parties hereto will cooperate with the
other and execute and deliver to the other such other instruments and documents
and take such other actions as may be reasonably requested from time to time by
any party hereto as necessary to carry out, evidence and confirm the intended
purposes of this Agreement.
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ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser the following:
4.1 Status Authority. Seller is duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as is now being conducted. Seller is duly qualified to
transact business, and is in good standing, as a foreign corporation in each
jurisdiction where the character of its activities requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the assets, liabilities, results of operations, financial condition, business
or prospects of the Business. Seller has all requisite corporate power and
authority to execute and deliver this Agreement and each of the instruments and
other documents to be executed and delivered hereunder, and to perform its
respective obligations hereunder and thereunder. Seller has or will have by
Closing taken all action required by law, its articles of incorporation, bylaws
or otherwise to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby.
4.2 Execution; Valid and Binding Agreements. The execution, delivery and
performance by Seller of this Agreement and the consummation by it of the
transactions contemplated hereby have been duly authorized by all required
corporate and shareholder action. This Agreement has been duly executed and
delivered by Seller and, assuming that this Agreement is the valid and binding
agreement of Purchaser, constitutes the valid and binding agreement of Seller,
enforceable against Seller in accordance with its terms, except to the extend
that:
(a) such enforcement may be limited by bankruptcy, insolvency,
reorganizations, moratorium or other similar laws affecting the
enforcement of creditors' rights generally; and
(b) certain of the covenants contained herein may not be
specifically enforceable and, in such event, courts may award money
damages rather than specific performance of contractual provisions
involving matters other than the payment of money.
4.3 Absence of Conflicts. The execution, delivery and performance of this
Agreement, and any instrument or other document to be executed and delivered by
Seller hereunder, does not and will not violate or conflict with, result in a
breach of, constitute a default under or give rise to a right of acceleration or
termination under (with or without notice, lapse of time, or both) (i) the
certificate of incorporation or by-laws of Seller, (ii) any law, regulation,
rule, order, arbitration award, judgement, decree or other similar restriction
to which Seller is subject or by which it is bound, or (iii) any note, mortgage,
indenture, bond or contract, agreement, plan, instrument, lease, waiver, license
or permit to which Seller is a party or by
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which it is bound, provided, however, that Seller makes no representation or
warranty as to the assignability of any Contract or the need to obtain any
consents to effect such assignments.
4.4 Title to Properties.
(a) Seller has good and marketable title to the Facility.
(b) Seller has good and marketable title to all the Assets, free and
clear of all claims, security interests, liens, pledges, charges,
encumbrances and restrictions of any nature whatsoever.
(c) the fixed assets to be transferred to Purchaser pursuant to this
Agreement constitute all the fixed assets currently used in the Business.
4.5 Litigation. Except as set forth in Schedule 4.5, there are no actions,
suits, claims, proceedings or investigations pending or, to Seller's knowledge,
threatened against, relating to or involving the Business or Assets before any
court, arbitration or administrative or governmental body, which may have a
material adverse effect on the Business or upon Seller's ability to perform this
Agreement or consummate the transactions contemplated hereby, and no order,
injunction, decree or unsatisfied judgment which is outstanding against or
relating to the Business or which could reasonably be expected to interfere with
Seller's ability to consummate the transactions contemplated by this Agreement.
4.6 Brokerage Commissions. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Seller.
4.7 Patents and Trademarks. Schedule 4.7 attached hereto sets forth a list
of patents, patent applications and trademarks (whether registered or applied
for) owned by Seller. Immediately following the Closing, Purchaser will own all
right, title and interest in and to, and will enjoy the unencumbered exclusive
right to use, the Intellectual Property Rights, including all goodwill
associated therewith, except for licenses retained by Seller or Seller's
affiliates.
4.8 Compliance with Laws. Except as disclosed on Schedule 4.5, Seller has
not received notice of any violation of any federal, state, local or foreign
law, ordinance or regulation relating to the Business and, to the best of
Seller's knowledge, Seller is not in violation of any such law, ordinance or
regulation, the violation of which has had or could reasonably be expected to
have a material adverse effect on the Business.
4.9 Employee Benefit Plans. Schedule 4.9 attached hereto sets forth all of
the employee benefit plans and programs of Seller applicable to employees of the
Business under which Seller is or may become obligated to provide benefits to
such employees including, without limitation, pension, retirement,
profit-sharing, savings, bonus, deferred or incentive compensation,
hospitalization, medical, life or disability insurance plans, vacation and paid
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holiday benefits, termination or severance pay benefits, and restricted stock,
stock option, stock appreciation rights or similar plan (the "Plans"). Seller
has not made any written or oral statements or representations that would give
rise to an obligation on the part of Purchaser to offer the employees any
benefits other than those listed in Schedule 4.9. The Plans have been maintained
and administered in compliance with applicable federal and state laws,
regulations and rules, including, but not limited to, ERISA and the Code and all
applicable laws and regulations. All contributions required by law or contract
to be made to each Plan have been timely made. Neither Seller nor any of its
directors, officers, or agents have been involved in any prohibited transactions
with respect to such Plans.
4.10 Conflict of Interest. No officer, director or employee of Seller:
(a) has any interest in any property, asset or right which is used
by Seller in the conduct of the Business or in any entity which does any
business with Seller, or
(b) has any contractual relationship with Seller other than as an
officer, director or employee.
4.11 Compliance with Law. Seller has all material authorizations,
approvals, licenses and orders of and from all governmental and regulatory
officers and bodies necessary to carry on the Business as it is currently being
conducted, to own or hold under lease the properties and assets it owns or holds
under lease and to perform all of its obligations under all agreements to which
it is a party, and Seller has been and is in compliance with all applicable
laws, regulations and administrative orders of any country, state or
municipality or of any subdivision thereof to which its business and its
employment of labor or its use or occupancy of properties or the violation of
which would have a material adverse effect upon the Assets, liabilities, results
of operations, financial condition, business or prospects of the Business.
4.12 DISCLAIMERS. EXCEPT AS EXPRESSLY PROVIDED HEREIN, SELLER MAKES NO
REPRESENTATIONS OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, REGARDING THE
BUSINESS OR THE ASSETS INCLUDING, WITHOUT LIMITATION, AS TO THE PHYSICAL
CONDITION, VALUE, QUANTITY OR QUALITY OF THE INVENTORY, MACHINERY AND EQUIPMENT
AND RECEIVABLES, AND SELLER SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY, USAGE OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY OF THE
ASSETS.
4.13 Environmental Matters. The operations of the Business are in
compliance in all material respects with all statutes, regulations and
ordinances relating to the protection of human health and the environment. There
has been no release of a hazardous substance into the environment at any
property owned, leased or used by the Seller (the "Premises") including, without
limitation, any such release in the soil or groundwater underlying the Premises.
The Seller has not received notice of any violation of any environmental statute
or regulation nor has it been advised of any claim or liability pursuant to any
environmental statute or regulation
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brought by any governmental agency or private party with respect to the Assets
or the operation of the Business.
4.14 Accounts Receivable. The accounts receivable as set forth on Schedule
4.14 are valid and genuine; have arisen solely out of bona fide sales and
performance of services and other business transactions in the ordinary course
of business consistent with past practices of the Business.
4.15 No Undisclosed Liabilities. The Seller does not have any liabilities
or obligations which are not adequately reflected or provided for in the
Agreement or the Exhibits hereto (including the balance sheet dated June 30,
1995 attached as Schedule 4.14 hereto) except liabilities and obligations
incurred since June 30, 1995 in the ordinary course of business and consistent
with past practices of the Business.
4.16 Government Contracts. With respect to government contracts or OEM
subcontracts included in the Contracts, there are not (i) any outstanding
written cure notices or show causes, (ii) any written notices of contract
termination or stop work orders, (iii) any written final decision assessing a
penalty or damages, (iv) any outstanding written assertion of a formal claim
based on violation of government cost accounting standards or government
pricing, (v) any outstanding formal notice of proposed disallowance of indirect
cost claims, or (vi) except as provided in this Agreement, any subpoena or
written notice signifying government investigation.
4.17 Labor Matters. There is no pending unlawful employment practice or
discrimination charge involving the Seller. There is no pending unfair labor
practice charge or complaint against Seller. There is no labor strike, dispute,
slowdown or stoppage actually pending or, to the best knowledge of the Seller
executives, threatened against or involving or affecting the Seller. No
grievance or arbitration proceeding relating to the employees of the Seller is
pending.
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller the following:
5.1 Status; Authority. Purchaser is duly incorporated, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania.
Purchaser has all requisite corporate power and authority to execute and deliver
this Agreement and each of the instruments and other documents to be executed
and delivered by it hereunder, and to perform its obligations hereunder and
thereunder. Purchaser has or will have by Closing taken all action required by
law, its articles of incorporation, bylaws or otherwise to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.
5.2 Execution; Valid and Binding Agreements. The execution, delivery and
performance by Purchaser of this Agreement and the consummation by it of the
transactions
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contemplated hereby have been duly authorized by Purchaser's board of directors.
This Agreement has been duly executed and delivered by Purchaser and, assuming
that this Agreement is the valid and binding agreement of Seller, constitutes
the valid and binding agreement of Purchaser, enforceable against Purchaser in
accordance with its terms, except to the extent that:
(a) such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights generally; and
(b) certain of the covenants contained herein may not be
specifically enforceable and in such event, courts may award money damages
rather than specific performance of contractual provisions involving
matters other than the payment of money.
5.3 Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
Purchaser.
5.4 Consents; Approval. No permit, consent, approval or authorization of,
or declaration to or filing or registration with, any governmental or regulatory
authority (including, without limitation, U.S. or foreign government security
clearances) is required in connection with the execution, delivery or
performance of this Agreement by Purchaser or the consummation of any other
transaction contemplated hereby.
5.5 Litigation. Except as set forth in Schedule 5.5, there are no actions,
suits, claims, proceedings or investigations pending or, to Purchaser's
knowledge, threatened against Purchaser, before any court, arbitration or
administrative or governmental body, which may have a material adverse effect on
Purchaser's ability to perform this Agreement or consummate the transactions
contemplated hereby, and no order, injunction, decree or unsatisfied judgment
which is outstanding against Purchaser which could reasonably be expected to
interfere with Purchaser's ability to consummate the transactions contemplated
by this Agreement.
5.6 Absence of Conflicts. The execution, delivery and performance of this
Agreement, and any instrument or other document to be executed and delivered by
Purchaser hereunder, does not and will not violate or conflict with, result in a
breach of, constitute a default under or give rise to a right of acceleration or
termination under (with or without notice, lapse of time, or both) (i) the
articles of incorporation or by-laws of Purchaser, (ii) any law, regulation,
rule, order, arbitration award, judgment decree or other similar restriction to
which Purchaser is subject or by which it is bound, or (iii) any note, mortgage,
indenture, bond or contract, agreement, plan instrument lease, license or permit
to which Purchaser is a party or by which it is bound.
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ARTICLE VI- INDEMNIFICATION
6.1 Indemnification by Seller. Except as set forth elsewhere in this
Agreement, and except for the negligence of Purchaser, Seller agrees to
indemnify and hold harmless Purchaser against and in respect of any and all
claims, liabilities, obligations, losses, costs deficiencies, litigation, taxes,
assessments, demands, damages, or judgments of any kind or nature whatsoever
("Claims") related to, arising from, or associated with:
(a) any breach or violation of the covenants made in this Agreement
by Seller;
(b) any breach or violation of the unexpired representations and
warranties made in this Agreement by Seller;
(c) the liabilities and obligations not expressly assumed by
Purchaser pursuant to this Agreement;
(d) any investigation, cleanup, remedial or removal activity, damage
to natural resource, personal injury or property damage of any nature
whatsoever arising out of or relating to the use of any substance, waste,
airborne particles, contaminate, hazardous substance or pollutant
considered to be hazardous under any applicable federal, state or local
law, rule, regulation or ordinance in effect as of the Closing Date
(collectively, "Hazardous Materials") to the extent that such use occurred
on or prior to the Closing Date, and such activity took place on, or
Hazardous Materials were produced at, or originated from, property owned
or leased by Seller associated with the operation of the Business;
provided, however, that in the event of any environmental remediation
actions, Seller shall have the right to undertake and control, at its
expense, such remediation and to accomplish such remediation at the lowest
cost practicable so long as to grant Seller such rights is permitted by
applicable law and so long as Seller accomplished such remediation in
accordance with any applicable requirements imposed by any law regulation
or ordinance or by any court or governmental authority;
(e) any tax liability relating to periods prior to the Closing;
(f) any employment related liability or claim relating to any period
prior to the Closing, including, without limitation, claims for medical
payments, severance or other employee benefits, and claims arising out of
the Union Contract;
(g) any claims for workers' compensation based on occurrences prior
to the Closing;
(h) any product liability claims relating to occurrences prior to
the Closing;
(i) non-compliance by Seller with bulk sales laws or similar common
law in connection with this transfer; and
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(j) any and all direct liability including damages or losses under
the Contracts to Purchaser or its parents and affiliates (including costs,
disbursements and reasonable legal fees) associated with the Department of
Defense subpoena received by the Seller on March 29, 1995 and any ensuing
investigation and proceeding, but expressly excluding indirect or
consequential losses including, but not limited to, loss of business from
existing or future customers of Purchaser or its affiliates (other than
work under the Contracts).
6.2 Indemnification by Purchaser. Except as set forth elsewhere in this
Agreement or in any Schedule or Exhibit hereto, Purchaser shall indemnify and
hold harmless Seller against and in respect of all Claims related to, arising
from, or associated with:
(a) any breach or violation of the covenants made in this Agreement
by Purchaser;
(b) any breach or violation of the unexpired representations or
warranties made in this Agreement by Purchaser;
(c) all product liability claims relating to occurrences involving
products shipped by Purchaser after the Closing,
(d) any claims for workers' compensation based on occurrences after
the Closing,
(e) any acts, omissions, events, occurrences, circumstances or
transactions of whatsoever type or nature associated with, arising out of
or relating to the ownership, use or possession of the Assets by
Purchaser, or the conduct or operation of the Business by Purchaser, after
the Closing;
(f) the liabilities and obligations assumed by Purchaser pursuant to
Section 2.4 hereof; and
(g) the failure to obtain consents or approvals from parties to any
Contracts in connection with the transactions contemplated herein or the
termination, placing in default or any other action that might be taken by
any customer under the Contracts as a result of the transactions
contemplated by this Agreement.
6.3 Notice and Payment of Claims. Upon obtaining knowledge of any Claims,
the party entitled to indemnification (the "Indemnitee") shall promptly notify
the party liable for such indemnification (the "Indemnitor") in writing of such
Claims which the Indemnitee has determined has given or could give rise to a
Claim under Section 6.1 or Section 6.2 hereof (such written notice being
hereinafter referred to as a "Notice of Claim"); provided, however, that failure
of an Indemnity timely to give a Notice of Claim to the Indemnitor shall not
release the Indemnitor from its indemnity obligations set forth in this Article
VI except to the extent that
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such failure adversely affects the ability of the Indemnitor to defend such
Claims or materially increase the amount of indemnification which the Indemnitor
is obligated to pay hereunder, in which event the amount of indemnification
which the Indemnitee shall be entitled to receive shall be reduced to an amount
which the Indemnitee would have been entitled to receive had such Notice of
Claim been timely given. In addition, if the Indemnitee settles or compromises
any third party claims prior to giving a Notice of Claim to Indemnitor, the
Indemnitor shall be released from its indemnity obligations to the extent that
such settlements or compromises were not made in good faith and were not
commercially reasonable. A Notice of Claim shall specify in reasonable detail
the nature and estimated amount of any such Claim giving rise to a right of
indemnification. The Indemnitee shall satisfy its obligations under Section 6.1
or Section 6.2 as the case may be, within sixty days of its receipt of a Notice
of Claim; provided, however, that for so long as the Indemnitor is defending a
Claim in good faith pursuant to Section 6.4 below, its obligations to indemnify
the Indemnitee with respect thereto shall be suspended. The Indemnitor shall
have thirty days after receipt of a Notice of Claim to notify the Indemnitee
whether or not it disputes its liability to the Indemnitee with respect to such
Notice of Claim.
6.4 Defense of Third-Party Claims. With respect to any action or any claim
set forth in a Notice of Claim relating to a third-party claim, the Indemnitor
shall defend, in good faith and at its expense, any such claim or demand, and
the Indemnitee, at its expense, shall have the right, but not the obligation, to
participate in the defense of any such third-party claim, with counsel of its
own choosing. So long as the Indemnitor is defending in good faith any such
third-party claim, the Indemnitee shall not settle or compromise such
third-party claim. The Indemnitee shall make available to the Indemnitor or its
representatives all records and other materials reasonably required for use in
contesting any third-party claim and shall cooperate fully with the Indemnitor
in the defense of all such claims. In the event the Indemnitor shall fail timely
to defend, contest or otherwise protect against any such suit, action,
investigation, claim or proceeding, the Indemnitee shall have the right, but not
the obligation, to defend, contest or otherwise protect against the same, and
make any compromise or settlement thereof and recover the entire cost thereof
from the Indemnitor including reasonable attorneys' fees, disbursements, and all
amounts paid as a result of such suit, action, investigation, claim or
proceeding or the compromise or settlement thereof.
6.5 Survival of Representations and Warranties. All of the representations
and warranties made by any party in Article IV and Article V of this Agreement
shall survive for a period of one year from the Closing Date. No party shall be
entitled to indemnification for breach of any representation and warranty set
forth in Article IV or Article V of this Agreement unless a Notice of Claim of
such breach has been given to the breaching party within the period of survival
of such representation and warranty as set forth herein. Nothing contained
herein shall affect the obligations of the parties as set forth elsewhere in
this Article 6 and in this Agreement.
6.6 Limitations on Indemnification. Notwithstanding anything to the
contrary contained herein, no indemnification obligation shall arise hereunder
except to the extent that all Claims asserted by a party hereto exceeds $50,000
in the aggregate, it being understood that such
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$50,000 is a deductible and not a threshold, provided, however, that such
deductible shall not apply to Claims relating to taxes or to the indemnification
obligations of Seller in Sections 6.1(g) and 6.1(k) or of Purchaser in Sections
6.2(f).
ARTICLE VII - EMPLOYEES
7.1 Purchaser's Obligations. Effective as of 12:01 a.m. on the day after
Closing Date, Purchaser shall offer employment to all employees of Seller
identified in Schedule 7.1. Purchaser agrees that for purposes of eligibility
and vesting in those benefit plans of Purchaser in which he or she is otherwise
eligible to participate, each employee will be credited with the length of
service and/or seniority accumulated by such employee with Seller.
7.2 Employee Benefit Plans. Seller shall retain all liabilities for the
Plans and Purchaser shall have no responsibility therefor.
7.3 Severance. Any employees set forth on Schedule 7.1 terminated by
Purchaser after Closing shall be entitled only to such severance benefits as
Purchaser may provide under its plans, policies and practices and shall have no
claim on Seller.
ARTICLE VIII - CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions precedent, any of which may be
waived in writing by Purchaser:
8.1 Accuracy of Representations and Warranties and Performance of
Obligations. All representations and warranties made by Seller in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as if such representations and warranties had been made on
and as of the Closing Date and Seller shall have performed or complied with all
covenants, agreements and conditions contained in this Agreement on its part
required to be performed or complied with at or prior to the Closing.
8.2 Consents. All authorizations, consents or approvals of any and all
governments, governmental authorities, and quasi-governmental authorities
necessary in connection with the consummation of the transactions contemplated
by this Agreement shall have been obtained and shall be in full force and
effect.
8.3 No Litigation or Contrary Judgment. On the Closing Date there shall
exist no lawsuit or other claim or action in regard to any foreign, federal,
state or local law or regulation (or administrative proceeding or investigation)
which could interfere with the consummation of the transactions contemplated by
this Agreement or which could materially adversely affect the Business or the
financial condition or results of operations of the Business, except as
previously
17
<PAGE> 22
disclosed in this Agreement or any of the Schedules hereto. The Closing shall
not violate any order, decree or judgment of any court or governmental body
having competent jurisdiction.
8.4 Deliveries. Seller shall have made or tendered, or caused to be made
or tendered, delivery to Purchaser of the documents set forth in Section 3.3.
ARTICLE IX - CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions precedent, any of which may be waived
in writing by Seller:
9.1 Accuracy of Representations and Warranties and Performance of
Obligations. All representations and warranties made by Purchaser in this
Agreement shall be true and correct on and as of the Closing Date with the same
effect as if such representations and warranties had been made on and as of the
Closing Date; and Purchaser shall have performed or complied with all covenants,
agreements and conditions contained in this Agreement on its part required to be
performed or complied with at or prior to the Closing.
9.2 Consents. All authorizations, consents or approvals of all
governments, governmental authorities and quasi-governmental authorities
necessary in connection with the consummation of the transactions contemplated
by this Agreement shall have been obtained on terms reasonably satisfactory to
Seller and shall be in full force and effect.
9.3 No Litigation or Contrary Judgment. On the Closing Date there shall
exist no lawsuit or other claim or action in regard to foreign or U.S. federal,
state, or local law or regulation (or any administrative proceeding or
investigation) which could adversely affect the transfer of the Assets to
Purchaser or interfere with the consummation of the transactions contemplated by
this Agreement except as previously disclosed in this Agreement or the Schedules
hereto. The Closing shall not violate any order, decree or judgment of any court
or governmental body having competent jurisdiction.
9.4 Deliveries. Purchaser shall have made or tendered, or caused to be
made or tendered, delivery to Seller of the Purchase Price and the documents set
forth in Section 3.4.
ARTICLE X - ADDITIONAL COVENANTS
10.1 Intercompany Accounts. Through the Closing, Seller shall continue to
employ cash management practices consistent with those employed immediately
prior to the date of this Agreement. All collection, concentration, imprest and
disbursement bank accounts used in the Business and the balances therein
existing as of Closing, shall be retained by Seller, provided that all monies
received by Seller relating to the Assets or the Business purchased hereunder
after
18
<PAGE> 23
the Closing shall promptly be remitted to Purchaser. Seller shall also retain
liability with respect to all checks or other drafts or withdrawals written on
all such disbursement accounts prior to the Closing and shall either retain
balances in such accounts at Closing to cover such checks, drafts or withdrawals
or shall reimburse Purchaser as soon as practicable after Closing for such
checks, drafts or withdrawals paid by Purchaser. This Section shall not affect
the purchase price adjustment contemplated by Section 2.3 hereof.
10.2 Access Pending Closing. Seller shall, at all reasonable times prior
to Closing, make the plants, properties, inventories, contracts, commitments,
books and records (including computer files, retrieval programs and related
documentation) of Seller (to the extend pertinent to the Business) fully
available during normal business hours to Purchaser, its representatives,
financial advisors, lenders and auditors, and Seller shall furnish or cause to
be furnished to Purchaser and its representatives during such period all such
information and data concerning the same as Purchaser or such representatives
may reasonably request.
10.3 Books and Records. From and after the Closing, Purchaser shall
provide Seller and its representatives with reasonable access (for the purpose
of examining and copying) during normal business hours, to the books and records
of the Business pertaining to periods or occurrences prior to the Closing Date.
Without limiting the foregoing, Purchaser shall preserve and keep any such books
and records it may retain with respect to the Business for a period of seven (7)
years after the Closing or for any longer period: (a) as may be required by any
federal, state or other governmental body or agency or any contract or
agreement; (b) as may be reasonably necessary in respect of the prosecution of
defense of any suit, action, litigation or administrative, arbitration or other
proceeding or investigation that is then pending or threatened; or (d) that is
equivalent to the period established by any applicable statute of limitations
(or any extension or waiver thereof) with respect to matters pertaining to
taxes. If Purchaser wishes to destroy any records referred to herein after that
time, it shall first give 60 days prior written notice to the other, and Seller
shall have the option, upon written notice given to Purchaser within such 60 day
period, to take possession of such records within 30 days after the date of its
notice requesting the same.
10.4 Confidentiality.
(a) In addition to the terms, provisions and covenants of any and
all confidentiality agreements that Purchaser has executed or made
pertaining or relating to the transactions contemplated hereby (the
"Confidentiality Agreement"), which Confidentiality Agreement shall remain
in full force and effect until Closing, Purchaser acknowledges that, in
the course of its investigations of the Business, Purchaser and its
representatives ("Purchaser's Representatives") have and will become aware
of confidential information and documents of the Business, and that its
use of such confidential information and documents, or communication of
such information to third parties, could be detrimental to the Business.
Purchaser covenants that prior to Closing all information and documents
concerning the Business reviewed by Purchaser or its Representatives in
connection with this Agreement or the transactions contemplated
19
<PAGE> 24
hereby shall be maintained in confidence and shall not be disclosed or
used by Purchaser or Purchaser's Representatives without Seller's prior
consent, unless such information is either (i) otherwise publicly
available, (ii) required to be disclosed pursuant to judicial order or
law, or (iii) the transactions contemplated herein have been consummated
with Purchaser and such use or disclosure will not materially adversely
affect Seller's use or sale of the Excluded Assets. In the event that the
transactions contemplated herein are not consummated, (i) Purchaser shall
return, all information and documents concerning the Business received by
Purchaser (including any copies thereof or extracts therefrom), (ii)
Purchaser shall keep confidential and shall not use any such information
or documents unless required to disclose such information or documents
pursuant to judicial order, regulation or law. In the event that Purchaser
or any of Purchaser's Representatives becomes legally compelled to
disclose any such information or documents, Purchaser will provide Seller
with prompt written notice before such disclosure, sufficient to enable
Seller either to seek a protective order, at their sole expense, or other
appropriate remedy preventing or prohibiting such disclosure, or to waive
compliance with the provisions of this Agreement or both, and (iii)
neither Purchaser nor Seller shall disclose to any third party the reasons
why the transactions contemplated herein were not consummated.
(b) In addition to the terms, provisions and covenants of any and
all confidentiality agreements that Seller has executed or made pertaining
or relating to the transactions contemplated hereby (the "Confidentiality
Agreement"), which Confidentiality Agreement shall remain in full force
and effect until Closing, Seller acknowledges that, in the course of its
negotiations with Purchaser concerning the sale of the Business, Seller
and its representatives ("Seller's Representatives") have and will become
aware of confidential information and documents relating to Purchaser and
its affiliates, and that its use of such confidential information and
documents or communication of such information to third parties, could be
detrimental to Purchaser and its affiliates. Seller covenants that all
information and documents concerning Purchaser and its affiliates
disclosed to Seller or any Seller Representative in connection with this
Agreement or the transactions contemplated hereby shall be maintained in
confidence and shall not be disclosed or used by Seller or any Seller
Representative without Purchaser's prior consent, unless such information
is either (i) otherwise publicly available, or (b) required to be
disclosed pursuant to judicial order or law. In the event that Seller or
any Seller Representative becomes legally compelled to disclose any such
information or documents, Seller will provide Purchaser with prompt
written notice before such disclosure, sufficient to enable Purchaser
either to seek a protective order, at its sole expense, or other
appropriate remedy preventing or prohibiting such disclosure, or to waive
compliance with the provisions of this Agreement or both.
(c) The parties agree that no press release or other public
statement concerning the negotiation, execution and delivery of this
Agreement or the transactions contemplated hereby shall be issued or made
without the prior approval of both Seller and Purchaser (which approval
shall not be unreasonably withheld), except as required by the rules of
any Stock Exchange or applicable law or regulation. Without limiting the
foregoing, the
20
<PAGE> 25
parties agree that the terms of the transaction contemplated herein will
be kept strictly confidential and shall not be disclosed to Purchaser's
customers or competitors.
10.5 Filings: Cooperation. Prior to the Closing, the parties shall proceed
with due diligence and in good faith to make such filings and take such other
actions as may be necessary to satisfy the conditions to Closing set forth
herein. On or after the Closing Date, the parties shall, on request, cooperate
with one another by furnishing any additional information, executing and
delivering any additional documents and instruments, including contract
assignments, providing access to personnel, and doing any and all such other
things as may be reasonably required by the parties or their counsel to
consummate or otherwise implement the transactions contemplated by this
Agreement and to allow the orderly transition of the Business to the Purchaser.
In connection with the liabilities assumed by Purchaser pursuant to this
Agreement, and the retention by Seller of all other liabilities not specifically
assumed by Purchaser, each of the parties hereto shall, and shall cause their
affiliates and employees to, cooperate with and assist the other party or
parties in their defense of such assumed or retained litigation or liabilities,
by, among other things, providing such other party or parties with full access
to pertinent records at such times as such other party or parties may reasonably
request, and making available for depositions, testimony, interviews or other
consultation, such officers, employees, or agents as such party or parties may
reasonably request without cost to such party or parties except for
reimbursement by it or them of reasonable out-of-pocket expenditures incurred in
connection with such cooperation and assistance. Without limiting the foregoing,
Purchaser shall make available at no cost to Seller a segregated area within the
facility to collect and organize documents relating to the matters disclosed in
Schedule 4.5.
10.6 Risk of loss. All risk of loss with respect to the Assets shall
remain with Seller until the Closing Date. If at any time after the date of this
Agreement and prior to the Closing Date, the Assets, or any material portion
thereof, are damaged by fire or other casualty or are taken or appropriated by
virtue of eminent domain or similar proceedings, Purchaser may at its option
terminate this Agreement. If Purchaser elects to keep this Agreement in full
force and effect, Purchaser shall be entitled to receive all insurance or
condemnation proceeds payable to Seller or an affiliate of Seller with respect
to such damaged, taken or appropriated Assets.
10.7 Conflicting Proprietary Rights; Assignment; License. Except as
required by existing licenses, on or before Closing Seller will permanently
discontinue, and will cause all their affiliates permanently to discontinue, all
use of any Intellectual Property Rights to be assigned to Purchaser pursuant to
this Agreement. Without limiting the foregoing, Seller shall take all
appropriate action to change its corporate name to remove all reference to the
word "Stewart Warner Electronics".
10.8 Transitional Use of Trademarks. Seller recognizes that certain
inventory, labels, containers, stationery and promotional material relating to
such inventory, being assigned to Purchaser under this Agreement may bear
trademarks and trade names not being assigned or licensed to Purchaser. Seller
agrees that Purchaser will be permitted to sell such inventory and use such
labels, containers, stationery and promotional material for a reasonable period
not to
21
<PAGE> 26
exceed six (6) months after the Closing. Neither Seller nor any of its
affiliates shall have any liability for products manufactured or sold by
Purchaser containing or utilizing such labels, containers, stationery or
promotional materials.
10.9 Contracts. Purchaser agrees that, except as expressly provided
herein, Seller has made no representations or warranties regarding the Contracts
whatsoever, which, except as expressly provided herein, are being purchased "as
is". Purchaser acknowledges that there can be no assurance that the parties to
the Contracts will consent to assignments or novation or otherwise cooperate so
as to allow Purchaser to perform the Contracts and all such risks are to be
borne by Purchaser. Furthermore, the parties agree that, notwithstanding the
contemplated Closing or the other transactions contemplated hereby, the parties
will take no action that would violate any U.S. or foreign law, rule or
regulation (including, without limitation, relating to security clearances) and
to the extent necessary the actions contemplated by this Agreement shall be
postponed or amended to prevent any such violation. In no event, however, shall
such postponement or amendment result in a claim by Purchaser or any of its
affiliates against Seller, the risks and costs of such actions being borne
solely by Purchaser. Seller and Purchaser shall cooperate fully with each other
to obtain any required consents, approvals or security clearances necessary or
desirable in connection with the transactions contemplated hereby.
[10.10 Stewart Warner South Wind Contract. One of the Contracts is a
contract with an affiliate of Seller, Stewart Warner South Wind Corporation
("South Wind"). Pursuant to this Contract, Seller is performing work as a
subcontractor to South Wind, with South Wind being the prime contractor under a
contract with the U.S. Army. In connection with the South Wind contract, and
without limiting Purchaser's other obligations in connection with the Contracts,
Purchaser agrees that all design rights (including, but not limited to parts
lists, drawings, specifications, software codes, acceptance test procedures,
supplier lists, etc.) relating to Seller's work shall be consistent with South
Wind's obligations under its contract with the Army.
Promptly after the Closing, Purchaser shall meet with South Wind to
discuss the status of the South Wind Contract and the steps necessary to improve
performance of the product and prepare a proposal for Phase II production (the
"Project"). At any time thereafter until the award of a contract by South Wind
to Purchaser, South Wind or Purchaser may elect to terminate Purchaser's further
involvement with the Project. In the event of such termination, Purchaser shall
promptly transfer to South Wind all intellectual property (including, without
limitation, know-how, drawings, parts lists, specifications, software costs,
acceptance test procedures and supplier lists in Purchaser's possession or
control) that South Wind may be obligated to deliver under its contract with the
Army and, at no cost to South Wind or Seller, provide all reasonable cooperation
and assistance to allow South Wind to transition to another Supplier to allow
completion of the Project and the same reasonable cooperation to allow South
Wind to competitively bid and perform Phase II production.
10.11 Letters of Credit. Seller and certain affiliates of Seller have
certain reimbursement obligations in connection with the letters of credit set
forth on Schedule 10.11 (the "Letters of Credit"). Purchaser shall, with thirty
(30) days after the Closing, replace the Letters of Credit
22
<PAGE> 27
with corresponding letters of credit satisfactory to the customer under the
Contracts requiring such Letters of Credit. Neither Seller nor any of its
affiliates shall have any liability under the replacement Letters of Credit. In
the event that, prior to such replacement, any Letter of Credit is partially or
wholly drawn down, Purchaser shall fully indemnify and hold harmless Seller and
its affiliates for any loss, cost or expense of whatsoever nature arising in
connection with such draw-down.
ARTICLE XI - MISCELLANEOUS
11.1 Expenses. Except as otherwise provided in this Agreement, each party
shall pay all of its costs and expenses incurred in connection with this
Agreement and the consummation of the transactions contemplated hereby.
(a) All notices, requests, demands, and other communications under
this Agreement shall be in writing and delivered in person, sent by
certified or registered mail, postage prepaid, or sent by reputable
courier service or telecopy, and properly addressed as follows:
If to Purchaser, to: Stewart Warner Electronics Co.
10 Industry Drive
Lancaster, PA 17603
Attn: Mr. Myron Levy
cc: Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, NY 11753
Attn: David Lieberman, Esq.
If to Seller, to: BTR Aerospace Group
200 1780 Wellington Avenue
Winnipeg, Manitoba R3H 1B3
Attn: Mr. David Unruh
With a copy to: BTR Inc.
Stamford Harbor Park
333 Ludlow Street
Stamford, Connecticut 06902
Attn: Peter M. Kent, Esq.
(b) Any party from time to time may change its address and/or the
designated individual for the purpose of notices to that party by a
similar notice specifying a new
23
<PAGE> 28
address and/or designated individual, but no such change shall be deemed
to have been given until it is actually received by the party sought to be
charged with its contents.
(c) All notices and other communications required or permitted under
this Agreement which are addressed as provided in this Schedule 11.2
shall, in the case of personal delivery, be effective upon delivery; in
the case of registered or certified mail shall be effective four (4)
business days following deposit in the mail, postage prepaid; and in the
case of courier or telecopy, when delivery is confirmed in person.
11.3 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) and the Confidentiality Agreement contain the entire agreement
between the parties with respect to the transactions contemplated hereby, and
supersedes all written or oral negotiations, representations, warranties,
commitments, offers, bids, bid solicitations, and other understandings prior to
the date hereof.
11.4 Severability. If any provision hereof shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and shall
not affect the validity or effect of any other provision hereof.
11.5 Assignability. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the parties hereto; provided, that,
except as otherwise provided for herein, neither this Agreement nor any right
hereunder may be assigned by Seller or Purchaser without the prior written
consent of the other party.
11.6 Captions. The captions of the various Articles and Sections of this
Agreement have been inserted only for convenience of reference, and shall not be
deemed to modify, explain, enlarge or restrict any provision of this Agreement
or affect the construction hereof.
11.7 Governing Law. The validity, interpretation and effect of this
Agreement shall be governed exclusively by the laws of the State of New York,
without giving effect to the conflict of laws provisions thereof.
11.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single agreement
24
<PAGE> 29
11.9 Remedies cumulative. Except as otherwise expressly limited herein,
the rights, powers and remedies given to any party by this Agreement shall be
in addition to all rights, powers and remedies given to that party by any
statute or rule of law. Any forbearance or failure or delay in exercising any
right, power or remedy hereunder shall not be deemed to be a waiver of such
right, power or remedy, and any single or partial exercise of any right, power
of remedy shall not preclude the further exercise thereof or be deemed to be a
waiver of any other right, power or remedy.
STEWART WARNER ELECTRONICS CORPORATION
By:
----------------------------------
Name:
Title:
STEWART WARNER ELECTRONICS CO.
By: /s/ [Illegible]
----------------------------------
Name:
Title: SEC'Y.
25
<PAGE> 30
SCHEDULE 1.9(c)
BALANCES WITH AFFILIATES
See attached.
<PAGE> 31
SCHEDULE 4.5
LITIGATION
On or about March 29, 1995, Seller received a subpoena from the Office of
Inspector General, U. S. Department of Defense, for the production of a large
volume of Seller's documents relating to airplane guidance devices produced by
Seller for the U. S. Navy relating to Seller/Navy contracts for 1988, 1989, 1991
and 1993.
The DOD has not informed Seller of the focus of the DOD'S investigation.
Seller, through its counsel, is working with Seller's staff to respond to the
subpoena and is simultaneously conducting its own investigation into Seller's
activities to determine the subject(s) of the DOD'S investigation. Seller's
investigation is ongoing and will continue after the Closing.
During Seller's investigation, Seller's counsel was informed of
allegations that staff intentionally falsified time entries. It is reported that
such purported deliberate falsifications stopped in early 1991 but resumed early
last year and, therefore, if true, should be assumed to affect time on current
contracts.
<PAGE> 32
SCHEDULE 4.7
INCLUDED INTELLECTUAL PROPERTY
1. Tradenames
Stewart Warner Electronics Corporation
2. Patents
[None]
3. Trademarks
None
<PAGE> 33
SCHEDULE 4.8
COMPLIANCE WITH LAWS
See Schedule 4.5
<PAGE> 34
SCHEDULE 4.9
EMPLOYEE BENEFIT PLANS
See attached
<PAGE> 35
SCHEDULE OF EMPLOYEE BENEFIT PLANS
EMPLOYEES OF STEWART-WARNER ELECTRONICS PARTICIPATE
Stewart-Warner Corporation Group Insurance Plan - Plan Number 501
Stewart-Warner Corporation Retirement Income Plan - Plan Number 001
<PAGE> 36
SCHEDULE 4.14
ACCOUNTS RECEIVABLE
See attached
<PAGE> 37
- --------------------------------------------------------------------------------
**MR4**
OPERATING UNIT: Stewart Warner Electronics - Local - 0875 SCHEDULE: MR4
B A L A N C E S H E E T CURRENCY: USD
PERIOD ENDED : JUN 1995 - = CREDIT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTUAL PLAN
PREVIOUS CURRENT ACTUAL CURRENT PERIOD
*** BALANCE SHEET *** YEAR YEAR ----------------------------------------------------------------------------
END END JAN FEB MAR APR MAY JUN PLAN PRIOR YR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inventories 3012 2422 3044 3035 3052 3063 2978 3012 2735 3232
Trade - Accts Receivable 1260 1583 1182 706 774 962 869 1104 795 1901
Trade - Accts Payable -360 -300 -236 -112 -92 -36 -37 -89 -300 -264
Trade - Deposits (Rec'd)/Paid -706 -942 -664 -624 -757 -760 -756 -360 -1043 -680
Trade - Fellow Subs Receivable 104
Trade - Fellow Subs Payable -218 -163 -206 -244 -120 -158 -130 -104 -160 -136
-------------------------------------------------------------------------------------------------
Trade Working Capital 2988 2600 3120 2761 2857 3071 2924 3563 2067 4237
Other Accounts Rec'le/Prepayments 2479 1721 2483 2608 2067 2201 2080 1425 1790 2515
Other Accounts Pay'le/Accruals -1101 -210 -354 -335 -323 -297 -325 -312 -78 -970
Other Fellow Subs Receivable
Other Fellow Subs Payable
-------------------------------------------------------------------------------------------------
Trade Working Capital 4366 4111 5247 5034 5001 4975 4679 4676 3779 5774
Petty Cash
Land & Buildings 20 20
Other Fixed Assets 266 240 262 270 265 261 260 256 219 270
Investments
Intangibles
-------------------------------------------------------------------------------------------------
Net Assets Employed 4632 4371 5509 5304 5266 5236 4939 4932 4018 6044
Taxation 622 -206 718 819 299 405 504 556 211 96
Dividends
Post Retirement Benefits -809 -809 -809 -827 -827 -827 -827 -825
Profits Levy Paid
-------------------------------------------------------------------------------------------------
Total 5254 3356 5418 5314 4738 4814 4616 4661 3404 6140
=================================================================================================
Share Capital -11923 -11923 -11923 -11923 -11923 -11923 -11923 -11923 -11923 -11923
Funding Loan Int-co - Region 5605 8141 5274 5515 5694 5506 5497 5354 7537 5437
Funding Loan Int-co - Ex Region
Share in Subsidiaries
Goodwill on Consolidation
Reserves -1083 -713 -181 -167 -167 -167 -167 -167 -713 -1050
Retained Profit-Current Year 902 189 137 283 430 583 725 975 545 126
Deferred Tax / FITH 1208 945 1208 1194 1194 1194 1194 1154 1145 1306
Minority Interests
Short Term Deposits
Loan Capital
Bank Loans. O/D & Cash Balances 37 5 67 -216 34 -7 58 -54 5 -36
-------------------------------------------------------------------------------------------------
Total -5254 -3356 -5418 -5314 -4738 -4814 -4626 -4661 -3404 -6140
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DATE ISSUED: 19/07/95 - 11:26:08
<PAGE> 38
SCHEDULE 4.16
GOVERNMENT CONTRACTS
<PAGE> 39
SCHEDULE 7.1
EMPLOYEES
<PAGE> 40
Stewart Warner Electronics Corp.
Employees Retained
Schedule 7.1
- --------------------------------------------------------------------------------
LAST FIRST MI SALARY TITLE
- --------------------------------------------------------------------------------
Bast Edwin L 48,528 Section Engineer
- --------------------------------------------------------------------------------
Boyer Bradley X 51,024 Section Engineer
- --------------------------------------------------------------------------------
Brand Larry D 47,112 Mgr. Contract Administration
- --------------------------------------------------------------------------------
Bronswick Leonard 50,436 Section Engineer
- --------------------------------------------------------------------------------
Culver Martin L 34,200 Manufacturing Engineer
- --------------------------------------------------------------------------------
DelValle Isidore 32,160 Engineer
- --------------------------------------------------------------------------------
Duszak Gary L 42,480 Project Engineer
- --------------------------------------------------------------------------------
Ferrari Francis E 54,984 Section Engineer
- --------------------------------------------------------------------------------
Itter William T 48,756 Dir. Quality Control
- --------------------------------------------------------------------------------
McKay Robrt 32,052 Foreman (Assembly)
- --------------------------------------------------------------------------------
Miotke Leon B 42,276 Project Engineer (ARA63)
- --------------------------------------------------------------------------------
Nair Shashi K 37,896 Manager, Accounting
- --------------------------------------------------------------------------------
Ozers Ziedonis 36,312 Manager, Technical Documentation
- --------------------------------------------------------------------------------
Rounsaville George D 62,100 Director, Military & Aircraft
- --------------------------------------------------------------------------------
Walkup Ronald D 39,600 Engineer
- --------------------------------------------------------------------------------
Corcoran Theresa M 22,360 Jr. Accountant, Part Time
- --------------------------------------------------------------------------------
Jaworsky Adam 27,690 Assistant Engineer
- --------------------------------------------------------------------------------
Krawczyk Robert P 27,914 Assistant Engineer
- --------------------------------------------------------------------------------
Lu Lac 22,714 Assistant Engineer
- --------------------------------------------------------------------------------
Symanek Robert C 26,688 Assistant Engineer
- --------------------------------------------------------------------------------
Wojtanek Mitchell 32,864 Sr. Eng. Mechanic
- --------------------------------------------------------------------------------
Whelan John T 36,528 Mgr. Systems & Programming
- --------------------------------------------------------------------------------
<PAGE> 41
SCHEDULE 9.5
LETTERS OF CREDIT, ETC.
<PAGE> 42
[Letterhead of NationsBank]
July 28, 1995
NationsBank
BTR Inc.
750 Main St.
Stamford, CT 06902
Attn: Ms. Christel Stracke
Phone/Fax.: (203) 352-0028/824-7852
Dear Ms. Stracke:
Re: Stewart Warner Electronics Corporation
Per your request, we hereby confirm that the up-to-date outstanding
Letter(s) of Credit balance for account of BTR Inc./Stewart Warner Electronics
Corporation is US $1,454,228.79; details as follow (all Standby Letter of
Credit):
<TABLE>
<CAPTION>
LC No Amount (USD) Issued Date Expiry Date Remarks
- ----- ------------ ----------- ----------- -------
<S> <C> <C> <C> <C>
39148 273,986.00 12/30/82 10/28/95
39147 39,000.00 12/30/92 10/30/95
39539 12,850.00 05/10/93 12/15/95
39745 38,066.00 07/16/93 09/27/95
39746 48,800.00 07/16/93 01/27/96 Auto-Renew till Final 11/30/99
39747 16,650.00 07/16/93 11/20/95
40275 13,509.00 01/13/94 05/15/96
40276 3,919.00 01/13/94 06/15/96
40841 168,540.00 08/05/94 12/28/95
41184 90,678.00 12/01/94 05/28/96
41185 18,645.00 01/01/94 10/31/96 Auto-Renew till Final 10/31/98
41321 16,550.00 01/19/95 05/31/96 Auto-Renew till Final 05/31/99
41322 187,304.68 01/19/95 11/27/96
41710 8,604.20 06/14/95 10/01/96
41711 9,728.00 06/14/95 04/12/96
41712 105,034.86 06/14/95 03/27/96
41713 215,651.00 06/14/95 08/29/96 Auto-Renew till Final 08/29/97
41714 18,936.70 06/14/95 12/31/96 Auto-Renew till Final 12/31/99
41715 105,411.00 06/14/95 03/30/96 Auto-Renew till Final 03/30/97
41716 9,468.40 06/14/95 12/31/96 Auto-Renew till Final 12/31/99
41772 58,400.00 07/07/95 05/28/96
------------
Total: 1,454,228.79 (21 Letters of Credit)
</TABLE>
If you have any questions, please feel free to call us,
Very truly yours,
[Illegible]
------------------------
Authorized Signature
USA
[Logo]
Official Sponsor
1994/199[Illegible]
<PAGE> 43
GUARANTY
THIS GUARANTY dated July 28, 1995 by BTR Dunlop, Inc., a Delaware
corporation ("Guarantor").
WITNESSETH:
WHEREAS, Stewart Warner Electronics Corporation, a Delaware corporation
and a subsidiary of Guarantor ("Seller"), and Stewart Warner Electronics Co., a
Pennsylvania corporation ("Purchaser"), have concurrently herewith entered into
a Purchase and Sale Agreement pursuant to which Purchaser has agreed to acquire
certain assets of Seller and assume certain liabilities (the "Asset Purchase
Agreement"); and
WHEREAS, it is a condition to Purchaser's obligations under the Asset
Purchase Agreement that Guarantor shall have executed and delivered this
Guaranty;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and in order to induce Purchaser to enter into the Asset
Purchase Agreement, Guarantor covenants and agrees as follows:
1. Subject to Section 4 hereof:. (a) Guarantor hereby unconditionally and
irrevocably guarantees to Purchaser and its successors and assigns the due,
punctual and full satisfaction, payment and performance when and as due of each
of the representations, warranties, covenants, conditions, agreements and
obligations of Seller (the "Obligations") set forth in the Asset Purchase
Agreement. If Seller shall fail to satisfy any part or all of the Obligations
when due, Guarantor will promptly satisfy and discharge all such obligations in
full.
(b) The Obligations and the liability of Guarantor under this Guaranty are
continuing, irrevocable, absolute and unconditional without regard to the
liability of any other person under all circumstances and (i) are not
conditioned or contingent upon, and are irrespective of the pursuit by Purchaser
of whatsoever remedies there may be against Seller (or any other obligor upon
the Obligations, any other guarantor or any security for any or all of the
Obligations) and (ii) will not be discharged or affected by any circumstance
(other than complete satisfaction of the Obligations) which might constitute a
legal or equitable discharge. Guarantor's guarantee made pursuant to this
Guaranty shall be a continuing guarantee of any and all instruments given in
extension or renewal or substitution for the Obligations.
(c) Guarantor agrees that, in the event that any of the Obligations are
paid, Guarantor's liability under this Guaranty shall continue and remain in
full force and effect in the event that all or any part of said payment is
recovered from Purchaser or any other payee under any applicable bankruptcy or
insolvency or other law affecting or available to creditors or their
representatives.
<PAGE> 44
2. Guarantor hereby represents and warrants that this Guaranty has been
duly authorized and approved by all necessary corporate action of Guarantor, has
been duly executed and delivered by Guarantor, and constitutes a valid and
binding obligation of Guarantor enforceable against Guarantor in accordance with
its terms.
3. (a) This Guaranty may not be assigned by Guarantor without the prior
written consent of Purchaser. This Guaranty shall be binding upon Guarantor and
its successors and assigns.
(b) This Guaranty constitutes the entire understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings, whether oral or written, relating
to the subject matter hereof. No amendment or modification of the terms of this
Guaranty shall be binding or effective unless expressed in writing and signed by
both Guarantor and Purchaser.
(c) The waiver by Purchaser of the breach of any of the terms and
conditions of, or any right under, this Guaranty shall not be deemed to
constitute the waiver of any other breach of the same or any other term or
condition or of any similar right. No such waiver shall be binding or effective
unless expressed in writing and signed by Purchaser.
(d) This Guaranty shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and performed
wholly within the State of New York.
4. Notwithstanding anything to the contrary contained herein, the
obligations of Guarantor hereunder shall in no event exceed $250,000, and when
and if Guarantor has paid such amount, all obligations hereunder shall cease and
be of no further effect provided, however, that Guarantor's obligations shall be
unlimited with respect to the obligations of Seller contained in Section 6.1(i)
(Bulk Sales) and Section 6. 1(j) (DOD Subpoena).
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the day
and year first above written.
BTR DUNLOP, INC.
BY: /s/ [Illegible]
-----------------------------
<PAGE> 45
GUARANTY
THIS GUARANTY dated July 28, 1995 by Herley Industries, Inc., a Delaware
corporation ("Guarantor").
WITNESSETH:
WHEREAS, Stewart Warner Electronics Co., a Pennsylvania corporation and a
subsidiary of Guarantor ("Purchaser"), and Stewart Warner Electronics
Corporation ("Seller") have concurrently herewith entered into a Purchase and
Sale Agreement pursuant to which Purchaser has agreed to acquire certain assets
of Seller and assume certain liabilities (the "Asset Purchase Agreement");
WHEREAS, the terms used in this Guaranty shall be as defined in the Asset
Purchase Agreement; and
WHEREAS, it is a condition to Seller's obligations under the Asset
Purchase Agreement that Guarantor shall have executed and delivered this
Guaranty;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and in order to induce Seller to enter into the Asset
Purchase Agreement, Guarantor covenants and agrees as follows:
1. (a) Guarantor hereby unconditionally and irrevocably guarantees to
Seller and its successors and assigns the due, punctual and full satisfaction,
payment and performance when and as due of each of the representations,
warranties, covenants, conditions, agreements and obligations of Purchaser (the
"Obligations") set forth in Sections 2.4(a), 2.4(b) and 2.4(d) and Section 10.11
of the Asset Purchase Agreement. If Purchaser shall fail to satisfy any part or
all of the Obligations when due, Guarantor will promptly satisfy and discharge
all such obligations in full.
(b) The Obligations and the liability of Guarantor under this
Guaranty are continuing, irrevocable, absolute and unconditional without regard
to the liability of any other person under all circumstances and (i) are not
conditioned or contingent upon, and are irrespective of the pursuit by Seller of
whatsoever remedies there may be against Purchaser (or any other obligor upon
the Obligations, any other guarantor or any security for any or all of the
Obligations) and (ii) will not be discharged or affected by any circumstance
(other than complete satisfaction of the Obligations) which might constitute a
legal or equitable discharge. Guarantor's guarantee made pursuant to this
Guaranty shall be a continuing guarantee of any and all instruments given in
extension or renewal or substitution for the Obligations.
(c) Guarantor agrees that, in the event that any of the Obligations
are paid, Guarantor's liability under this Guaranty shall continue and remain in
full force and effect in the event that all or any part of said payment is
recovered from Seller or any other payee under any applicable bankruptcy or
insolvency or other law affecting or available to creditors or their
representatives.
<PAGE> 46
2. Guarantor hereby represents and warrants that this Guaranty has been
duly authorized and approved by all necessary corporate action of Guarantor, has
been duly executed and delivered by Guarantor, and constitutes a valid and
binding obligation of Guarantor enforceable against Guarantor in accordance with
its terms.
3. (a) This Guaranty may not be assigned by Guarantor without the prior
written consent of Seller. This Guaranty shall be binding upon Guarantor and its
successors and assigns.
(b) This Guaranty constitutes the entire understanding of the
parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings, whether oral or written, relating
to the subject matter hereof. No amendment or modification of the terms of this
Guaranty shall be binding or effective unless expressed in writing and signed by
both Guarantor and Seller.
(c) The waiver by Seller of the breach of any of the terms and
conditions of, or any right under, this Guaranty shall not be deemed to
constitute the waiver of any other breach of the same or any other term or
condition or of any similar right. No such waiver shall be binding or effective
unless expressed in writing and signed by Seller.
(d) This Guaranty shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and
performed wholly within the State of New York.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the day and
year first above written.
HERLEY INDUSTRIES, INC.
BY: /s/ [Illegible] CEO
------------------------------
<PAGE> 47
LEASE
THIS LEASE is made as of the 28th day of July, 1995, by and between
STEWART WARNER CORPORATION ("Landlord") and STEWART WARNER ELECTRONICS CO.
("Tenant"), who hereby mutually covenant and agree as follows:
I. GRANT, TERM, DEFINITIONS AND BASIC PROVISIONS
1.0 Grant. Landlord, for and in consideration of the rents and other sums
herein reserved and of the covenants and agreements herein contained on the part
of the Tenant to be performed, hereby leases to Tenant, and Tenant hereby lets
from Landlord, the improved real estate described in Exhibit A attached hereto,
together with all real property improvements and appurtenances belonging to or
in any way pertaining to the same (collectively, the "Leased Premises").
1.1 Lease Term. The term of this Lease shall commence on the date hereof
(the "Commencement Date") and shall terminate ninety (90) days from the date
hereof (the "Initial Period"); provided, however, that Tenant may elect to
extend the term for three additional periods of 30 days (each such period an
"Option Period"), with time of the essence, by delivering notice of such
election to extend no later than 20 days prior to the end of the Initial Period
or the then current Option Period.
1.2 Basic Lease Provisions.
(a) Purpose (See Section 3.0):
(b) Base Rent (See Section 4.0):
Base Rent: $0 during the Initial Period
$25,000 for each Option Period
(c) Payee (See Section 4.0): Stewart Warner Electronics
Corporation
(d) Payee's Address: Stewart Warner Electronics Corporation
c/o BTR Inc.
333 Ludlow Street
Stamford Harbor Park
Stamford, CT 06902
(e) Form of Insurance (See Article VI): The insurance specified in
Section 6.0 of this Lease shall insure Landlord, in addition
to Tenant.
<PAGE> 48
(f) Tenant's Address: c/o Herley Industries, Inc.
10 Industry Drive
Lancaster, PA 17603
(h) Landlord's Address: 333 Ludlow Street
Stamford Harbor Park
Stamford, CT 06902
II. POSSESSION
Tenant hereby accepts the Leased Premises in its "AS IS" condition.
Neither Landlord nor any agents or employees of Landlord have made any
representations or warranties, direct or indirect, oral or written, express or
implied, to Tenant or any agents or employees of Tenant with respect to the
condition of the Leased Premises, its fitness for any particular purposes, or
its compliance with any laws, and Tenant is not aware of and does not rely upon
any such representation to any other party. Tenant acknowledges that no
representation as to the condition an repair of the Leased Premises has been
made by or on behalf of Landlord prior to or at the execution of this Lease that
is not herein expressed. Tenant's taking possession shall be conclusive evidence
that the Leased Premises were suitable for Tenant's intended purposes as of the
date thereof and that Tenant has waived all claims relating to the condition of
the Leased Premises.
III. PURPOSE
The Leased Premises shall be used and occupied only for purposes similar
to the uses of the Leased Premises immediately prior to the Commencement Date,
except that no such use shall (a) constitute a public or private nuisance or
waste, (b) render the insurance on the Leased Premises void or the insurance
risk more hazardous, or (c) be unlawful.
IV. RENT
4.0 Base Rent. Beginning with the Commencement Date, Tenant shall pay base
rent as set forth in Section 1.2(b) hereof, payable in advance, as set forth in
said Section, without any prior demand therefor and without any offset or
deduction whatsoever. Base Rent shall be prorated for partial months within the
term. All charges, costs and sums required to be paid by Tenant to Landlord
under this Lease in addition to Base Rent shall be deemed additional rent
("Additional Rent") , and Base Rent and Additional Rent shall hereinafter be
collectively called "Rent". Tenant's covenant to pay Rent shall be independent
of every other covenant in this Lease. Rent shall be paid to or upon the order
of Payee at the Payee's Address. Landlord shall have the right to change the
Payee or the
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<PAGE> 49
Payee's Address by giving written notice thereof to Tenant. All payments of rent
shall be made without deduction, set off, discount or abatement in lawful money
of the United States
4.1 Interest on Late Payments and Late Charges. Each and every payment of
charges due hereunder, which shall not be paid when due shall bear interest at
the rate of ten percent (10%) per annum or the maximum rate of interest
permitted by law whichever is less, from the date when same is payable under the
terms of this Lease until the same shall be paid. Additionally, a late charge of
two percent (20%) of all delinquent Rent shall be paid to Landlord by Tenant.
V. INTENTIONALLY OMITTED
VI. INSURANCE
6.0 Kinds and Amounts. During the term of this Lease, Tenant shall procure
and maintain policies of insurance, at its sole cost and expense, insuring
Landlord and Tenant from all liability, claims, demands or actions for bodily
injury or property damage in an amount of not less than $1,000,000, combined
single limit made by, or on behalf of, any person or persons, firm or
corporation arising from, related to or connected with the Leased Premises.
Landlord shall be responsible for maintaining casualty insurance on the Leased
Premises at its own cost and expense.
6.1 Form of Insurance. The aforesaid insurance shall be issued by
companies qualified to do business in the state in which the Leased Premises are
located and shall be in form, substance an amount reasonably satisfactory to
Landlord, and shall contain standard loss payee clauses satisfactory to
Landlord. The aforesaid insurance shall not be subject to cancellation or
non-renewal by either the insurance carrier or the insured except after at least
thirty (30) days prior written notice to Landlord. Prior to the Commencement
Date, certificates of insurance shall be deposited with Landlord, naming
Landlord as additional insured.
6.2 Fire Protection. Tenant shall take no action which would result in a
violation of all applicable fire codes of any governmental authority.
6.3 Mutual Waiver of Subrogation Rights. Whenever (a) an loss, cost,
damage or expense resulting from fire, explosion or an other casualty or
occurrence is incurred by either of the parties to this Lease, or anyone
claiming by, through, or under it in connection with the Leased Premises, and
(b) such party is then covered in whole or in part by insurance with respect to
such loss, cost, damage or expense or is required under this Lease to be so
insured, then the party so insured (or so required) hereby releases the other
party from any liability said other party may have on account of such loss,
cost, damage or expense to the extent of any amount recovered by reason of such
insurance (or which could
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<PAGE> 50
have been recovered had such insurance been carried as so required) and waives
any right of subrogation which might otherwise exist in or accrue to any person
on account thereof, provided that such release of liability and waiver of the
right of subrogation shall not be operative in any case where the effect thereof
is to invalidate such insurance coverage.
VII. DAMAGE OR DESTRUCTION
If the Leased Premises are damaged or destroyed and rendered partially or
wholly untenantable for their accustomed use by fire or other casualty, the term
of this Lease shall terminate as of the date of said casualty.
VIII. CONDEMNATION
In the event that any portion of the Leased Premises is taken by any
public authority under power of eminent domain or is conveyed under threat of
such taking (or any part of the Lease Premises is so taken or conveyed which
would necessitate a reduction of square footage in the improvements on the Lease
Premises which are occupied by Tenant) , the term of this Lease shall terminate
as of the date of the taking or conveyance and the Landlord shall be entitled to
the entire condemnation award.
IX. MAINTENANCE AND ALTERATIONS
9.0 Maintenance. Tenant shall keep and maintain the improvements at any
time situated upon the Leased Premises, the entire parking area on the Leased
Premises and all sidewalks and areas adjacent thereto, safe, secure, clean and
sanitary (including without limitation, snow and ice clearance), and in
compliance in all material respects with all lawfully promulgated health, safety
and police regulations in force provided, however, that Tenant shall not be
responsible for any repair obligations in excess of $1,000 in any one instance
or $10,000 in the aggregate.
9.1 Alterations. Tenant shall make no additions, improvements or
alterations to the Leased Premises.
X. ASSIGNMENT AND SUBLETTING
Tenant will not sell, assign, mortgage, pledge or in any manner transfer
any of its interest in this Lease or sublet any portion of the Leased Premises.
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<PAGE> 51
XI. LIENS AND ENCUMBRANCES
11.0 Encumbering Title. Tenant shall not do any act which shall in any way
encumber Landlord's interest or in and to the Leased Premises, nor shall the
interest or estate of Landlord in the Leased Premises in any way become subject
to any claim by way of lien or encumbrance, whether by operation of law or by
virtue of any express or implied contract by Tenant. Any claim to, or lien upon,
the Leased Premises arising from any act or omission of Tenant other than a
claim by Landlord, shall accrue only against the leasehold estate of Tenant and
shall be subject and subordinate to the paramount title and rights of Landlord
in and to the Leased Premises.
11.1 Liens and Right to Contest. Tenant shall not permit the Leased
Premises to become subject to any mechanics', laborers', or materialmen's lien
on account of labor or material furnished to Tenant or claimed to have been
furnished to Tenant in connection with work of any character performed or
claimed to have been performed for the Leased Premises by, or at the direction
or sufferance of, Tenant; provided, however, that Tenant shall have the right to
contest, in good faith and with reasonable diligence, the validity of any such
lien or claimed lien if Tenant shall give to Landlord such security as may be
reasonably satisfactory to Landlord to assure payment thereof and to prevent any
sale, foreclosure, or forfeiture of Landlord's interest in the Lease Premises by
reason of non-payment thereof; provided further, however, that on final
determination of the lien or claim for lien, Tenant shall immediately pay any
judgment rendered, with all proper costs and charges, and shall have the lien
released and any judgment satisfied.
XII. UTILITIES
Landlord shall purchase all utility services, including without
limitation, fuel, water, sewerage and electricity, from the utility or
municipality providing such service, and shall pay for such services when such
payments are due. Tenant shall take no action that would cause the use of such
service to increase materially over recent historical levels.
XIII. INDEMNITY AND WAIVER
13.0 Tenant's Indemnity. Tenant will protect, indemnify and save harmless
Landlord, and its agents, employees, officers an directors, from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, reasonable attorneys, fees an
expenses) imposed upon or incurred by or asserted against Landlord by reason of
(a) any accident, injury to or death of persons or loss of or damage to property
occurring on or about the Leased Premises or any part thereof, or resulting from
any act or omission of Tenant or anyone claiming by, through, or under Tenant
during the Lease Term; (b) any failure on the part of Tenant to perform or
comply with any of the terms of this Lease; (c) the performance of any labor or
services or the
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<PAGE> 52
furnishing of any materials or other property in respect of the Leased Premises
or any part thereof performed by or on behalf of Tenant during the Lease Term;
or (d) claims, losses, damages, response costs, clean-up costs and expenses
arising out of or in any way relating to the introduction by Tenant of Hazardous
Materials, as defined hereinbelow, over, beneath, in or upon the Leased
Premises, including, without limitation, (i) claims of third parties (including
governmental entities) for damaged, penalties, response costs, clean-up costs,
injunctive or other relief; (ii) costs and expenses of removal and restoration
including fees and costs of attorneys and experts, and costs of reporting the
existence of Hazardous Materials to any governmental agency; and (iii) any and
all expenses or obligations, including, without limitation, reasonable
attorneys' fees and costs, witness fees, deposition costs, copying and telephone
charges and other expenses, all of which shall be paid by the Tenant when
incurred. For purposes of this Lease, the term "Hazardous Materials" shall mean
and include any hazardous, toxic or dangerous waste substance or material
defined as such in or for purposes of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 USC Section 9601, et. seq.), the
Hazardous Materials Transportation Act (49 USC Section 1802, et. seq.) and the
Resource Conservation and Recovery Act (42 USC Section 6901, et. seq.) or any
other federal, state or local statute, law, ordinance, code, rule, regulation,
order or decree regulating, relating to or imposing liability or standards of
conduct concerning any hazardous, toxic or dangerous waste, substance or
material as now or at any time hereafter in effect (collectively, the
"Environmental Laws") Landlord and Tenant agree that the obligations of Tenant
provided herein and elsewhere in this Lease shall survive expiration of the
Lease Term.
13.1 Waiver of Certain Claims. Tenant waives all claims it may have
against Landlord for damage or injury to property sustained by Tenant or any
persons claiming through Tenant or by any occupant of the Leased Premises, or by
any other person, resulting from any part of the Leased Premises or any of its
improvements, equipment or appurtenances becoming out of repair, or resulting
from any accident on or about the Leased Premises or resulting directly or
indirectly from any act of neglect of any person, including Landlord, to the
extent permitted by law. This Section 13.1 shall include, but not by way of
limitation, damage caused by water, snow, frost, steam, excessive heat or cold,
sewage, gas, odors, or noise, or caused by bursting or leaking of pipes or
plumbing fixtures, and shall apply equally whether an such damage results from
the act or neglect of Tenant or any other person, including Landlord, to the
extent permitted by law, and whether such damage be caused by or result from any
thing or circumstance above mentioned or referred to, or to any other thing or
circumstance whether of a like nature or of wholly different nature. All
personal property belonging to Tenant or any occupant of the Leased Premises
that is in or on any part of the Leased Premises shall be at the risk of Tenant
or of such other person only, and Landlord shall not be liable for any damage
thereto or for the theft or misappropriation thereof.
13.2 Landlord's Indemnity. Landlord will protect, indemnify and save
harmless Tenant and its agents, employees, officers and directors, from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including
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<PAGE> 53
without limitation, reasonable attorneys' fees and expenses) imposed upon or
incurred by or asserted against Tenant by reason of claims, losses, damages,
response costs, clean-up costs and expenses arising out of or in any way
relating to the introduction by parties other than Tenant of Hazardous
Materials, as defined herein below, over, beneath, in or upon the Leased
Premises, including, without limitation, (i) claims of third parties (including
governmental entities) for damages, penalties, response costs, clean-up costs,
injunctive or other relief; (ii) costs and expenses of removal and restoration,
including fees and costs of attorneys and experts, and costs of reporting the
existence of Hazardous Materials to any governmental agency; and (iii) any and
all expenses or obligations, including without limitation, reasonable attorneys'
fees and costs, witness fees, deposition costs, copying and telephone charges
and other expenses, all of which shall be paid by the Landlord when incurred.
For purposes of this Lease, the term "Hazardous Materials" shall mean and
include any hazardous, toxic or dangerous waste, substance or material defined
as such in or for purposes of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 USC Section 9601, et. seq.), the
Hazardous Material Transportation Act, (49 USC Section 1802, et. seq.), and the
Resource Conservation and Recovery Act (42 USC Section 6901, et. seq.) or any
other federal, state or local statute, law, ordinance, code, rule, regulation,
order or decree regulating, relating to or imposing liability or standards or
conduct concerning any hazardous, toxic or dangerous waste, substance or
material as now or at any time hereinafter in effect (collectively, the
"Environmental Laws"). Landlord and Tenant agree that the obligations of
Landlord provided herein and elsewhere in this Lease shall survive expiration of
the Lease Term.
XIV. RIGHTS RESERVED TO LANDLORD
Without limiting any other rights reserved or available to Landlord under
this Lease, at law or in equity, Landlord reserves the following rights to be
exercised at Landlord's election:
(a) To enter and/or inspect the Leased Premises and to make repairs,
remediations, additions or alterations to the Lease Premises; and
(b) To show the Leased Premises to persons having legitimate
interest in viewing the same.
(c) To use and occupy, or allow others to use and occupy, the Leased
Premises to the extent necessary to permit continued operation of,
or removal from the Leased Premises of, the so-called line tracing
business provided, however, that such use and occupancy shall not
materially affect Tenant's ability to conduct its operations in the
Leased Premises.
Landlord may enter upon the Leased Premises for any and all of said purposes and
may exercise any and all of the foregoing rights hereby reserved, so long as
such exercise does
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<PAGE> 54
not result in an significant interference in the conduct of Tenant's business,
without being deemed guilty of any eviction or disturbance of Tenant's use or
possession of the Leased Premises, and without being liable in an manner to
Tenant.
XV. QUIET ENJOYMENT
So long as Tenant is not in default under the covenants an agreements of
this Lease, Tenant's quiet and peaceable enjoyment of the Leased Premises shall
not be disturbed or interfered with by Landlord or by an person claiming by,
through or under Landlord.
XVI. SUBORDINATION OR SUPERIORITY
This Lease and Tenant's rights are and shall be subject to any mortgages
or trust deed(s) executed by Landlord against the Leased Premises and to any
amendments, modifications or renewals thereof. Tenant shall execute and deliver
within fifteen (15) days of the request of Landlord or its mortgagee such
acknowledgments or documents as may be requested from time to time in connection
with the financing of the Leased Premises including, without limitation,
subordination and attornment instruments, and estoppel certificates.
Tenant hereby consents in advance to any collateral assignment of this
Lease which Landlord elects, in its sole discretion, to execute, provided that
every such collateral assignment shall provide that the same shall not become
operative except in the event of a default under the note collateralized by this
Lease or under any mortgage securing such note.
XVII. SURRENDER
17.0 Surrender. Upon termination of this Lease, Tenant will at once
surrender and deliver up the Leased Premises, together with all improvements
thereon, to Landlord, in the same condition and repair as at commencement,
reasonable wear and tear excepted. All alterations, temporary or permanent, made
in or upon the Leased Premises by Tenant shall become Landlord's property on any
such termination an shall remain upon the Leased Premises without compensation,
allowance or credit to Tenant; provided, however, that Landlord shall have the
right to require Tenant to remove any alterations (including signage) and
restore the Leased Premises to their condition prior to the making of such
alterations, repairing any damage occasioned by such removal or restoration. If
Landlord requires removal of any alterations and Tenant does not make such
removal in accordance with this Section 17.0 at the time of such termination,
Landlord may remove the same (and repair any damage occasioned thereby), and
dispose thereof or, at its election, deliver the same to any
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<PAGE> 55
other place of business of Tenant or warehouse the same. Tenant shall pay the
costs of such removal, repair, delivery and warehousing to Landlord on demand.
17.1 Removal of Tenant's Property. Upon termination of this Lease, Tenant
shall remove Tenant's articles of personal property incidental to Tenant's
business ("Trade Fixtures"); provided, however, that Tenant shall repair any
injury or damage to the Leased Premises which may result from such removal, and
shall restore the Leased Premises to the same condition as prior to the
installation thereof. If Tenant does not remove Tenant's Trade Fixtures from the
Leased Premises, as aforesaid, Landlord may, at its option, remove the same (and
repair any damage occasioned thereby) and dispose thereof or deliver the same to
any other place of business of Tenant or warehouse the same, and Tenant shall
pay the cost of such removal, repair, delivery and warehousing to Landlord on
demand, or Landlord may treat such Trade Fixtures as having been conveyed to
Landlord with this Lease as a bill of sale, without further payment or credit by
Landlord to Tenant. Notwithstanding the foregoing, provided that no later than
20 days before the end of the term hereof (including any Option Period exercised
by Tenant), Tenant provides Landlord a list of machinery and equipment (but not
inventory) that Tenant does not intend to remove from the Leased Premises and
provided further that such list includes only machinery and equipment conveyed
pursuant to that certain Purchase and Sale Agreement dated of even date herewith
between Landlord and Tenant, Tenant shall not be required to pay the cost of
removal, repair, delivery or warehousing as contemplated in this Section 17.1.
17.2 Holding Over. Tenant shall have no right to occupy the Leased
Premises or any portion thereof after the termination of Tenant's right to
possession pursuant to Section 18.0 hereof. In the event Tenant shall continue
to occupy the Leased Premises or any portion thereof as aforesaid, Tenant shall
be liable for double Rent for said holdover period.
XVIII. REMEDIES
18.0 Defaults. Tenant agrees that any one or more of the following events
shall be considered events of default as said term is used herein:
(a) Tenant shall be adjudged an involuntary bankrupt, or a decree or
order approving, as properly filed, a petition or answer filed against
Tenant asking reorganization of Tenant under the Federal bankruptcy laws
as now or hereafter amended, or under the laws of any state, shall be
entered, and any such decree or judgment or order shall not have been
vacated or set aside within sixty (60) days from the date of the entry or
granting thereof; or
(b) Tenant shall file or admit the jurisdiction of the court and the
material allegations contained in any petition in bankruptcy or any
petition pursuant or purporting to be pursuant to the Federal bankruptcy
laws as now or hereafter amended, or Tenant shall institute any
proceedings for any relief of Tenant under any
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<PAGE> 56
bankruptcy or insolvency laws or any laws relating to the relief of
debtors, readjustment or indebtedness, reorganization, arrangements,
composition or extension; or
(c) Tenant shall make any assignment for the benefit of creditors or
shall apply for consent to the appointment of a receiver for tenant or any
of the property of Tenant; or
(d) The Leased Premises are levied upon by any revenue officer or
similar officer as the result of any act or omission of Tenant; or
(e) A decree or order appointing a receiver of all or substantially
all of the property of Tenant shall be made an such decree or order shall
not have been vacated or set aside within sixty (60) days from the date of
entry or granting thereof; or
(f) Tenant shall abandon the Leased Premises or vacate the same
during the term hereof; or
(g) Tenant shall default in any payment of rent or in an other
payment required to be made by Tenant hereunder when due and for five days
thereafter; or
(h) Tenant shall fail to contest the validity of any lien or claimed
lien and give security to Landlord to assure payment thereof, or, having
commenced to contest the same and having given such security, shall fail
to prosecute such contest wit diligence, or shall fail to have the same
released and satisfy any judgment rendered thereon, and such default
continues for ten (10) days after notice thereof in writing to Tenant; or
(i) Tenant shall default in keeping, observing or performing any of
the other covenants or agreements herein contained to be kept, observed
and performed by Tenant, and such default shall continue for ten (10) days
after notice thereof in writing to Tenant.
Upon the occurrence of any one or more of such events of default, Landlord may,
at its election, terminate this Lease or terminate Tenant's right to possession
only, without terminating the Lease. Upon termination of the Lease, or upon any
termination of the Tenant's right to possession without termination of the
Lease, the Tenant shall surrender possession and vacate the Leased Premises
immediately, and deliver possession thereof to the Landlord, an hereby grants to
the Landlord the full and free right, without demand or notice of any kind to
Tenant (except as hereinabove expressly provided for) , to enter into and upon
the Lease Premises, with or without process of law, and to repossess the Leased
Premises as the Landlord's former estate and to expel or remove the Tenant and
any others who may be occupying the Leased Premises, without being deemed in any
manner guilty
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<PAGE> 57
of trespass, eviction, or forcible entry or detainer, without incurring any
liability for any damage resulting therefrom and without relinquishing the
Landlord's rights to rent or any other right given to the Landlord hereunder or
by operation of law. Upon termination of the Lease, Landlord shall be entitled
to recover as damages all Rent and other sums due and payable by Tenant on the
date of termination, plus (1) an amount equal to the value of the rent and other
sums provided herein to be paid by Tenant for the residue of the stated term
hereof, less the fair rental value of the Leased Premises for the residue of the
stated term (taking into account the time and expenses necessary to obtain a
replacement tenant or tenants, including expenses hereinafter described relating
to recovery of the Leased Premises, preparation for reletting and for reletting
itself) and (2) the cost of performing any other covenants to be performed by
the Tenant. If the Landlord elects to terminate the Tenant's right to possession
only without terminating the Lease, the Landlord may, at the Landlord's option,
enter into the Leased Premises, remove the Tenant's signs, if any, and other
evidences of tenancy, and take and hold possession thereof as hereinabove
provided, without such entry and possession terminating the Lease or releasing
the Tenant, in whole or in part, from the Tenant's obligations to pay the rent
hereunder for the full term or from any other of its obligations under this
Lease. Landlord may, but (except as required by statute) shall be under no
obligation so to do, relet all or any part of the Leased Premises for such rent
and upon such terms as shall be satisfactory to Landlord (including the right to
relet the Leased Premises as part of a larger area and the right to change the
character or use made of the Leased Premises). For the purpose of such
reletting, Landlord may decorate or make any repairs, changes, alterations or
additions in or to the Leased Premises that may be necessary or convenient, All
expenses of decorating, changing, altering an adding to the Leased Premises
shall be borne solely by Landlord. If Landlord does not relet the Leased
Premises, Tenant shall pay to Landlord on demand damages equal to the amount of
the rent an other sums provided herein to be paid by Tenant for the remainder of
the Lease Term as the same shall become due and payable. If the Leased Premises
are relet and a sufficient sum shall not be realized from such reletting after
paying all of the expenses of such reletting and the collection of the rent
accruing therefrom (including, but not by way of limitation, reasonable
attorneys' fees and brokers, commissions), to satisfy the rent and other charges
herein provided to be paid for the remainder of the Lease Term, Tenant shall pay
to Landlord on demand any deficiency as the same shall become due and payable.
Tenant agrees that Landlord may file suit to recover any sums falling due under
the terms of this Section 18.0 from time to time. Tenant shall pay all costs and
expenses, including attorneys, fees and costs, incurred by Landlord in
recovering such sums due hereunder.
18.1 Remedies Cumulative. No remedy herein or otherwise conferred upon or
reserved to Landlord shall be considered to exclude or suspend any other remedy
but the same shall be cumulative and shall be in addition to every other remedy
given hereunder, or now or hereafter existing at law or in equity or by statute,
and every power and remedy given by this Lease to Landlord may be exercised from
time to time and so often as occasion may arise or as may be deemed expedient.
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<PAGE> 58
18.2 No Waiver. No delay or omission of either party to exercise any right
or power arising from any default shall impair any such right or power or be
construed to be a waiver of any such default or any acquiescence therein. No
waiver of any breach of any of the covenants of this Lease shall be construed,
taken or held to be a waiver of any other breach, or as a waiver, acquiescence
in or consent to any further or succeeding breach of the same covenant. The
acceptance by Landlord of any payment of rent or other sums due hereunder after
the termination by Landlord of this Lease or of Tenant's right to possession
hereunder shall not, in the absence of agreement in writing to the contrary by
Landlord, be deemed to restore this Lease or Tenant's rights hereunder, as the
case may be, but shall be construed as a payment on account, and not in
satisfaction of damages due from Tenant to Landlord.
XIX. MISCELLANEOUS
19.0 Right to Cure. Following any notice of default to Tenant and
opportunity for cure provided by Article XVIII, Landlord may, but shall not be
obligated to, cure any default by Tenant (specifically including, but not by way
of limitation, Tenant' failure to obtain insurance, make repairs, or satisfy
lien claims) ; and whenever Landlord so elects, all costs and expenses paid by
it in curing such default, including, without limitation, reasonable attorneys'
fees and costs, shall be so much Additional Rent due on the next rent date after
such payment, together with interest at the rate of ten percent (10%) per annum,
or such lesser rate equal to the maximum rate of interest permitted by law, from
the date of the advance to the date of repayment.
19.1 Amendments Must Be in Writing. None of the covenants, terms or
conditions of this Lease to be kept and performed by either party, shall in any
manner be altered, waived, modified, changed or abandoned except by a written
instrument, duly signed and delivered by the other part.
19.2 Notices. All notices to or demands upon Landlord or Tenant desired or
required to be given under any of the provisions hereof shall be in writing. Any
notices or demands from Landlord to Tenant shall be deemed to have been duly and
sufficiently give if delivered personally or mailed by United States certified
mail in an envelope properly stamped and addressed to Tenant at Tenant's Address
or at such other address as Tenant may heretofore have designated by written
notice to Landlord, and any notices or demands from Tenant to Landlord shall be
deemed to have been duly and sufficiently given if delivered personally or
mailed by United States certified mail in an envelope properly stamped and
addressed to Landlord at Landlord's Address, or at such other address or to such
other agent as Landlord may heretofore have designated by written notice to
Tenant, with a copy to any first mortgagee of the Leased Premises, the identity
and address of which Tenant shall have received written notice. The effective
date of any notice shall be the date of personal delivery or, in the case of
mailing, one (1) day after delivery of the same to the United States Postal
Service.
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<PAGE> 59
19.3 Short Form Lease. Tenant shall neither record this Lease nor record a
memorandum hereof without the Landlord's prior written consent. If Landlord
requests, the parties shall execute and acknowledge a short form of Lease for
recording purposes at Landlord's expense.
19.4 Time of Essence. Time is of the essence of this Lease and all
provisions herein relating thereto shall be strictly construed.
19.5 Relationship of Parties. Nothing contained herein shall be deemed or
construed by the parties hereto, or by any third party, as creating the
relationship of principal and agent or of partnership, or of joint venture, by
the parties hereto, it being understood and agreed that no provision contained
in this Lease nor any acts of the parties hereto shall be deemed to create an
relationship other than the relationship of Landlord and Tenant.
19.6 Captions. The captions of this Lease are for convenience only and are
not to be construed as part of this Lease and shall not be construed as defining
or limiting in any way the scope or intent of the provisions hereof.
19.7 Severability. If any term or provision of this Lease shall to any
extent be held invalid or unenforceable, the remaining terms and provisions of
this Lease shall not be affected thereby, but each term and provision of this
Lease shall be valid and shall be enforced to the fullest extent permitted by
law.
19.8 Law Applicable. This Lease shall be construed an enforced in
accordance with the laws of the State in which the Leased Premises are located.
19.9 Covenants Binding on Successors. All of the covenants, agreements,
conditions and undertakings contained in this Lease shall extend and inure to
and be binding upon the permitted heirs, executors, administrators, successors
and assigns of the respective parties hereto.
19.10 Brokerage. Landlord and Tenant warrant to the other that neither of
them has had any dealings with any broker or agent in connection with the
transactions contemplated hereby. Landlord and Tenant covenant to pay, hold
harmless and indemnify the other from and against any and all costs, expenses or
liability for any compensation, commissions and charges claimed by any broker or
agent with respect to the transactions contemplated hereby or the negotiation
thereof and arising by virtue of the acts of the indemnifying party.
19.11 Landlord's Expenses. Tenant agrees to pay on demand Landlord's
expenses, including, without limitation, reasonable attorneys' fees an costs,
incurred either directly or indirectly in enforcing any obligation of Tenant
under this Lease or, in curing any default by Tenant hereunder.
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<PAGE> 60
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
LANDLORD:
STEWART WARNER CORPORATION
By:
----------------------------------
Its:__________________________________
TENANT
STEWART WARNER ELECTRONICS CO.
By: /s/ [Illegible] SECY.
----------------------------------
Its:__________________________________
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<PAGE> 61
[Letterhead of BTR]
July 28, 1995
Herley Industries, Inc.
10 Industry Drive
Lancaster, PA 17603-4092
Gentlemen:
I am Assistant General Counsel of BTR Inc., a company under common control
with Stewart Warner Electronics Corporation, a Delaware Corporation ("Seller").
I have represented Seller in connection with the preparation, execution and
delivery of, and the consummation of the transactions contemplated by, the
Purchase and Sale Agreement dated July 28, 1995 (the "Agreement") by and between
Seller and Stewart Warner Electronics Co., a Pennsylvania corporation ("Buyer"),
pursuant to which Seller has agreed to sell, and Buyer has agreed to purchase,
certain assets and the business of Seller on the terms and conditions described
therein. Capitalized terms used herein but not otherwise defined herein shall
have the respective meanings assigned to such terms in the Agreement.
In connection with such representation, I have examined the Agreement and
have reviewed the corporate proceedings taken by Seller in connection with the
authorization, execution and delivery of the Agreement. I have also examined
originals, or copies certified to my satisfaction, of such corporate records of
Seller and other instruments, certificates of public officials and such other
documents as I have deemed necessary as a basis for the opinions hereinafter
expressed. In such examination, I have assumed the genuineness of all
signatures, the authenticity of all documents submitted to me as originals and
the conformity with the originals of all documents submitted to me as copies. As
to questions of fact material to this opinion, I have, when relevant facts were
not independently established, relied upon certificates of officers of Seller
and the representations and warranties of Seller contained in the Agreement.
On the basis of the foregoing, and having regard for such legal
considerations I deem relevant, I am of the opinion that:
(a) Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of Delaware and has all requisite corporate power
to own, lease and operate its property and carry on its business as it is now
being conducted.
<PAGE> 62
July 28, 1995
Page 2
(b) Seller has all requisite corporate power and authority to execute and
deliver the Agreement to which it is a party and to consummate the transactions
contemplated thereby. The execution and delivery of the Agreement and the
consummation of the transactions contemplated thereby have been duly authorized
and approved by all necessary and proper corporate action of Seller. The
Agreement constitutes the legal, valid and binding obligation of Seller,
enforceable against each of them in accordance with its terms, except as such
enforceability may be limited by:
(i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the enforcement of creditors' rights
in general;
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law);
(iii) applicable limitation periods;
(iv) applicable laws limiting the enforcement of any non-competition
and non-solicitation covenants and rights of indemnity and/or
contribution;
(v) applicable bulk sales laws; and
(vi) applicable laws or provisions in the Contracts prohibiting
assignment of the Contracts.
(c) Neither the execution and delivery of the Agreement by Seller, nor the
consummation by Seller of the transactions contemplated thereby, will conflict
with, result in a breach of or constitute a default under the Certificate of
Incorporation or By-Laws.
I express no opinion herein as to any laws other than the laws of the
General Corporation Law of the State of Delaware and the Federal laws of the
United States.
Very truly yours,
/s/ Peter M. Kent
Peter M. Kent
Assistant General Counsel
<PAGE> 63
[Letterhead of BTR]
July 28, 1995
Herley Industries, Inc.
10 Industry Drive
Lancaster, PA 17603-4092
Gentlemen:
I am Assistant General Counsel of BTR Inc., a company under common control
with Stewart Warner Electronics Corporation, a Delaware Corporation ("Seller").
I have represented Seller in connection with the preparation, execution and
delivery of, and the consummation of the transactions contemplated by, the
Purchase and Sale Agreement dated July 28, 1995 (the "Agreement") by and between
Seller and Stewart Warner Electronics Co., a Pennsylvania corporation ("Buyer"),
pursuant to which Seller has agreed to sell, and Buyer has agreed to purchase,
certain assets and the business of Seller on the terms and conditions described
therein. Capitalized terms used herein but not otherwise defined herein shall
have the respective meanings assigned to such terms in the Agreement.
In connection with such representation, I have examined the Agreement and
have reviewed the corporate proceedings taken by Seller in connection with the
authorization, execution and delivery of the Agreement. I have also examined
originals, or copies certified to my satisfaction, of such corporate records of
Seller and other instruments, certificates of public officials and such other
documents as I have deemed necessary as a basis for the opinions hereinafter
expressed. In such examination, I have assumed the genuineness of all
signatures, the authenticity of all documents submitted to me as originals and
the conformity with the originals of all documents submitted to me as copies. As
to questions of fact material to this opinion, I have, when relevant facts were
not independently established, relied upon certificates of officers of Seller
and the representations and warranties of Seller contained in the Agreement.
On the basis of the foregoing, and having regard for such legal
considerations I deem relevant, I am of the opinion that:
(a) Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of Delaware and has all requisite corporate power
to own, lease and operate its property and carry on its business as it is now
being conducted.
<PAGE> 64
July 28, 1995
Page 2
(b) Seller has all requisite corporate power and authority to execute and
deliver the Agreement to which it is a party and to consummate the transactions
contemplated thereby. The execution and delivery of the Agreement and the
consummation of the transactions contemplated thereby have been duly authorized
and approved by all necessary and proper corporate action of Seller. The
Agreement constitutes the legal, valid and binding obligation of Seller,
enforceable against each of them in accordance with its terms, except as such
enforceability may be limited by:
(i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the enforcement of creditors' rights
in general;
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law);
(iii) applicable limitation periods;
(iv) applicable laws limiting the enforcement of any non-competition
and non-solicitation covenants and rights of indemnity and/or
contribution;
(v) applicable bulk sales laws; and
(vi) applicable laws or provisions in the Contracts prohibiting
assignment of the Contracts.
(c) Neither the execution and delivery of the Agreement by Seller, nor the
consummation by Seller of the transactions contemplated thereby, will conflict
with, result in a breach of or constitute a default under the Certificate of
Incorporation or By-Laws.
I express no opinion herein as to any laws other than the laws of the
General Corporation Law of the State of Delaware and the Federal laws of the
United States.
Very truly yours,
/s/ Peter M. Kent
Peter M. Kent
Assistant General Counsel
PMK/tr
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 1st day of November 1997, by and between HERLEY
INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Company"), and
LEE N. BLATT, residing at 471 North Arrowhead Trail Vero Beach, Fl 32963,
(hereinafter called the "Employee").
WITNESSETH
WHEREAS, the Employee was initially employed by the Company under an
Employment Agreement, dated June 11, 1984, as amended, which agreement was
superseded by a second Employment Agreement between Employee and the Company,
dated January 1, 1997; and the Company desires to enter into a new employment
agreement with Employee which agreement shall supersede both prior employment
agreements; and,
WHEREAS, Employee desires to enter into the new employment agreement with
the Company;
NOW THEREFORE, it is agreed as follows:
1. PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes any
employment agreements, oral or written, entered into between
Employee and the Company prior to the date of this Agreement
including, but not limited to, the Employment Agreements between the
Employee and the Company, dated June 11, 1984, as amended, and
January 1, 1997, respectively.
2. RETENTION OF SERVICES. The Company hereby retains the services of
Employee, and Employee agrees to furnish such services, upon the
terms and conditions hereinafter set forth.
3. TERM. Subject to earlier termination on the terms and conditions
hereinafter provided, the term of this Agreement shall be comprised
of a three (3) year period of employment commencing November 1, 1997
and ending October 31, 2000.
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Lee N. Blatt Employment Agreement 1997 - Page 1 of 7 -
<PAGE> 2
4. DUTIES AND EXTENT OF SERVICES DURING PERIOD OF EMPLOYMENT. During
the period of employment, Employee shall be employed as a Senior
Executive of the Company. In such capacity, Employee agrees that he
shall serve the Company under the direction of the Board of
Directors of the Company to the best of his ability, shall perform
all duties incident to his offices on behalf of the Company, and
shall perform such other duties as may from time to time be assigned
to him by the Board of Directors of the Company. Employee shall also
serve in similar capacities of such of the subsidiary corporations
of the Company as may be selected by the Board of Directors and
shall be entitled to such additional compensation therefore as may
be determined by the Board of Directors of the Company.
Notwithstanding the foregoing, it is understood and agreed that the
duties of Employee during the period of employment shall not be
inconsistent with (i) his position and title as Senior Executive of
the Company; or (ii) with those duties ordinarily performed by a
comparable executive officer.
5. REMUNERATION. During the period of employment, Employee shall be
entitled to receive the following compensation for his services:
(i) The Company shall pay to Employee an annual salary at the rate
of THREE HUNDRED SEVENTY-FIVE THOUSAND ($375,000) DOLLARS
commencing November 1, 1997, payable in weekly installments,
or in such other manner as shall be agreeable to the Company
and Employee.
(ii) In addition to his salary set forth in Paragraph 5(i) above,
Employee shall receive an increment in an amount equal to the
cumulative cost of living on his base salary 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 year for computation. Such cost of living increment with
respect to the aforesaid salary of Employee shall be made
semi-annually as follows:
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Lee N. Blatt Employment Agreement 1997 - Page 2 of 7 -
<PAGE> 3
(A) With respect to the first six months of each calendar
year during the period of employment, such increment
shall be calculated and payable cumulatively 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 cumulatively on or
before the first day of February of the following
calendar year.
If Employee's employment shall terminate during any six-month period
referred to in this Paragraph 5 (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 and each subsequent fiscal year of the
Company ending during the period of employment, the Company shall
pay to Employee, as incentive compensation an amount equal to five
(5%) 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 purposes 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 Statements for the
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Lee N. Blatt Employment Agreement 1997 - Page 3 of 7 -
<PAGE> 4
beginning of such fiscal year, plus (y) the proceeds from the sale 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.
6. EMPLOYEE BENEFITS - EXPENSES
a) During the term of this agreement, the Company shall provide,
at its expense $40,000 annually to purchase life insurance,
with Employee having the right to designate the insurer, owner
and beneficiary of such life insurance.
b) In the event of the death of Employee, within 30 days
thereafter the Company shall promptly make a lump sum payment
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, of the salary and compensation
to which Employee is entitled hereunder for the three year
period from date of death and one-half of such salary for the
balance of the period covered by this Agreement, (provided
that no payment shall be required for any period beyond
October 31, 2000), and in the year of death an additional
payment equal to the pro rata amount for said year of the
compensation set forth in paragraph 5 (iii), the Company's
contribution to the 401(k), and the pro-rata cost of living
increment, which additional payment shall be made in
accordance with paragraph 5 (ii).
c) Employee shall be eligible to participate in the Company's
stock option and stock purchase plans and to acquire warrants
to purchase the Company's stock, to the extent determined in
the sole discretion of the Compensation Committee of the
Company's Board of Directors.
d) During the period of employment, Employee shall be furnished
with office space and facilities commensurate with his
position and adequate for the performance of his duties; he
shall be provided with the perquisites customarily associated
with the position of a Senior Executive of the Company; and he
shall be entitled to six weeks regular vacation during each
year.
e) It is contemplated that, during the period of employment,
Employee may be
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Lee N. Blatt Employment Agreement 1997 - Page 4 of 7 -
<PAGE> 5
required to incur out-of-pocket expenses in connection with
the performance of his services hereunder, including expenses
incurred for travel and business entertainment. Accordingly,
the Company shall pay, or reimburse Employee, for all
out-of-pocket expenses reasonably incurred by Employee in the
performance of his duties hereunder in accordance with the
usual procedures of the Company. Notwithstanding the
foregoing, the recognition that Employee will be required
during the term of this Agreement to do a considerable amount
of driving in connection with his services hereunder, the
Company shall provide Employee with the use of a suitable
automobile and all expenses incidental throughout the term of
this Agreement, including fuel, repairs, maintenance and
insurance.
f) All benefits to Employee specially provided for herein shall
be in addition to, and shall not diminish, (i) such other
benefits and/or compensation as may hereafter be granted to or
afforded to Employee by the Board of Directors of the Company;
and (ii) any rights which Employee may have or may acquire
under any hospitalization, life insurance, pension,
profit-sharing, incentive compensation or other present or
future employee benefit plan or plans of the Company
g) Employee currently works from offices in Lancaster,
Pennsylvania and from his homes where he has created work
space and his responsibilities do not require regular
attendance at any Company office. These responsibilities
include, among other things, conducting executive recruiting
tasks and visiting customers, investment banks and potential
acquisition candidates in the best interests of the Company.
In recognition of these special employment conditions,
disability for Employee shall occur if he becomes unable, for
twelve consecutive months or more, due to ill health or other
incapacity to perform the services described above. In that
event, the Company may thereafter, upon at least 90 days
written notice to employee, place him on disability status and
terminate this agreement. If employee is so determined by the
Company as disabled, he shall be entitled to his annual
compensation as set forth in paragraph 5 (i) and 5 (ii) hereof
payable in weekly installments for the first two years after
notice of disability (provided that no payment shall be
required for any period beyond October 31, 2000) and
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Lee N. Blatt Employment Agreement 1997 - Page 5 of 7 -
<PAGE> 6
thereafter one-half of such compensation payable in weekly
installments for the balance of the period covered by this
agreement.
7. NON-COMPETITION. Employee agrees that, during term of this
Agreement, he will not, without the prior written approval of the
Board of Directors of the Company, directly or indirectly through
any other individual or entity,(a) become an officer or employee of,
or render any services to, any competitor of the Company, (b)
solicit, raid, entice or induce any customer of the Company to cease
purchasing goods or services from the Company or to become a
customer of any competitor of the Company, and Employee will not
approach any customer for any such purpose or authorize the taking
of any such actions by any other individual or entity, or (c)
solicit, raid, entice or induce any employee of the Company to
become employed by any competitor of the Company, and Employee will
not approach any such employee for any such purpose or authorize the
taking of any such action by any other individual or entity.
However, nothing contained in this paragraph 7 shall be construed as
preventing Employee from investing his assets in such form or manner
as will not require him to become an officer or employee of, or
render any services (including consulting services) to, any
competitor of the Company.
8. TERMINATION FOR CAUSE.
a) The Company has been intimately familiar with the ability,
competence and judgment of Employee, which are acknowledged to
be of the highest caliber. Accordingly, the Company and
Employee agree that Employee's services hereunder may be
terminated by the Company only (i) for an act of moral
turpitude materially adversely affecting the financial
condition of the Company, or (ii) breach of the terms of this
Agreement which shall materially adversely affect the
financial condition of the Company.
b) If the Company terminates Employee's employment hereunder for
any reason other than as set forth in paragraph 8 (a) hereof,
Employee's compensation shall continue to be paid to him as
provided in paragraph 5 hereunder for the remainder of the
term of this Agreement. Employee shall have no duty to
mitigate the
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Lee N. Blatt Employment Agreement 1997 - Page 6 of 7 -
<PAGE> 7
Company's damages hereunder. Therefore, no deduction shall be
made by the Company for any compensation earned by Employee
from other employment or for monies or property otherwise
received by Employee subsequent to such termination of his
employment hereunder. Employee and the Company acknowledge
that the foregoing provisions of this paragraph 8(b) are
reasonable and are based upon the facts and circumstances of
the parties at the time of entering into this Agreement, and
with due regard to future expectations.
9. CONSOLIDATION OR MERGER. In the event of any consolidation or 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.
10. INDEMNIFICATION. The Company agrees to indemnify the Employee to the
fullest extent permitted by applicable law consistent with the
Company's Certification of Incorporation and By-Laws as in effect on
the effective date of this Agreement with respect to any action or
failure to act on his part while he was an officer, director and/or
employee (a) of the Company or any subsidiary thereof or (b) of any
other entity if his service with such entity was at the request of
the Company. This provision shall survive the termination of this
Agreement.
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 herein below set forth or to such addresses
as may be hereinafter furnished, in writing:
TO: Lee N. Blatt
471 North Arrowhead Trail
Vero Beach, FL 32963
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Lee N. Blatt Employment Agreement 1997 - Page 7 of 7 -
<PAGE> 8
TO: HERLEY INDUSTRIES, INC.
10 Industry Drive
Lancaster, PA 17603
Attention: Myron Levy, President
12. 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 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 purposes 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 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 Agreement, individuals who at the beginning of
such period 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.
13. SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and
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
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Lee N. Blatt Employment Agreement 1997 - Page 8 of 7 -
<PAGE> 9
Agreement shall be binding upon and inure to the benefits 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
Directors of the company.
14. AMENDMENTS. This agreement may not be altered, modified, amended or
terminated except by a written instrument signed by each of the
parties hereto.
15. GOVERNING LAW. This agreement shall be governed by and construed and
interpreted in accordance with the laws of Delaware, without
reference to principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
HERLEY INDUSTRIES, INC.
BY: ______________________________
MYRON LEVY, President
BY: ______________________________
LEE N BLATT, Employee
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Lee N. Blatt Employment Agreement 1997 - Page 9 of 7 -
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 1st day of November 1997, by and between HERLEY
INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Company"), and
MYRON LEVY residing at 147 Deer Ford Drive, Lancaster PENNSYLVANIA 17603
(hereinafter called the "Employee").
WITNESSETH
WHEREAS, the Employee has been employed by the Company under an Employment
Agreement, dated October 3, 1988, as amended, which agreement was superseded by
a second Employment Agreement between Employee and Company, dated January 1,
1997; and the Company desires to enter into a new employment agreement with
Employee which agreement shall supersede both prior employment agreements; and,
WHEREAS, Employee desires to enter into the new employment agreement with
the Company;
NOW THEREFORE, it is agreed as follows:
1. PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes any employment
agreements, oral or written, entered into between Employee and the Company prior
to the date of this Agreement, including, but not limited to, the Employment
Agreements between the Employee and the Company, dated October 3, 1988, as
amended and January 1, 1997, respectively.
2. RETENTION OF SERVICES. The Company hereby retains the services of
Employee, and Employee agrees to furnish such services, upon the terms and
conditions hereinafter set forth.
3. TERM. Subject to earlier termination on the terms and conditions
hereinafter provided, the term of the Agreement shall be comprised of a five (5)
year period commencing on November 1, 1997 and ending on October 31, 2002 and a
"consulting period" commencing at
<PAGE> 2
the end of such five year period and continuing for a period of five (5) years.
4. DUTIES AND EXTENT OF SERVICES DURING PERIOD OF EMPLOYMENT
(a) During the five year 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 from time to time
be assigned to him by the Chief Executive Officer of the
Company.
(b) Effective with the termination of the five year 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 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
Employees 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,
2
<PAGE> 3
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.
5. REMUNERATION
(a) During the five year period of active employment,
Employee shall be entitled to receive the following
compensation for his services:
(i) The Company shall pay to Employee an annual salary
at the rate of TWO HUNDRED SEVENTY-FIVE THOUSAND
($275,000) DOLLARS commencing November 1, 1997 and
terminating October 31, 2002, payable in weekly
installments, or in such other manner as shall be
agreeable to the Company and Employee.
(ii) In addition to his salary set forth in Paragraph
5(i) above, Employee shall receive an increment in
an amount equal to the cumulative cost of living
on his base salary 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 year 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 employment, such increment shall be
calculated and payable cumulatively 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 cumulatively on or before the first day
of February of the following calendar year.
3
<PAGE> 4
If Employee's employment shall terminate during any six-month period
referred to in this Paragraph 5 (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 and each
subsequent fiscal year of the Company ending
during the five year period of employment, the
Company shall pay to Employee, as incentive
compensation four (4%) 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
purposes 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 Statements for the beginning of such
fiscal year, plus (y) the proceeds from the sale
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.
4
<PAGE> 5
(b) During the consulting period, Employee shall be entitled to a
consulting fee at the rate of SIXTY THOUSAND ($60,000) dollars
per annum, paid on a monthly basis.
6. 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) 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 or the Board of Directors of the Company.
c) Employee shall be eligible to participate in the Company's
stock option and stock purchase plans and to acquire warrants
to purchase the Company's stock to the extent determined in
the sole discretion of the Board of Directors of the Company
or a committee thereof.
d) During the five year period of employment, Employee shall be
furnished with office space and facilities commensurate with
his position and adequate for the performance of his duties;
he shall be provided with the perquisites customarily
associated with the position of a Senior Executive of the
Company; and he shall be entitled to six weeks regular
vacation during each year.
e) In the event of the death of Employee, within 30 days
thereafter the Company shall promptly make a lump sum payment
to Employee's widow, or to such other person or persons as may
be designated by Employee in his Will, or to
5
<PAGE> 6
his estate in the event of Employee's intestacy, of the salary
and compensation to which Employee is entitled hereunder for
the two year period from date of death and one-half of such
salary for the balance of the period covered by this Agreement
(provided that no payment shall be required for any period
beyond October 31, 2002), and in the year of death an
additional payment equal to the pro rata amount for said year
of the compensation set forth in paragraph 5 (iii), the
Company's contribution to the 401(k), and the pro-rata cost of
living increment, which additional payment shall be made in
accordance with paragraph 5 (ii).
f) Disability for Employee shall occur if he becomes unable, for
twelve consecutive months or more, due to ill health or other
incapacity to perform the services described above. In that
event, the Company may thereafter, upon at least 90 days
written notice to employee, place him on disability status and
terminate this agreement. If employee is so determined by the
Company as disabled, he shall be entitled to his annual
compensation as set forth in paragraph 5 (i) and 5 (ii) hereof
payable in weekly installments for the first two years after
notice of disability and thereafter one-half of such
compensation (provided that no payment shall be required for
any period beyond October 31, 2002), payable in weekly
installments for the balance of the period covered by this
agreement.
7. NON-COMPETITION. Employee agrees that, during term of this
Agreement, he will not, without the prior written approval of the
Board of Directors of the Company, directly or indirectly through
any other individual or entity,(a) become an officer or employee of,
or render any services to, any competitor of the Company, (b)
solicit, raid, entice or induce any customer of the Company to cease
purchasing goods or services from the Company or to become a
customer of any competitor of the Company, and Employee will not
approach any customer for any such purpose or authorize the taking
of any such actions by any other individual or entity, or (c)
solicit, raid, entice or induce any
6
<PAGE> 7
employee of the Company to become employed by any competitor of the
Company, and Employee will not approach any such employee for any
such purpose or authorize the taking of any such action by any other
individual or entity. However, nothing contained in this paragraph 7
shall be construed as preventing Employee from investing his assets
in such form or manner as will not require him to become an officer
or employee of, or render any services (including consulting
services) to, any competitor of the Company.
8. TERMINATION FOR CAUSE.
a) The Company has been intimately familiar with the ability,
competence and judgment of Employee, which are acknowledged to
be of the highest caliber. Accordingly, the Company and
Employee agree that Employee's services hereunder may be
terminated by the Company only (i) for an act of moral
turpitude materially adversely affecting the financial
condition of the Company, or (ii) breach of the terms of this
Agreement which shall materially adversely affect the
financial condition of the Company.
b) If the Company terminates Employee's employment hereunder for
any reason other than as set forth in paragraph 8 (a) hereof,
Employee's compensation shall continue to be paid to him as
provided in paragraph 5 hereunder for the remainder of the
term of this Agreement. Employee shall have no duty to
mitigate the Company's damages hereunder. Therefore, no
deduction shall be made by the Company for any compensation
earned by Employee from other employment or for monies or
property otherwise received by Employee subsequent to such
termination of his employment hereunder. Employee and the
Company acknowledge that the foregoing provisions of this
paragraph 8(b) are reasonable and are based upon the facts and
circumstances of the parties at the time of entering into this
Agreement, and with due regard to future expectations.
9. CONSOLIDATION OR MERGER. In the event of any consolidation or merger
of the Company into or with any other corporation during the term of
this Agreement, or the
7
<PAGE> 8
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.
10. INDEMNIFICATION. The Company agrees to indemnify the Employee to the
fullest extent permitted by applicable law consistent with the
Company's Certification of Incorporation and By-Laws as in effect on
the effective date of this Agreement with respect to any action or
failure to act on his part while he was an officer, director and/or
employee (a) of the Company or any subsidiary thereof or (b) of any
other entity if his service with such entity was at the request of
the Company. This provision shall survive the termination of this
Agreement.
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 herein below set forth or to such addresses
as may be hereinafter furnished, in writing:
TO: Myron Levy
147 Deer Ford Drive
Lancaster, PA 17601
TO: HERLEY INDUSTRIES, INC.
10 Industry Drive
Lancaster, PA 17603
Attention: Lee N. Blatt, Chairman
12. 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 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
8
<PAGE> 9
Revenue Code of 1986, as amended (hereinafter "the Code"), reduced
by (ii) $100.00.
For purposes 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 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 Agreement, individuals who at the beginning of
such period 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.
13. SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and
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 benefits 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
Directors of the company.
9
<PAGE> 10
14. AMENDMENTS. This agreement may not be altered, modified, amended or
terminated except by a written instrument signed by each of the
parties hereto.
15. GOVERNING LAW. This agreement shall be governed by and construed and
interpreted in accordance with the laws of Delaware, without
reference to principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
HERLEY INDUSTRIES, INC.
BY: ______________________________
Lee Blatt, Chairman and CEO
BY: ______________________________
Myron Levy, Employee
10
<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
<PAGE> 2
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 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 four year period commencing on November 1, 1997 and ending on
October 31, 2001 and a "consulting period" commencing at the end of such four
year period and continuing thereafter for a period of nine years.
(b) During the four year 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 four year 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
2
<PAGE> 3
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 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 four year 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 full four year 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.
3
<PAGE> 4
(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 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 four year period
of active employment, the Company shall also pay to Employee, as incentive
compensation, three (3%) percent of the Consolidated Pretax
4
<PAGE> 5
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 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,
5
<PAGE> 6
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 four year 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 four year period covered by his active employment (provided that no
payment shall be required for any period beyond October 31, 2001), 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 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
6
<PAGE> 7
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,
trademark or copyright hereinafter developed by Employee, Employee shall
promptly notify the
7
<PAGE> 8
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
8
<PAGE> 9
Agreement.
10. CONSOLIDATION OR MERGER. In the event of any consolidation or 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: HERELY 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
9
<PAGE> 10
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 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
10
<PAGE> 11
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.
HERELY INDUSTRIES, INC.
By:____________________________
LEE. N. BLATT
Chairman
_______________________________
GERALD I. KLEIN
Employee
11
<PAGE> 1
Exhibit 10.7
June 11, 1997
Mr. Allan Coon
5 Kiowa Road
Salem, NY 03079
Dear Al:
You are a valued employee of our Company and have earned the Vice Presidency to
which you were appointed on December 13, 1995 by the Herley Board of Directors.
In consideration of your efforts on behalf of our Company, we are pleased to
offer the following Severance Agreement, which will be ratified by the Board of
Directors at its next meeting:
1. If your employment is terminated at any time within two years from this
date for reasons other than as stated in Paragraph 3 below, you will
receive a lump-sum payment equivalent to two years base pay.
2. If your employment is terminated after two years, but less than five years
from this date, for reasons other than stated in Paragraph 3 below, you
will receive a lump sum payment equivalent to one year base pay.
3. If your employment is terminated for cause, which shall be for the
commission of an act of moral turpitude materially adversely affecting the
financial condition of the Company or a breach of your fiduciary
responsibilities as an officer of the Company, which shall materially
adversely affect the financial condition of the Company, the Company will
be under no obligation to, nor will the Company make any payments under
this severance agreement.
Sincerely,
HERLEY INDUSTRIES, INC.
Myron Levy
President
ML/mmg
cc: L. Blatt
<PAGE> 1
Exhibit 10.12
These securities may not be publicly offered or sold unless at the time of such
offer or sale, the person making such offer of sale delivers a prospectus
meeting the requirements of the Securities Act of 1933 forming a part of a
registration statement, or post-effective amendment thereto, which is effective
under said act, or unless in the opinion of counsel to the Corporation, such
offer and sale is exempt from the provisions of Section 5 of said Act.
WARRANT
For the Purchase of Common Stock, Par Value $.1O per Share of
HERLEY INDUSTRIES, INC.
(Incorporated under the Laws of the State of Delaware)
VOID AFTER 5 P.M. ____________
No. ____
Warrant to Purchase
_____ Shares
THIS IS TO CERTIFY that, for value received, __________ is entitled,
subject to the terms and conditions set forth, at or before 5 P.M., New York
City Time, on ______________ , but not thereafter, to purchase the number of
shares set forth above of Common Stock, par value $.10 per shares (the "Common
Stock"), of HERLEY INDUSTRIES, INC., a Delaware corporation (the "Corporation"),
from the Corporation at a purchase price per share of $______ if and to the
extent this Warrant is exercised, in whole or in part, during the period this
Warrant remains in force, subject in all cases to adjustment as provided in
Section 3 hereof, and to receive a certificate or certificates representing the
shares of Common Stock so purchased, upon presentation and surrender to the
Corporation of this Warrant, with the form of
<PAGE> 2
subscription attached hereto duly executed, and accompanied by payment of the
purchase price of each share purchased either in cash or by certified or bank
cashier's check payable to the order of the Corporation.
1. The Corporation covenants and agrees that all shares may be
delivered upon the exercise of this Warrant and will, upon delivery, be fully
paid and non-assessable, and, without limiting the generality of the foregoing,
the Corporation covenants and agrees that it will from time to time take all
such action as may be requisite to assure that the par value per share of the
Common Stock is at all times equal to or less than the then current Warrant
purchase price per share of the Common Stock issuable upon exercise of this
Warrant.
2. The rights represented by this Warrant are exercisable at the
option of the holder hereof in whole at any time, or in part from time to time,
within the period above specified at the prices specified in Section 1 hereof .
In case of the purchase of less than all the shares as to which this Warrant is
exercisable, the Corporation shall cancel this Warrant upon the surrender hereof
and shall execute and deliver a new Warrant of like tenor for the balance of the
shares purchasable hereunder.
3. The price per share at which shares of Common Stock may be
purchased hereunder, and the number of such shares to be purchased upon exercise
hereof, are subject to change or adjustment as follows:
(A) In case the Corporation shall, while this Warrant remains
unexercised, in whole or in part, and in force, effect a
recapitalization of such character that the shares of Common Stock
purchasable hereunder shall be changed into or become exchangeable
for a larger or smaller number of shares, then, after the date of
record for effecting such recapitalization, the number of shares of
Common Stock which the holder hereof shall be entitled to purchase
hereunder shall be increased or decreased, as the case may be, in
direct proportion to the increase or decrease in the number of
shares of Common Stock by reason of such recapitalization, and the
purchase price hereunder per share of such recapitalized Common
Stock shall, in the case of an increase in the number of such
shares, be
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<PAGE> 3
proportionately reduced, and in the case of a decrease in the number
of such shares, shall be proportionately increased. For the purpose
of this subsection (A), a stock dividend, stock split-up or reverse
split shall be considered as a recapitalization and as an exchange
for a larger or smaller number of shares, as the case may be.
(B) In the case of any consolidation of the Corporation with,
or merger of the Corporation into, any other corporation, or in case
of any sale or conveyance of all or substantially all of the assets
of the Corporation in connection with a plan of complete liquidation
of the Corporation, then, as a condition of such consolidation,
merger or sale or conveyance, adequate provision shall be made
whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of shares of Common
Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock or
securities as may be issued in connection with such consolidation,
merger or sale or conveyance with respect to or in exchange for the
number of outstanding shares of Common Stock immediately therefore
purchasable and receivable upon the exercise of the rights
represented hereby had such consolidation, merger or sale or
conveyance not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of
the holder of this Warrant to the end that the provisions hereof
shall be applicable as nearly as may be in relation to any shares of
stock or securities thereafter deliverable upon the exercise hereof.
(C) In case the Corporation shall, while this Warrant remains
unexercised, in whole or in part, and in force, issue (otherwise
than by stock dividend or stock split-up or reverse split) or sell
shares of its Common Stock (hereinafter referred to as "Additional
Shares") for a consideration per share (before deduction of expenses
or commissions or underwriting discounts or allowances in connection
therewith) less than the purchase price hereunder per share, then,
after the date of such issuance or sale, the purchase price
hereunder per shall be reduced
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<PAGE> 4
to a price determined by dividing (1) an amount equal to (a) the
total number of shares of Common Stock outstanding immediately prior
to the time of such issuance or sale multiplied by such purchase
price hereunder per share, plus (b) the consideration (before
deduction of expenses or commissions or underwriting discounts or
allowances in connection therewith), if any, received by the
Corporation upon such issuance or sale, by (2) the total number of
shares of Common Stock outstanding after the date of the issuance or
sale of such Additional Shares, and the number of shares of Common
Stock which the holder hereof shall be entitled to purchase
hereunder at each such adjusted purchase price per share, at the
time such adjusted purchase price per shall be in effect, shall be
the number of whole shares of Common Stock obtained by multiplying
such purchase price hereunder per share before such adjustment, by
the number of shares of Common Stock purchasable upon the exercise
of this Warrant immediately before such adjustment, and dividing the
product so obtained by such adjusted purchase price per share;
provided, however, that no such adjustment of the purchase price
hereunder per share or the number of shares for which this Warrant
may be exercised shall be made upon the issuance or sale by the
Corporation of not more than 500,000 Additional Shares reserved for
issuance upon exercise of outstanding stock options or warrants.
(D) In case the Corporation shall, while this Warrant remains
unexercised in whole or in part, and in force, issue or grant any
rights to subscribe for or to purchase, or any option (other than
the employee stock options referred to in subsection (C) above) for
the purchase of (i) Common Stock or (ii) any indebtedness or shares
of stock convertible into or exchangeable for Common Stock
(indebtedness or shares of stock convertible into or exchangeable
for Common Stock being hereinafter referred to as "Convertible
Securities"), or issue or sell Convertible Securities and the price
per share for which Common Stock is issuable upon the exercise of
such rights or options or upon conversion or exchange of such
Convertible Securities at the time such Convertible Securities first
become convertible or exchangeable (determined by dividing (1) in
the case of an issuance or
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<PAGE> 5
grant of any such rights or options, the total amount, if any,
received or receivable by the Corporation as consideration for the
issuance or grant of such rights or options, plus the minimum
aggregate amount of additional consideration payable to the
Corporation upon exercise of such rights or options, plus, in the
case of such Convertible Securities, in the minimum aggregate amount
of additional consideration, if any, payable to the Corporation upon
the conversion or exchange of such Convertible Securities at the
time such Convertible Securities first become convertible or
exchangeable, or (2) in the case of an issuance or sale of
Convertible Securities other than where the same or issuable upon
the exercise of any such rights or options, the total amount, if
any, received or receivable by the Corporation as consideration for
the issuance or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange of such
Convertible Securities at the time such Convertible Securities first
become convertible or exchangeable, by, in either such case, (3) the
total maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon the conversion or
exchange of such Convertible Securities at the time such Convertible
Securities first become convertible or exchangeable) shall be less
than the two purchase prices hereunder per share, then the total
maximum number of shares of Common Stock issuable upon the exercise
of such rights or options or upon conversion or exchange of the
total maximum amount of such Convertible Securities at the time such
Convertible Securities first become convertible or exchangeable,
shall (as of the date of the issuance or grant of such rights or
options or, in the case of the issuance or sale of Convertible
Securities other than where the same are issuable upon the exercise
of rights or options, as of the date of such issuance or sale) be
deemed to be outstanding and to have been issued for said price per
share; provided that (i) no further adjustment of the purchase price
shall be made upon the actual issuance of such Common Stock upon the
exercise of such rights or options or upon the conversion or
exchange of such Convertible Securities or upon the actual issuance
of Convertible Securities where
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<PAGE> 6
the same are issuable upon the exercise of such rights or options,
and (ii) rights or options issued or granted pro rata to
shareholders without consideration and Convertible Securities
issuable by way of dividend or other distribution to shareholders
shall be deemed to have been issued or granted at the close of
business on the date fixed for the determination of shareholders
entitled to such rights, options or Convertible Securities and shall
be deemed to have been issued without consideration; and (iii) if,
in any case, the total maximum number of shares of Common Stock
issued upon exercise of such rights or options or upon conversion or
exchange of such Convertible Securities is not, in fact, issued and
the right to exercise such right or option or to convert or exchange
such Convertible Securities shall have expired or terminated, then,
and in any such event, the purchase price, as adjusted, shall be
appropriately readjusted at the time of such expiration or
termination. In such case, each purchase price hereunder per share
which is greater than the price per share for which Common Stock is
issuable upon conversion or exchange of such rights or options or
upon conversion or exchange of such Convertible Securities at the
time such Convertible Securities first become convertible or
exchangeable, as determined above in this subsection (D), shall
thereupon be reduced to a price determined by dividing (1) an amount
equal to (a) the total number of shares of Common Stock outstanding
immediately prior to the time of the issuance or grant of such
rights or options or the issuance or sale of such Convertible
Securities multiplied by such purchase price hereunder per share,
plus (b) the total amount, if any, received or receivable by the
Corporation as consideration for such issuance or grant or such
issuance or sale, plus the additional amounts referred to and more
fully set forth in clauses (1) and (2) of the parenthetical material
above in this subsection (D), whichever clause and whichever
additional amounts may be applicable, by (2) the total number of
shares of Common Stock outstanding after the date of such issuance
or grant or such issuance or sale, and the number of shares of
Common Stock which the holder hereof shall be entitled to purchase
hereunder at such adjusted purchase price per share, at the time
such adjusted purchase price per shall be in effect, shall be
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<PAGE> 7
the number of whole shares of Common Stock obtained by multiplying
such purchase price hereunder, per share, before such adjustment, by
the number of shares of Common Stock purchasable upon the exercise
of this Warrant immediately before such adjustment and dividing the
product so obtained by such adjusted purchase price per share.
(E) For the purpose of subsections (C) and (D) above, in case
the Corporation shall issue or sell Additional Shares, issue or
grant any rights to subscribe for or to purchase, or any options for
the purchase of (i) Common Stock or (ii) Convertible Securities, or
issue or sell Convertible Securities for a consideration part of
which shall be other than cash, the amount of the consideration
received by the Corporation therefor shall be deemed to be the cash
proceeds, if any, received by the Corporation plus the fair value of
the consideration other than cash as determined by the Board of
Directors of the Corporation in good faith, before deduction of
commissions, underwriting discounts or allowances or other expenses
paid or incurred by the Corporation for any underwriting of, or
otherwise in connection with, such issuance, grant or sale.
(F) Subject to the provisions of subsection (G) below, in case
the Corporation shall, while this Warrant remains unexercised, in
whole or in part, and in force, make any distribution of its assets
to holders of Common Stock as a partial liquidating dividend, by way
of return of capital or otherwise, then, after the date of record
for determining shareholders entitled to such distribution, the
holder hereof shall be entitled, upon exercise of this Warrant and
purchase of any or all of the shares of Common Stock subject hereto,
to receive the amount of such assets (or at the option of the
Corporation, a sum equal to the value thereof at the time of such
distribution to holders of Common Stock as such value is determined
by the Board of Directors of the Corporation in good faith) which
would have been payable to such holder had he been the holder of
record of such shares of Common Stock on the record date for the
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<PAGE> 8
determination of shareholders entitled to such distribution.
(G) Except as otherwise provided in subsection (B) above, in
the case of any sales or conveyance of all or substantially all of
the assets of the Corporation in connection with a plan of complete
liquidation of the Corporation, in the case of the dissolution,
liquidation or winding up of the Corporation, all rights under this
Warrant shall terminate on a date fixed by the Corporation, such
date so fixed to be not earlier than the date of the commencement of
the proceedings for such dissolution, liquidation or winding-up and
not later than thirty (30) days after such commencement date. Notice
of such termination of purchase rights shall be given to the
registered holder hereof, as the same shall appear on the books of
the Corporation, at least thirty (30) days prior to such termination
date.
(H) In case the Corporation shall, while this Warrant remains
unexercised in whole or in part, and in force, offer to the holders
of Common Stock any rights to subscribe for additional shares of
stock of the Corporation, then the Corporation shall given written
notice thereof to the registered holder hereof not less than thirty
(30) days prior to the date on which the books of the Corporation
are closed or a record date fixed for the determination of
shareholders entitled to such subscription rights. Such notice shall
specify the date as to which the books shall be closed or the record
date fixed with respect to such offer or subscription, and the right
of the holder hereof to participate in such offer or subscription
shall terminate if this Warrant shall not be exercised on or before
the date of such closing of the books or such record date.
(I) Any adjustment pursuant to the foregoing provisions shall
be made on the basis of the number of shares of Common Stock which
the holder hereof would have been entitled to acquire by exercise of
this Warrant immediately prior to the event giving rise to such
adjustment and, as to the purchase price hereunder per share,
whether or not in effect immediately prior to the
-8-
<PAGE> 9
time of such adjustment, on the basis of such purchase price
immediately prior to the event giving rise to such adjustment.
Whenever any such adjustment is required to be made, the Corporation
shall forthwith determine the new number of shares of Common Stock
which the holder shall be entitled to purchase hereunder and/or such
new purchase price per share, and shall prepare, retain on file and
transmit to the holder hereof within ten (10) days after such
preparation a statement describing in reasonable detail the method
used in calculating such adjustment(s).
(J) For the purposes of this Section 3, the term "Common
Stock" shall include all shares of capital stock authorized by the
Corporation's Certificate of Incorporation, as from time to time
amended, which are not limited to a fixed sum or percentage of par
value in respect of the right of the holders thereof to participate
in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding-up of the
Corporation.
(K) Whenever the price per share hereunder, initial or
adjusted, and the number of shares of Common Stock to be purchased
upon exercise hereof, initial or adjusted, shall be changed or
adjusted pursuant to the provisions of this Section 3, the
Corporation shall forthwith cause written notice setting forth the
changed or adjusted price per share hereunder and number of shares
to be purchased upon exercise hereof to be given to the holder of
this Warrant.
4. The holder hereof agrees that the Warrants and shares of Common
Stock will not be offered or sold (1) unless at the time of such offer or sale,
there is delivered a prospectus meeting the requirements of the Securities Act
of 1933, as amended, forming a part of an applicable post-effective amendment to
the Registration Statement, or forming a part of a new registration statement
with respect to such offer and sale, or (2) unless in the opinion of counsel to
the Corporation satisfactory to the holder hereof, such offer and sale is exempt
from the provisions of Section 5 of the Act. In connection with the preparation
of any post-effective amendment to the Registration Statement or any new
registration statement, the holder hereof agrees to furnish the Corporation with
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<PAGE> 10
information, in writing, concerning the terms of the proposed offer.
5. The Corporation agrees at all times to reserve or hold available
a sufficient number of shares of Common Stock to cover the number of shares
issuable upon the exercise of this and all other Warrants of the same class.
6. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a shareholder of the Corporation, or to any other
rights whatsoever except the rights herein expressed, and no dividends shall be
payable or accrue in respect of this Warrant or the interest represented hereby
or the shares purchasable hereunder until or unless, and except to the extent
that, this Warrant shall be exercised.
7. This Warrant is exchangeable upon the surrender hereof by the
holder hereof to the Corporation for new Warrants of like tenor representing in
the aggregate the right to purchase the number of shares purchasable hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the holder hereof at the time of such
surrender.
8. The Corporation will transmit to the holder of this Warrant such
information, documents and reports as are generally distributed to shareholders
of the Corporation concurrently with the distribution thereof to such
shareholders.
9. Notices to be given to the holder of this Warrant shall be deemed
to have been sufficiently given if delivered or mailed, addressed in the name
and at the address of such holder appearing in the records of the Corporation,
and if mailed, sent first class registered or certified mail, postage prepaid.
The address of the Corporation is 10 Industry Drive, Lancaster, Pennsylvania
17603, and the Corporation shall give written notice of any change of address to
the holder hereof.
10. The exercise of this Warrant is subject to the approval of its
issuance by the shareholders of the Corporation.
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<PAGE> 11
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed by the signature of its President and its seal affixed and attested by
its Secretary.
Dated:
HERLEY INDUSTRIES, INC.
By:
---------------------------------
[Corporate Seal]
ATTEST:
- ---------------------------------
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<PAGE> 1
Exhibit 10.13
Dauphin Deposit Bank
and Trust Company
1703 OREGON PIKE
LANCASTER PA 17601-4201
(717) 560-3168
FAX # (717) 560-3177
January 15, 1997
Herley Industries, Inc.
Attn: Lee N. Blatt, Chairman/Chief Executive Officer
Myron Levy, President
10 Industry Drive
Lancaster, PA 17603
Dear Gentlemen:
I am pleased to inform you that Dauphin Deposit Bank and Trust Company
(hereafter "Bank") has approved the reaffirmation of your unsecured line of
credit to Herley Industries, Inc. (hereafter "Borrower") as follows:
A. Principal Amount of Line: $11,000,000.00
B. Expiration: January 31, 1999
C. Interest Rate: 1.0% over the FOMC Target Rate, as in
effect from time to time, for
borrowings up to 80% of the most
recent market value of pledged
marketable securities.
AND
Dauphin Deposit Base Rate, as in
effect from time to time, for balances
in excess of 80% of the most recent
market value, or in the absence, of
pledged marketable securities.
D. Use of Proceeds: To finance inventory and accounts
receivable. The line may be used to
issue standby letters of credit.
<PAGE> 2
Herley Industries, Inc.
January 15, 1997
E. Repayment Schedule:
Letters of Credit: To be negotiated if drawn upon
Line of Credit: Interest monthly, principal at
expiration of agreement.
F. Commitment Fee:
Letters of Credit: 1.0% per annum
Line of Credit: None
1. Borrowings may bear interest at an annual rate equal to the Dauphin
Deposit Base Rate or the FOMC Rate plus 1.0%, as applicable, as in effect
from time to time. This interest rate will change when and as Dauphin
Deposit Base Rate or the FOMC Rate changes. Interest will be calculated on
the basis of the actual number of days in the current calendar year
divided by 360. Interest will be payable monthly upon submission of the
Bank's statement therefore.
2. The Bank's Base Rate is a reference rate which floats and is stated from
time to time by Dauphin Deposit Bank for the guidance of its officers. The
determination and statement of the Bank's Base Rate shall not in any way
preclude the Bank from making loans to other borrowers at differing rates.
3. The Bank shall have the right to review and approve any letter of credit
term exceeding two (2) years for issuance under the line of credit.
4. The line of credit shall be collateralized by the following:
a. A Corporate Suretyship Agreement of:
1. Microwave Holding corporation
Secured by acceptable assignment of all marketable
securities in an account with Bear Stearns.
2. Stewart Warner Electronics Co.
3. Any future operating subsidiaries.
5. The Borrower shall provide the Bank with a Negative Pledge of all
corporate assets other than those pledged to Bank. The Negative Pledge
shall be subject to an existing mortgage with Dean Witter Inter Capital,
Inc.
<PAGE> 3
Herley Industries, Inc.
January 15, 1997
6. The Borrower shall maintain the Business Loan Agreement which contains
affirmative and negative covenants including, but not limited to the
following:
a. Minimum working capital requirement of $4,000,000 at all times.
Working capital shall be determined in accordance with generally
accepted accounting principles.
b. Minimum Tangible Net Worth of $13,487,000 to be measured at fiscal
year end. Tangible Net Worth shall be defined as total assets less
total liabilities, excluding all assets which would be classified as
intangible assets under generally accepted accounting principles.
c. Maximum Debt to Tangible Net Worth of 1.75 to 1.0 to be measured at
fiscal year end.
d. Bank consent to any and all cash dividend distributions to
shareholders.
e. Adequate notification of anticipated acquisitions.
7. Borrower shall maintain an insurance policy providing satisfactory
coverage on the buildings and their contents, including equipment, against
the perils of fire, extended coverage, vandalism and malicious mischief
and general liability and business interruption insurance.
8. Borrower shall maintain its primary deposit relationship with Dauphin
Deposit Bank and Trust Company during the term of these loans.
9. On a monthly basis, when and if marketable securities are owned and
pledged, the Borrower shall furnish the Bank with a detailed listing,
including number of shares and where held, as well as, a current market
valuation on all marketable securities owned by Microwave Holding
Corporation.
10. On an annual basis, the Borrower shall furnish the Bank with CPA-audited
consolidated financial statements and 10-K report on Herley Industries,
Inc.
11. On an annual basis, the Borrower shall furnish the Bank with
internally-prepared consolidating financial statements on Herley
Industries, Inc. and subsidiaries.
<PAGE> 4
Herley Industries, Inc.
January 15, 1997
12. On a quarterly basis, the Borrower shall furnish Bank with consolidated
financial statements and a l0-Q report on Herley Industries, Inc.
13. Borrower shall maintain insurance coverage for Directors and Officers
liability in the minimum amount of $3,000,000 satisfactory to Bank.
14. Borrower shall provide the Bank with an opinion of Borrower's counsel
evidencing satisfactory status of litigation proceedings.
The availability of the line of credit is contingent upon the Borrowers
and the Bank entering into mutually acceptable loan documentation setting forth
the terms and conditions stated herein and such other terms and conditions,
covenants, warranties and representations as may be required by the Bank and be
mutually acceptable to the Borrowers and the Bank. All terms and conditions
contained herein shall survive the execution of such loan documentation.
Any and all charges, expenses, and costs incurred by the Bank relating to
the preparation and completion of loan documents and/or the maintenance of the
loan, including, but not limited to the Bank's attorney fees, are the
responsibility of the Borrower.
This commitment is contingent upon the right of the Bank at any time
hereafter and from time to time to review the commitment, to adjust terms and
conditions, or to discontinue the commitment should the Bank in the reasonable
exercise of its sole business discretion deem it necessary to do so.
Please acknowledge your concurrence with these terms and conditions by
signing, dating and returning the enclosed original of this letter to the Bank
on or before January 31, 1997, on which date this offer shall terminate and be
of no force and effect.
We thank you for your business and look forward to a mutually beneficial
relationship. If we can be of any further assistance, do not hesitate to call.
Sincerely,
/s/ Michael R. Carper
Michael R. Carper,
Senior Vice President
<PAGE> 5
Herley Industries, Inc.
January 15, 1997
ACKNOWLEDGMENT:
The terms and conditions of this letter are hereby accepted in full this 29 day
of January, 1997.
BORROWER: HERLEY INDUSTRIES, INC.
Attest:
[SIGNATURE ILLEGIBLE] /s/ Lee N. Blatt
- -------------------------------- --------------------------------
Lee N. Blatt, Chairman/
Chief Executive Officer
[SIGNATURE ILLEGIBLE] /s/ Myron Levy
- -------------------------------- --------------------------------
Myron Levy, President
SURETIES: MICROWAVE HOLDING CORPORATION
Attest:
[SIGNATURE ILLEGIBLE] By: /s/ Myron Levy
- -------------------------------- ----------------------------
STEWART WARNER ELECTRONICS CO.
[SIGNATURE ILLEGIBLE] By: /s/ Myron Levy
- -------------------------------- ----------------------------
<PAGE> 6
Date 1-25-96
DAUPHIN DEPOSIT BANK AND TRUST COMPANY, a Pennsylvania banking corporation with
its principal office in the city of Harrisburg, Dauphin County, Pennsylvania
(hereinafter called "Bank") does hereby agree to make a loan (the "Loan") in the
principal sum of $11,000,000.00 to Herley Industries, Inc., a Corporation
organized under the laws of the State of Delaware, with offices at 10 Industry
Drive, Lancaster, PA 17603 (hereinafter called "Borrower"), all under the
following terms and conditions:
1. The Loan shall be evidenced by a note (the "Note"), dated 1-25-96 and shall
be repayable as follows: Interest monthly, principal at maturity together with
interest calculated on a daily basis (360 days) at the annual rate of either Fed
Fund Rate plus 1.0% or Dauphin Deposit Base Rate on the unpaid balance of the
principal, all as provided in the Note.
The Borrower acknowledges reading all of the terms, provisions, agreements,
covenants and warranties of this Agreement, the Note and any Security Documents
in connection with the Loan, and, in consideration of the Bank agreeing to make
the Loan, and intending to be legally bound hereby, warrants, represents,
covenants and agrees that:
1. Business. The Borrower's business operations ("Business") are as follows:
Flight Instrumentation Manufacturing and the Business is a Corporation. If the
Borrower is a corporation, it has no subsidiaries or parent corporations except
as follows: Microwave Holding Corp., Stewart Warner Electronics Co., all of
which are current operating, wholly-owned subsidiaries of the Borrower.
2. Use of Proceeds. The Borrower will diligently continue the Business
substantially as now being conducted. The proceeds of the Loan will be used only
in connection with the Business and only for the following purposes: Working
capital and general corporate purposes and to issue standby letters of credit.
"General corporate purposes" shall mean expenditures arising within the ordinary
course of the Borrower's business or operations, as currently conducted; but, to
the extent Borrower intends to use proceeds of the Loan in connection with (i)
the consolidation or merger with, or (ii) the acquisition of any of the capital
stock or substantially all the assets of, any person or entity, Borrower agrees
to first provide Bank with adequate prior notice thereof in accordance with
paragraphs (b) and (c) of Section 6.
3. Collateral As security for the Loan, the Borrower will deliver or cause to be
delivered to the Bank the following collateral and/or duly executed instruments
of security or guaranty ("Security Documents"), and will comply with all terms,
conditions, and provisions as set forth in such instruments:
A Suretyship Agreement by Stewart Warner Electronics Co. and a Suretyship
Agreement by Microwave Holding Corp., secured by an acceptable assignment of
marketable securities held in an account with Bear Stearns for the benefit of
Microwave Holding Corp.
Negative Pledge Agreements by Herley Industries, Inc., Stewart Warner
Electronics Co., and Microwave Holding Corp.
4. Reports to Bank. The Borrower will deliver to the Bank the following reports:
(a) The Borrower's financial statements as follows: (1) Quarterly statements and
a 10Q Report certified by the Borrower's chief financial officer within 45 days
after the end of each quarter; and (2) Year-end statements and a 10-K Report
within 90 days after the Borrower's year end which shall be audited by a
certified public accountant. All financial statements shall be prepared in
accordance with generally accepted accounting principles consistently applied.
(b) Inventory reports as follows: (1) N/A within N/A days after the end of each
N/A. Such reports shall be certified by the Borrower's chief financial officer.
<PAGE> 7
(c) Such other reports, including but not limited to, the monthly detailed
listing and valuation of marketable securities and annual consolidating
financial statements.
All of the foregoing reports shall be in form and substance satisfactory to the
Bank. If reports are required to be certified by a certified public accountant,
such certified public accountant shall be acceptable to the Bank.
5. Affirmative Covenants. The Borrower will:
(a) Minimum Current Asset Ratio and Minimum Working Capital. Maintain the ratio
of current assets (exclusive of prepaid expenses) to current liabilities of the
Business at not less than N/A to 1.0. Maintain the minimum working capital of
the Business at not less than Four Million and 00/100 Dollars (4,000,000.00) at
all times. Minimum working capital shall mean the excess of current assets less
current liabilities, as determined in accordance with generally accepted
accounting principles.
(b) Minimum Tangible Net Worth. Maintain a minimum tangible net worth of the
Business at not less than Thirteen Million Four Hundred Eighty-Seven Thousand
and 00/100 Dollars $13,487,000.00) to be measured at fiscal year end. Tangible
Net Worth shall be defined as total assets less total liabilities, excluding all
assets which would be classified as intangible assets under generally accepted
accounting principles.
(c) Debt to Tangible Net Worth Ratio. Maintain the ratio of debt to tangible net
worth of the Business at no greater than 1.75 to 1 to be measured at fiscal year
end.
(d) Net Income to Debt Service Ratio. Maintain a ratio of net income plus
non_cash charges to scheduled debt service plus capital expenditures (including
capital obligations) of not less than N/A to 1.
(e) Insurance. Maintain insurance coverages for the Business which are in such
amounts and with such carriers as are acceptable to the Bank, and deliver to the
Bank acceptable proof of such insurance. Insurance covering any collateral for
the Loan shall contain a standard mortgage clause or additional insured clause
in favor of the Bank. All such policies shall require no less than (10) days
prior written notice of cancellation to the Bank.
(f) Taxes. Duly pay and discharge all taxes or other claims which might become a
lien upon any of its property except to the extent that such items are being in
good faith appropriately contested with adequate reserves therefor having been
set aside and with security satisfactory to the Bank.
(g) Properties. Maintain, preserve, and keep its properties in good repair,
working order and condition, and make all reasonable repairs, replacements,
additions, betterments and improvements thereto.
(h) Corporate or Partnership Existence. If the Borrower is a corporation or
partnership, maintain its corporate or partnership existence and comply with all
statues, rules and regulations, the non-compliance of which would materially and
adversely affect its business, assets or condition, financial or otherwise.
(i) Issuance Taxes. Pay all stamp or issuance taxes, if any, payable by reason
of the execution, delivery or issuance of this Agreement, the Note or security
Documents under any applicable ordinance or statute now existing or hereafter
enacted, and the Borrower will at all times indemnify and hold harmless the Bank
and its duly authorized agents to make, or cause to be made, inspections and
audits of any books, records and papers of the Borrower and to make extracts
therefrom should the Borrower be in default with respect to any bank agreement
or should the Bank reasonably believe that a default is imminent to the extent
Bank has received such reports and/or financial reports and believes a default
is imminent.
<PAGE> 8
(k) Management. Maintain the current management and executive personnel of the
Borrower or other management and executive personnel reasonably satisfactory to
the Bank, and furnish to the Bank within five (5) days of any election or
appointment of officers or directors written notice of any change of such
officers and directors.
6. Negative Covenants. Except with the prior consent in writing of the Bank with
respect to items a, d, e, i, j, and k and with prior adequate notice with
respect to items b and c, the Borrower will not:
(a) Borrower's Indebtedness. Incur, or permit to exist, any indebtedness for
borrowed money, except: (1) borrowings hereunder and of any other loans made by
the Bank in its discretion to the Borrower, (2) indebtedness which is currently
outstanding, as follows:
Creditor Amount
-------- ------
Dean Witter $3.8MM
Inter Capital Inc.
and (3) the Borrower may incur new indebtedness from any other financial
institution in an amount up to None in the aggregate without consent of the
Bank.
(b) Combination. Enter into any merger, consolidation, partnership or joint
venture or sell or lease or otherwise dispose of all or any substantial part of
its assets, other than sales in the ordinary course of business without adequate
notification to Bank.
(c) Loans and Investments. Lend or advance money, credit to property to, invest
in or acquire (by capital contribution, loan, purchase or otherwise) any firm,
corporation, or other person without adequate notification to Bank.
(d) Create Encumbrances. Create, assume or permit to exist, any mortgage,
pledge, lien or encumbrance of or upon, or security interest in any of its
property or assets now owned or hereafter acquired except (i) mortgages, liens,
pledges and security interests in favor of the Bank; (ii) other liens, charges
and encumbrances incidental to the conduct of its business or the ownership of
its property and assets which were not incurred in connection with the borrowing
of money or the obtaining of advances or credit and which do not materially
impair the use thereof in the operation of its business (iii) liens for taxes or
other governmental charges which are not delinquent or which are being contested
in good faith and for which a reserve shall have been established in accordance
with generally accepted accounting principles; and (iv) liens, encumbrances or
security interests held by Borrower's customers in the ordinary course of
business to secure progress payments or customer advances from such customers,
and (v) the following:
Creditor Type Amount Collateral
- -------- ---- ------ ----------
Dean Witter Commercial Mtg. $3.8MM First lien mortgage on
10 Industry Drive
Inter Capital Inc. Lancaster, PA 17603
(e) Guaranties. Assume, endorse, be or become liable for or guarantee the
obligations of any person or entity except the endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.
(f) Investment in fixed assets. Make an aggregate investment in fixed assets in
excess of N/A Dollars (N/A) during any twelve (12) month period ending on each
N/A during the term of this Agreement.
(g) Rental Payments. Enter into any arrangement as lessee if the aggregate of
all rental payments made by the Borrower in any twelve (12) month period shall
exceed N/A Dollars ($_______).
(h) Payments to Directors, Officers or Owners. Make, pay or allow, directly or
indirectly, any withdrawals, compensation or salary, in cash or otherwise, for
the benefit of directors, officers, shareholders or owners of the Business
except as follows: N/A
<PAGE> 9
(i) Dividends. Pay any dividends, on any of its outstanding shares, without Bank
consent.
(j) Impairment of Collateral. Permit anything to be done that may impair the
value of the collateral intended to be afforded by this Agreement or the
Security Documents.
(k) Changes in Business. Make or permit to be made any material change in the
nature, character, management, ownership or conduct of the Borrower's business
as conducted on the date hereof, without prior written consent of Bank.
7. Representations and Warranties. The Borrower hereby represents and warrants,
on a continuing basis, to the Bank that:
(a) Corporate or Partnership Organization. If the Borrower is a corporation or a
partnership, the Borrower is duly organized, validly existing and in good
standing under the laws of the State of Delaware, has all requisite power and
authority to own its property and to carry on its business as now conducted, and
is in good standing and authorized to do business in the Commonwealth of
Pennsylvania and in each other jurisdiction in which the nature of its business
conducted therein or property owned therein make such authorization necessary.
(b) Enforceability of Documents. This Agreement, the Note and the Security
Documents have been duly authorized, executed and delivered and constitute the
valid and legally binding obligation of the Borrower, enforceable in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights generally.
(c) Legality of Documents. The execution and delivery of this Agreement, the
Note and all Security Documents and performance thereof will not violate any
provision of law or of the charter of bylaws of Borrower or any agreement,
indenture or instrument to which the Borrower is a party or its properties or
assets may be bound or affected or of any other agreement to which the Borrower
is a party.
(d) Pending or Threatened Litigation. There are no outstanding judgements,
actions or proceedings pending before any court or governmental authority,
bureau or agency, with respect to or threatened against or affecting the
Borrower which would result in a material adverse change in the financial
condition of the Borrower and its subsidiaries except as set forth in the
Opinion Letter from Borrower's Counsel of even date herewith.
(e) No Defaults. The Borrower is not in default under, or in violation of, nor
will the execution and delivery of this Agreement, the Note, or the Security
Documents constitute a default under or violation of, any term of any agreement,
ordinance, resolution, decree, bond, used in the conduct of its business. The
operations of the Borrower comply in all material respects with all laws,
ordinances and regulations applicable to it.
(f) No Onerous Agreements. The Borrower is not a party to nor bound by, nor are
any of the properties or assets owned by it or used in the conduct of its
business affected by, any agreement, ordinance, resolution, decree, bond, note,
indenture, order or judgement, or subject to any charter or other corporate
restriction, which materially and adversely affects its business, assets or
condition, financial or otherwise.
(g) Financial Statements. All balance sheets, profit and loss statements and
other financial information heretofore furnished to the Bank are true, correct
and complete and present fairly the financial condition of the Borrower and its
subsidiaries as at the dates thereof and for the periods covered thereby,
including contingent liabilities of every kind which financial condition has not
materially adversely changed since the date of the most recently dated balance
sheet of the Borrower heretofore furnished to the Bank.
<PAGE> 10
(h) No Margin Stock Purchases. No part of the proceeds of the Loan will be used
directly or indirectly for the purpose of purchasing or carrying, or for payment
in full or in part of indebtedness which was incurred for the purpose of
purchasing or carrying, any margin stock as such term is defined by Regulation U
of the Board of Governors of the Federal Reserve System.
(i) Power and Authority. The Borrower has the power to execute and deliver this
Agreement, the Note, and all Security Documents and has taken all necessary
action to authorize the execution, delivery and performance of the same.
(j) Properties. The Borrower has good and marketable title to all of its assets
subject to no liens except as permitted under this Agreement.
(k) Taxes. The Borrower has filed all necessary tax returns to date and paid all
taxes heretofore due and payable.
8. Events of Default. If any one or more of the following Events of Default
shall occur, the obligation of the Bank to make advances shall cease and
the entire unpaid balance of the principal of and interest on the Loan
shall immediately become due and payable at the option of the Bank without
notice, presentment, protest or demand (all which are expressly waived by
the Borrower) to the Borrower being required except as specified below.
(a) Failure to make any payment of principal or interest in respect of the
Loan within 10 days after it is due; or,
(b) Failure by the Borrower or any Surety to perform any other term,
condition or covenant of this Agreement, the Note, any Security Document or any
other agreement, instrument or document delivered hereto or in connection
herewith or therewith, which shall remain unremedied for the period of thirty
(30) days after written notice thereof shall have been given by the Bank to the
Borrower; or,
(c) (i) Failure to perform any term, condition or covenant of any note,
loan agreement, guaranty, mortgage or other instrument or agreement in
connection with the borrowing of money or the obtaining of advances or credit to
which the Borrower is a party or by which it is bound, or by which any of its
properties or assets may be affected (a "Debt Instrument"), so that as result of
any such failure to perform, the indebtedness included therein or secured or
covered thereby may be declared due and payable prior to the date on which such
indebtedness would otherwise become due and payable; or (ii) any event or
condition referred to in any Debt Instrument shall occur or fail to occur, so
that, as a result thereof, the indebtedness included there or secured or covered
thereby may be declared due and payable prior to the date on which such
indebtedness would otherwise become due and payable; or (iii) any indebtedness
included in any Debt Instrument or secured or covered thereby is not paid when
due; or
(d) Any representation or warranty made in writing to the Bank in this
Agreement, the Note or Security Documents or in connection with the making of
the Loan or any certificate, statement or report made in compliance with this
Agreement, shall have been false in any material respect when made or shall
become false in any material respect with respect only to representations or
warranties which by the express terms thereof apply to conditions arising after
the date hereof;
(e) The Borrower or any endorser or surety hereof shall make an assignment
for the benefit of creditors, file a petition under the Federal Bankruptcy Code
or any similar law, state or federal, be adjudicated insolvent or bankrupt,
petition or apply to any tribunal for the appointment of a receiver, or trustee
or a custodian for it or a substantial part of its assets, or shall commence any
proceeding under any bankruptcy, reorganization, arrangement, readjustment or
debt, dissolution, or liquidation law or statute of any jurisdiction, whether
now owned or hereafter in effect; or if there shall have been filed any such
petition or application, or any such petition or application, or any such
proceeding shall have been commenced against it, which
<PAGE> 11
remains undismissed for a period of sixty (60) days or more; or the Borrower or
endorser of surety by any act or omission shall indicate its consent to approval
of or acquiescence in any such petition, application or proceeding or the
appointment of a receiver, or trustee or a custodian for it or any substantial
part of any of its properties, or shall suffer any such receivership,
trusteeship, or custodianship to continue undischarged for a period of sixty
(60) days or more; or
(f) Any judgement against the Borrower, or any attachment, levy or
execution against any of its properties for any amount shall remain unpaid,
unstayed on appeal, undischarged, unbonded or undismissed for a period of thirty
(30) days or more; or
(g) The Borrower shall be unable, or admit its inability, to meet its
obligations as they come due or failure of Borrower generally to pay its debts
as they become due; or
(h) Occurrence, in Bank's sole and independent discretion, reasonably
exercised, of a material adverse change in the business, properties or financial
condition of the Borrower, or an event or condition that may result in such a
material adverse change.
9. Remedies. In the event of the occurrence of any Event of Default, the Bank
may, but shall not be required to (i) proceed to apply to the payment of the
Loan the balance to the credit of any account or accounts maintained with the
Bank by the Borrower and all property of Borrower now or at any time in Bank's
possession in any capacity whatsoever (set-off) and (ii) sell all or any part of
the collateral security in accordance with the Pennsylvania Uniform Commercial
Code and the Security Documents, and (iii) the obligation of the Bank to make
loans or otherwise extend credit to the Borrower shall immediately terminate.
The Bank may exercise any other right or remedy hereby granted or allowed to it
by law including but not limited to the rights and remedies of a Secured Party
under the Uniform Commercial Code and each and every right and remedy hereby
granted to the Bank or allowed to it by law shall be cumulative and not
exclusive the one of the other, and may be exercised by the Bank from time to
time and as often as may be necessary.
The Bank shall have at any time, in its discretion, the right to enforce
collection and payment of any of the collateral security by appropriate action
or proceedings, and the net amounts received therefrom, after deduction of all
costs and expenses incurred in connection therewith, shall be applied on account
of the Loan and any other indebtedness or liabilities of the Borrower aforesaid,
all without notice to the Borrower. The Bank shall not be required to marshall
any security or guarantees or to resort to the same in any particular order.
10. General.
(a) Generally Accepted Accounting Principles. Current asset, current
liabilities, debt, tangible net worth, net income, non-cash charges, debt
service and capital expenditures and other accounting terms used herein shall,
except specifically provided herein, be determined in accordance with generally
acceptable accounting principles consistently applied.
(b) Survival of Warranties. All agreements, representations and warranties
made herein shall survive the delivery of this Agreement.
(c) Modification of Documents. No modification or waiver of any provision
of this Agreement, the Note, the Security Documents or other instruments or
consent to any departure by the Borrower from any of the terms or conditions
thereof, shall in any event be effective unless it shall be in writing and
signed by the Bank, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice or demand
on the Borrower in any case shall, of itself entitle the Borrower to any other
or further notice or demand in similar or other circumstances.
<PAGE> 12
(d) Rights Cumulative. Each and every right granted to the Bank hereunder
or under any other document delivered hereunder or in connection herewith, or
allowed it by law or equity, shall be cumulative and may be exercised from time
to time. No failure on the part of the Bank to exercise, and no delay in
exercising, any right shall operate as a waiver thereof, nor shall any single or
partial exercise of any right preclude any other or future exercise thereof or
the exercise of any other right.
(e) Construction and Severability. This Agreement, the Note and the
Security Documents and the rights and obligations of the parties shall be
construed and interpreted in accordance with the laws of the Commonwealth of
Pennsylvania. The provisions of this Agreement are severable and if any clause
or provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction and shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision in this Agreement in any
jurisdiction.
(f) Conflict of Documents. The provisions of this Agreement are in
addition to, and not in limitation of, the provisions of the Note and the
Security Documents. In the event of conflict between the provisions of this
Agreement and the provisions of the Note or any Security Document, the
provisions of this Agreement shall prevail.
(g) Notices. Notices by one party to the other shall be in writing and
shall be deemed to have been validly given at the time when posted in the U.S.
Mails, postage prepaid, or hand delivered to the following address or to any
alternative address designated in writing by the recipient:
Bank: Dauphin Deposit Bank and Trust Company
213 Market Street, P.O. Box 2961
Harrisburg, PA 17105
Borrower: Herley Industries, Inc.
10 Industry Drive
Lancaster, PA 17603
(h) Expenses of Bank. The Borrower shall pay all fees and expenses
reasonably incurred by the Bank in connection with the preparation, execution,
delivery and performance of this Agreement, the Note, the Security Documents and
all other instruments executed in connection herewith or in connection with the
collection of the indebtedness hereunder, or any part thereof, or the
perfection, protection and maintenance of the Bank's interest in any collateral.
These fees and expenses shall include, without limitation, fees and
disbursements of legal counsel for the Bank.
(i) Binding Effect. This Agreement and any other documents and instruments
delivered or required to be delivered pursuant hereto shall inure to the benefit
of and shall be binding upon the parties hereto and their heirs, executors,
administrators, personal representatives, successors and assigns of the parties
hereto. Borrower may not assign its rights or obligations hereunder without the
prior written consent of Bank.
(j) Joint and Several Liability. If the Borrower is more than one party,
they shall be liable hereunder, and under the Note and Security Documents,
jointly and severally, and all remedies may be exercised against them jointly,
as to all or any of them, or severally.
<PAGE> 13
CORPORATE SIGNATURE
IN WITNESS WHEREOF, Herley Industries. Inc. and Dauphin Deposit Bank and Trust
Company have caused this Agreement to be duly executed by their duly authorized
officers, and its corporate seal to be impressed hereon on the date first set
forth above.
NAME OF COMPANY
(CORPORATE SEAL) Herley Industries, Inc.
ATTEST:
[SIGNATURE ILLEGIBLE] By: /s/ Myron Levy, Pres.
- -------------------------------- ----------------------------
Title:
DAUPHIN DEPOSIT BANK AND TRUST CO.
By: /s/ Kenneth A. Hostetter
----------------------------
Title: CLO
<PAGE> 1
Exhibit 10.14
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, made and entered into this day of
("Agreement"), by and between HERLEY INDUSTRIES, INC., a Delaware
corporation (the "Corporation", which term shall include any one or more of its
subsidiaries where appropriate), and ("Indemnitee";)
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or officers or in other capacities
unless they are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, such corporations;
and
WHEREAS, the statutes and judicial duties regarding the duties of officers
and directors are often difficult to apply, ambiguous or conflicting and
therefore fail to provide such directors and officers with adequate and reliable
knowledge of legal risks to which they are exposed or information regarding the
proper cause of action to take; and
WHEREAS, the current impracticability of obtaining adequate insurance and
the uncertainties relating to
<PAGE> 2
indemnification have increased the difficulty of attracting and retaining such
persons; and
WHEREAS, the Board of Directors of the Corporation (the "Board of
Directors") has determined that the difficulty in attracting and retaining such
persons is detrimental to the best interests of the Corporation's stockholders
and that the Corporation should act to assure such persons that there will be
increased certainty of such protection in the future; and
WHEREAS, the Corporation believes it is unfair for the directors and
officers to assume the risk of huge judgments and other expenses which may occur
in cases in which the director or officer acted in good faith; and
WHEREAS, Section 145 of the General Corporation law of Delaware ("Section
145") under which the Corporation is organized, empowers the Corporation to
indemnify its officers and directors by agreement and expressly provides that
the indemnification provided by Section 145 is not exclusive; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Corporation free from undue concern that they will not be so indemnified; and
-2-
<PAGE> 3
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to take
on additional service for or on behalf of the Corporation on the condition that
he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
1. DEFINITIONS FOR PURPOSES OF THIS AGREEMENT:
(a) "Change in Control" means a change in control of the Corporation
of a nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A (or in response to any similar item or similar
schedule or form) promulgated under the Securities Exchange Act of 1934 (the
"Act"), whether or not the Corporation is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Corporation representing 20% or more of the combined voting
power of the Corporation's then outstanding securities without the prior
approval of at least two-thirds of the members of the Board of Directors in
office immediately prior to such person attaining such percentage interest; (ii)
the Corporation is a party to a merger,
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consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; (iii) during any period of twenty-four (24) consecutive
months, individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Corporation's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors; or (iv) the stockholders of the Corporation
approve a plan of complete liquidation of the Corporation or an agreement for
the sale or disposition by the Corporation (in one transaction or a series of
transactions) of all or substantially all of the Corporation's assets.
(b) "Potential Change in Control" shall be deemed to have occurred
if (i) the Corporation enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control; (ii) any person (including the
Corporation) publicly announces an intention to take or to consider taking
actions which if consummated would constitute a Change in Control; (iii) any
person, other than a trustee or other fiduciary holding securities under an
employee benefit
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<PAGE> 5
plan of the Corporation or a corporation owned, directly or indirectly, by the
shareholders of the Corporation in substantially the same proportions as their
ownership of stock of the Corporation; who is or becomes the beneficial owner,
directly or indirectly, of securities of the Corporation representing 9.5% or
more of the combined voting power of the Corporation's then outstanding Voting
Securities, increases his beneficial ownership of such securities by five
percentage points or more over the percentage so owned by such person; or (iv)
the Board of Directors adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change in Control has occurred.
(c) "Corporate Status" describes the status of a person who is or
was or has agreed to become a director of the Corporation, or is or was an
officer of the Corporation.
(d) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(e) "Expenses" includes all direct and indirect costs of any type or
nature whatsoever (including, without limitation, all attorneys' fees and
related disbursements, other out-of-pocket costs and reasonable compensation for
time spent by the Indemnitee for which he is not otherwise compensated by the
Corporation or any third party, provided
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<PAGE> 6
that the rate of compensation and estimated time involved is approved in advance
by the Board of Directors), actually and reasonably incurred by the Indemnitee
in connection with either the investigation, defense or appeal of a proceeding
or establishing or enforcing a right to indemnification under this Agreement,
Section 145 or otherwise, and amounts paid in settlement by or on behalf of
Indemnitee, but shall not include any judgments, fines or penalties actually
levied against the Indemnitee.
(f) "Independent Counsel" means (i) Blau, Kramer, Wactlar &
Lieberman, P.C., (ii) any other law firm or member of a law firm which the Board
of Directors subsequently may designate from time to time; or (iii) any law firm
or member of a law firm that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been, retained to
represent: (A) the Corporation or Indemnitee in any matter material to either
such party, or (B) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Corporation or Indemnitee in an action to determine
Indemnitee's rights under this Agreement arising on or after the date of this
Agreement, regardless of when the Indemnitee's act or failure to act occurred.
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(g) "Proceeding" includes any threatened, pending or completed
inquiry, action, suit, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other proceeding, whether civil,
criminal, administrative or investigative, except one initiated by an Indemnitee
pursuant to Section 12(a) of this Agreement to enforce his rights under this
Agreement.
2. SERVICES BY INDEMNITEE.
Indemnitee agrees to serve or continue to serve as a officer and
director of the Corporation so long as he is duly appointed or elected and
qualified in accordance with the applicable provisions of the By-Laws of the
Corporation or the By-Laws of any subsidiary of the Corporation or until such
time as he tenders his resignation in writing. This Agreement shall not impose
any obligation on the Indemnitee or the Corporation to continue the Indemnitee's
position with the Corporation beyond any period otherwise applicable, nor to
create any right to continued employment of the Indemnitee in any capacity.
3. GENERAL.
The Corporation shall indemnify, and shall advance Expenses to
Indemnitee as provided in this Agreement and to the fullest extent permitted by
law.
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4. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION.
Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4 if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any Proceeding, other than a Proceeding by or
in the right of the Corporation. Pursuant to this Section 4, Indemnitee shall be
indemnified against Expenses, judgments, fines and amounts paid in settlement
actually incurred by him or on his behalf in connection with such Proceeding or
any claim, issue or matter therein, 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 Proceeding, had no reasonable
cause to believe his conduct was unlawful.
5. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION.
Indemnitee shall be entitled to the rights of indemnification
provided in this Section 5, if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any threatened, pending or completed
Proceeding brought by or in the right of the Corporation to procure a judgment
in its favor. Pursuant to this Section, Indemnitee shall be indemnified against
Expenses actually incurred by him or on his behalf in connection with such
Proceeding if he acted
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in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been adjudged to be liable to
the Corporation if such indemnification is not permitted by Delaware or other
applicable law; provided, however, that indemnification against Expenses
nevertheless shall by made by the Corporation in such event to the extent that
the Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine.
6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL.
Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually incurred by him or on his behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Corporation shall
indemnify Indemnitee against all Expenses actually incurred by
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him or on his behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this Section, but without limitation, the termination
of any claim, issue or matter in such a Proceeding by dismissal or withdrawal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
7. ADVANCE OF EXPENSES.
The Corporation shall advance all reasonable Expenses incurred by or
on behalf of Indemnitee in connection with any Proceeding within twenty days
after the receipt by the Corporation of a statement or statements from
Indemnitee requesting such advance or advances from time to time, whether prior
to or after final disposition of such Proceeding. Such statement or statements
shall evidence or reflect the Expenses incurred by Indemnitee and shall include
or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to
repay any Expenses advanced if it is determined ultimately that Indemnitee is
not entitled to be indemnified against such Expenses.
8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Corporation a written request, including therein or therewith such
documentation and
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information as is reasonably available to Indemnitee and is reasonably necessary
to determine whether and to what extent Indemnitee is entitled to
indemnification. Promptly upon receipt of such a request for indemnification,
the Secretary of the Corporation shall advise the Board of Directors in writing
that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to Section 8(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in the specific case:
(i) if a Change in Control shall have occurred, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee (unless Indemnitee shall request that such determination be made by
the Board of Directors or the stockholders, in which case the determination
shall be made in the manner provided below in clauses (ii) or (iii)); (ii) if a
Change of Control shall not have occurred, (A) by the Board of Directors by a
majority vote of a quorum consisting of Disinterested Directors, or (B) if a
quorum of the Board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, if such quorum of Disinterested Directors so
directs, by Independent Counsel in a written opinion to the Board of Directors,
a copy of which shall be delivered to Indemnitee; (iii) as provided in Section
9(b) of this
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Agreement; and, if it is determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or Expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating shall be borne by the Corporation (regardless of
the determination as to Indemnitee's entitlement to indemnification) and the
Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement,
and no counsel shall have been designated previously by the Board of Directors
or the Independent Counsel so designated is unwilling or unable to serve, then,
(i) if no Change of Control shall have occurred, the Independent Counsel shall
be selected by the Board of Directors and the Corporation shall give written
notice to Indemnitee advising him of the identity of the Independent Counsel so
selected; (ii) if a Change of Control
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shall have occurred, the Independent Counsel shall be selected by Indemnitee
(unless Indemnitee shall request that such selection be made by the Board of
Directors, in which event the preceding sentence shall apply), and Indemnitee
shall give written notice to the Corporation advising it of the identity of the
Independent Counsel so selected. In either event, Indemnitee or the Corporation,
as the case may be, may, within 7 days after such written notice of selection
shall have been given, deliver to the Corporation or to Indemnitee, as the case
may be, a written objection to such selection. Such objection may be asserted
only on the ground that the Independent Counsel so selected does not meet the
requirement of "Independent Counsel" as defined in this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, the Independent Counsel so
selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof, no Independent Counsel shall have been selected or if
selected, shall have been objected to, in accordance with this Section 8(c),
either the Corporation or Indemnitee may petition the Court of Chancery of the
State of Delaware or other court of competent jurisdiction for resolution of any
objection which shall have been made by the Corporation or Indemnitee to the
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<PAGE> 14
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
favorably resolved or the person so appointed shall act as Independent Counsel
under Section 8(b) hereof. The Corporation shall pay any and all reasonable fees
and expenses of Independent Counsel incurred by such Independent Counsel in
connection with the performance of his responsibilities pursuant to Section 8(b)
hereof, and the Corporation shall pay all reasonable fees and Expenses incident
to the implementation of the procedures of this Section 8(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the due
commencement of any judicial proceeding or arbitration pursuant to Section 12 of
this Agreement, Independent Counsel shall be discharged and relieved of any
further responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that the
Indemnitee is entitled to indemnification under this Agreement if the
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<PAGE> 15
Indemnitee has submitted a request for indemnification in accordance with
Section 8(a) of this Agreement, and the Corporation shall have the burden of
proof to overcome that presumption in connection with the making of any
determination contrary to that presumption by any person, persons or entity.
(b) If the person, persons or entity empowered or selected under
Section 8 of this Agreement to determine whether the Indemnitee is entitled to
indemnification shall not have made such determination within 30 days after
receipt by the Corporation of the request therefor, the requisite determination
of entitlement to indemnification shall be deemed to have been made and the
Indemnitee shall be entitled to such indemnification, absent (i) a misstatement
by the Indemnitee of a material fact, or an omission of a material fact
necessary to make the Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law. Such 30 day period may be extended for a
reasonable period of time, not to exceed an additional 30 days, if the person,
persons or entity making the determination with respect to indemnification in
good faith requires such additional time for the purpose of obtaining and
evaluating information or documentaiton relating thereto. The foregoing
provisions of this Section 9(b) shall not apply if the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 8(b) of this Agreement.
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(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of the
Indemnitee to indemnification or create a presumption that the Indemnitee did
not act in good faith and in a manner which he reasonably believed to be in, or
not opposed to, the best interests of the Corporation or, with respect to any
criminal Proceeding, that the Indemnitee had reasonable cause to believe that
his conduct was unlawful.
10. ASSUMPTION OF DEFENSE.
In the event the Corporation shall be obligated to pay the Expenses
of any Proceeding against the Indemnitee, the Corporation, if appropriate, shall
be entitled to assume the defense of such Proceeding, with counsel reasonably
acceptable to the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election to do so. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Corporation,
the Corporation will not be liable to the Indemnitee under this Agreement for
any fees of counsel subsequently incurred by the Indemnitee with respect to the
same Proceeding, provided that (i) the Indemnitee shall have the right to employ
his counsel in such
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Proceeding at the Indemnitee's expense; and (ii) if (a) the employment of
counsel by the Indemnitee has been previously authorized in writing by the
Corporation, (b) the Corporation shall have reasonably concluded that there may
be a conflict of interest between the Corporation and the Indemnitee in the
conduct of any such defense, or (c) the Corporation shall not, in fact, have
employed counsel to assume the defense of such Proceeding, the fees and Expenses
of the Indemnitee's counsel shall be at the expense of the Corporation.
11. ESTABLISHMENT OF A TRUST.
(a) In the event of a Potential Change in Control, the Corporation,
upon written request by the Indemnitee, shall create a trust for the benefit of
the Indemnitee and from time to time upon written request of the Indemnitee
shall fund such trust in an amount sufficient to satisfy any and all Expenses
which at the time of each such request it is reasonably anticipated will be
incurred in connection with a Proceeding for which the Indemnitee is entitled to
rights of indemnification under Section 4 or 5 hereof, and any and all
judgments, fines, penalties and settlement amounts of any and all proceedings
for which the Indemnitee is entitled to rights of indemnification under Section
4 or 5 from time to time actually paid or claimed, reasonably anticipated or
proposed to be paid. The amount or amounts to be deposited in the trust
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pursuant to the foregoing funding obligation shall be determined by the party
who would be required to make the determination of the Indemnitee's right to
indemnification under Section 8(b) hereof (the "Reviewing Party"). The terms of
the trust shall provide that upon a Change in Control (i) the trust shall not be
revoked or the principal thereof invaded, without the written consent of the
Indemnitee, (ii) the trustee shall advance, within two business days of a
request by the Indemnitee, any and all Expenses to the Indemnitee (and the
Indemnitee hereby agrees to reimburse the trust under the circumstances under
which the Indemnitee would be required to reimburse the Corporation under
Section 7 hereof), (iii) the trust shall continue to be funded by the
Corporation in accordance with the funding obligation set forth above, (iv) the
trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (v) all unexpended funds in such trust shall revert to the
Corporation upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that Indemnitee has been fully
indemnified under the terms of this Agreement. The trustee shall be an
institutional trustee with a highly regarded reputation chosen by the
Indemnitee. Nothing in this Section 11 shall relieve the Corporation of any of
its obligations under this Agreement.
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(b) Nothing contained in this Section 11 shall prevent the Board of
Directors of the Corporation in its discretion at any time and from time to
time, upon request of the Indemnitee, from providing security to the Indemnitee
for the Corporation's obligations hereunder through an irrevocable line of
credit, funded trust as described in Section (a) above, or other collateral. Any
such security, once provided to the Indemnitee, may not be revoked or released
without the prior consent of the Indemnitee.
12. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) Expenses are not advanced timely in accordance with
Section 7 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b) of
this Agreement and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Corporation of the request
for indemnification, (iv) payment of indemnification is not made pursuant to
Section 6 of this Agreement within ten days after receipt by the Corporation of
a written request therefor, (v) payment of indemnification is not made within
ten days after a determination has been made that Indemnitee is entitled to
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indemnification or such determination is deemed to have been made pursuant to
Section 9 of this Agreement, or (vi) the Corporation fails to comply with its
obligations under Section 11(a) with regard to the establishment or funding of a
trust for Expenses, Indemnitee shall be entitled to an adjudication of his
entitlement to such indemnification, advancement of Expenses or the
establishment and funding of the trust in an appropriate court of the State of
Delaware, or in any other court of competent jurisdiction. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 12. The Corporation
shall not oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
(b) In the event that a determination shall have been made pursuant
to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 12 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial
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proceeding or arbitration commenced pursuant to this Section 12 the Corporation
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 8 of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 12 absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 12 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 12 seeks
a judicial adjudication or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to
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recover from the Corporation, and shall be indemnified by the Corporation
against, any and all expenses (of the types described in the definition of
Expenses in this Agreement) actually incurred by him in connection with
obtaining such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of Expenses sought, the Expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
13. NON-EXCLUSIVITY; DURATION OF AGREEMENT; INSURANCE; SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Corporation's certificate of incorporation or by-laws, any other
agreement, a vote of stockholders or a resolution of directors, or otherwise.
This Agreement shall continue until and terminate upon the later of: (a) 10
years after the date that Indemnitee shall have ceased to serve as an officer or
director of the Corporation, or (b) the final termination of all pending
Proceedings in respect of which Indemnitee is granted rights of
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indemnification or advancement of Expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 12 of this Agreement relating
thereto. This Agreement shall be binding upon the Corporation and its successors
and assigns and shall inure to the benefit of Indemnitee and his heirs,
executors and administrators.
(b) (i) To the extent that the Corporation maintains an insurance
policy or policies providing liability insurance for directors and officers of
the Corporation, Indemnitee shall be covered by such policy or policies in
accordance with the terms thereof to the maximum extent of the coverage
available for any such director or officer under such policy or policies. The
Corporation shall take all necessary or appropriate action to cause such
insurers to pay on behalf of the Indemnitee all amounts payable as a result of
the commencement of a proceeding in accordance with the terms of such policy.
(ii) For a period of three years after the date the Indemnitee
shall have ceased to serve as an officer or director of the Corporation, the
Corporation will provide officers and directors liability insurance for
Indemnitee on terms no less favorable than the terms of the liability insurance
which the Corporation then provides to the current officers and directors,
provided that the Corporation provides officers and directors liability
insurance to its current
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officers and directors, and provided further that the annual premiums for the
liability insurance to be provided to the Indemnitee do not exceed by more than
50% the premium charged for the coverage available for any of the Corporation's
current officers and directors.
(c) In the event of any payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
(d) The Corporation shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee otherwise actually has received such payment under any insurance
policy, contract, agreement or otherwise.
14. SEVERABILITY.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, each portion of any Section of this Agreement
containing any such provision held to be
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invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
15. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES.
Except as otherwise provided specifically herein, Indemnitee shall
not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim herein, brought or made
by him against the Corporation.
16. HEADINGS.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
17. MODIFICATION AND WAIVER.
This Agreement may be amended from time to time to reflect changes
in Delaware law or for other reasons. No
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supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by both of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar) nor shall such waiver constitute
a continuing waiver.
18. NOTICE BY INDEMNITEE.
Indemnitee agrees promptly to notify the Corporation in writing upon
being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating to any Proceeding or matter which may be
subject to indemnification or advancement of Expenses covered hereunder;
provided, however, that the failure to give any such notice shall not disqualify
the Indemnitee from indemnification hereunder.
19. NOTICES.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
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(a) If to Indemnitee, to:
(b) It to the Corporation, to:
Herley Industries, Inc.
10 Industry Drive
Lancaster, Pennsylvania 17603
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
20. GOVERNING LAW.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
21. PRIOR AGREEMENTS SUPERCEDED.
This Agreement supresedes all prior agreements or understandings
between the parties relating to indemnification, whether oral or written.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
ATTEST: HERLEY INDUSTRIES, INC.
- -------------------------------- --------------------------------
INDEMNITEE:
--------------------------------
<PAGE> 1
Exhibit 10.17
LICENSE AGREEMENT
THIS AGREEMENT made as of the 1st day of March 1994, between HERLEY
INDUSTRIES, INC., a corporation organized and existing under the laws of the
State of Delaware, having a place of business at 10 Industry Drive, Lancaster,
Pennsylvania 17603, ("Herley"), and CLEM WHITTEMORE, d/b/a ALLIED CONSULTING AND
ENGINEERING SERVICES, having its principal place of business at 2441 North Main
Street, Sunset, Utah 84015 ("ACES").
W I T N E S S E T H:
WHEREAS, ACES owns or controls exclusive rights to certain
inventions, methods, processes, elements, techniques, and manufacturing
technology pertaining to a "Licensed Product," as that term is hereinafter
defined; and
WHEREAS, Herley wishes to enter into an agreement for ACES's grant
of an exclusive license, as hereinafter described, for the manufacture,
marketing and sale of the Licensed Product,
<PAGE> 2
and ACES is willing to grant the same, subject to the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and agreements herein contained, it is agreed by and between
the parties hereto, as follows:
1. DEFINITIONS.
(a) The preamble to this Agreement shall form an integral part
hereof.
(b) Unless otherwise specified by subject and context, the
words appearing in the first column of the following table whenever used in this
Agreement, should bear the meaning set opposite them respectively, in the second
column thereof:
WORDS MEANINGS
----- --------
Manufacturing Technology (a) Parts list; (b) Manufacturing Drawings; (c)
Process Documentation; (d) Schematics; (e) all
drawings required for fabrication to source
control drawing and (f) all other technical data,
designs, plans, specifications, methods,
processes, systems, and any other information and
documentation, whether patentable or not, relating
to the Licensed Product and owned or controlled by
ACES which will, when properly utilized by one
skilled in the art, enable Herley to manufacture
the Licensed Product.
-2-
<PAGE> 3
Peripheral Equipment Equipment including test fixtures, prototypes,
test equipment, tooling and software specified on
Schedule 1 annexed hereto.
Licensed Product UHF Command & Control System known as "MOTHR",
including all future product enhancements and
modifications.
2. GRANT.
ACES grants to Herley, upon the terms and conditions hereinafter set
forth, the exclusive worldwide right and privilege to manufacture and sell the
Licensed Product in all industries and for all applications, and to sublicense
others with the same rights and privileges.
3. WARRANTIES OF ACES.
ACES warrants, represents and covenants as follows:
(a) Except for completing its backlog of orders set forth on
Schedule 2, during the term of this Agreement it will not manufacture or sell
the Licensed Product or grant or assign to any other person, firm or entity any
license right or privilege to manufacture, sell, or license the Licensed
Product.
(b) The Licensed Product have undergone and successfully
completed Qualification Testing and Acceptance by applicable governmental
agencies, and ACES shall provide to Herley such certificates or other
documentation as Herley reasonably requests to confirm the foregoing.
-3-
<PAGE> 4
(c) ACES has the corporate authority to execute, deliver and
perform this Agreement and to convey the License. The execution, delivery and
performance of this Agreement by ACES and the consummation of the transactions
contemplated hereby do not and will not conflict with, result in any breach of
any of the provisions of, constitute a default under, or violate ACES's Articles
of Incorporation or By-laws or any indenture, mortgage, lease, loan agreement
or other agreement or instrument to which ACES is party, or any law, statute,
rule or regulation to which ACES is subject. This agreement constitutes a valid
and binding obligation of ACES and is enforceable in accordance with its terms.
(d) All representations and warranties of ACES set forth
herein are complete, accurate and true statements of all material facts stated
therein and do not omit to state any material facts necessary to make the
statements contained therein not misleading.
(e) The representations and warranties made herein by ACES
shall survive the term of this Agreement.
4. DISCLOSURE TO HERLEY.
(a) Within ten (10) days after the commencement of the term
hereof, ACES shall provide to Herley the Manufacturing
-4-
<PAGE> 5
Technology and Peripheral Property in the manner determined mutually by the
parties.
(b) During the term of this Agreement, ACES will make
available to Herley, without additional charge, data relating to the use and
application of the Licensed Product if and whenever the same is obtained or
becomes available to ACES.
5. WARRANTIES OF HERLEY.
Herley accepts the license, rights and privileges granted to it as
set forth in this Agreement and covenants and warrants as follows:
(a) Herley will keep full, true and accurate books of account
regarding the amounts payable to ACES from time to time by way of
royalties or consulting fees, as hereinafter set forth. Such books
of account and memoranda and other records relating to the aforesaid
shall be kept at Herley's place of business and shall, throughout
the term of this Agreement, and for a period of one (1) year
thereafter, be made available as reasonably requested to the
inspection of ACES and its representatives, insofar as it may be
necessary to determine the nature and extent of Herley's operations
under the License herein granted.
-5-
<PAGE> 6
(b) Herley has the corporate authority to execute, deliver and
perform this Agreement and the License conveyed hereunder. The
execution, delivery and performance of this Agreement by Herley and
the consummation of the transactions contemplated hereby do not and
will not conflict with, result in any breach of any of the
provisions of, constitute a default under, or violate Herley's
Articles of Incorporation or By-laws of any indenture, mortgage,
lease, loan agreement or other agreement or instrument to which
Herley is party, or any law, statute, rule or regulation to which
Herley is subject. This agreement constitutes a valid and binding
obligation of Herley and is enforceable in accordance with its
terms.
(c) All representations and warranties of Herley set forth
herein are complete, accurate and true statements of all material
facts stated therein and do not omit to state any material facts
necessary to make the statements contained therein not misleading.
(d) The representations and warranties made herein by Herley
shall survive the term of this Agreement.
-6-
<PAGE> 7
6. TERM.
Unless sooner terminated, as hereinafter provided, this
exclusive License and Herley's exclusive right to grant sublicenses hereunder
shall be effective for a period of ten (10) years from the date hereof and shall
terminate on 28 Feb., 2004 ("Termination Date"). Thereafter, Herley and ACES
each will have the non-exclusive right to manufacture and/or sell the Licensed
Product without payment of any kind by Herley or ACES to the other.
7. CONSIDERATION FOR GRANT OF LICENSE HEREUNDER.
(a) Herley shall pay to ACES an initial fee of $100,000 (the
"Initial Fee") on signing of contract. ACES promises to promptly furnish to
Herley the Manufacturing Technology pursuant to section 4 hereof.
(b) Herley shall purchase the inventory of finished products
set forth on Schedule 3 at the prices set forth thereon, such purchase subject
to products being usable to complete purchase order requirements that have been
received from customers, even if such products are obtainable elsewhere at lower
prices.
(c) During the first eighteen (18) months of this agreement
(the "Transition Period"), Herley will pay to ACES a
-7-
<PAGE> 8
royalty for the manufacture and sale of the Licensed Product, which royalty
shall be limited to 10% of the purchase order prices for the first $3,500,000 of
purchase orders on those prospective contracts set forth on Schedule 4. Payments
shall be made thirty (30) days after an executed purchase order is received by
Herley.
(d) In addition to the payment referenced in (c) above, Herley
shall pay ACES a royalty for the manufacture and sale of the Licensed Product
from those prospective contracts not Bet forth on Schedule 4 at the rate of 5%
for all domestic sales and 10% for all foreign sales. For purposes of this
agreement, an order received from a domestic company for delivery to a foreign
customer shall be considered a foreign sale.
(e) With respect to the payment of the royalties set forth in
(d) above:
(i) Licensed Product shall be considered to be "sold"
when payment in full of the purchase price is actually
received by Herley. If an order is reduced in quantity or
canceled, ACES shall receive the royalty only on the quantity
actually delivered to the customer.
(ii) The term "Net Selling Price" shall mean the price
of the Licensed Product as billed to the customer, less all
customs and sales taxes, transportation costs.
-8-
<PAGE> 9
(iii) If any of the Licensed Product is included or
incorporated in some apparatus, device or piece of equipment,
which is sold by way of a total price for the entire
apparatus, device or piece of equipment, Herley shall account
to ACES separately for the same Net Selling Price as would be
charged by Herley for the Licensed Product sold separately.
(f) Herley shall advance $40,000 to ACES, within ten (10) days
after the Manufacturing Technology is furnished to Herley pursuant to Section 4
hereof, against any payments required under Sections 7 and 10 hereof.
8. MANNER OF PAYMENT.
Except as set forth in Section 7(c), the prescribed royalties
earned hereunder shall become due and payable by Herley to ACES thirty (30) days
after each Licensed Product is "sold" by Herley, as that term is defined in
Section 7(c)(i) hereof. Semi-annually, on the last day of every six (6) month
period during the Term of this Agreement, Herley shall furnish to ACES
statements showing (i) the total number of Licensed Product manufactured by
Herley during the preceding semi-annual or six-month period; and (ii) the total
number of Licensed Product sold by Herley during the preceding semi-annual or
six-month
-9-
<PAGE> 10
period. With respect to the royalties paid pursuant to Section 7(c), Herley
shall be entitled to a credit for royalties paid to the extent the Net Selling
Price for a purchase order is less than the purchase order price. Herley also
shall be entitled to deduct from future payments any adjustments to the Net
Selling Price or Purchase Order Price for returns, credits or allowances.
9. INSPECTION VISITS OF ACES TO HERLEY.
Once every year during the term of this Agreement, but subject to
Section 13, a designated, authorized representative of ACES, at ACES's own cost,
shall have the right, upon ten (10) days prior written notice to Herley, to
inspect Herley's facility during reasonable business hours for the purpose of
observing that Herley has developed and is maintaining sufficient manufacturing
capacity to produce the Licensed Product.
10. VISITS OF HERLEY to ACES & TECHNICAL ASSISTANCE; CONSULTING
FEES.
(a) During the term of this Agreement, Herley's authorized
representatives, at Herley's cost, shall have the right, from time to time, upon
reasonable notice to ACES, to visit ACES' facilities during reasonable business
hours for the purpose of acquiring any and all information relative to Licensed
Product that Herley deems necessary.
-10-
<PAGE> 11
(b) ACES will make available its President, Clem Whittemore
and other representatives of ACES, to consult with and provide to Herley
technical expertise and information and sales assistance at such times, places
and in the manner requested reasonably by Herley.
(c) In consideration for the services in (b) above, Herley
shall pay ACES:
(i) a consulting fee of $10,000 per month for the first
twelve months of this Agreement, and
(ii) an additional consulting fee ("Additional
Consulting Fee") equal to 20% of the first $3,500,000 of
Licensed Products sold during the Transition Period to those
prospective customers set forth on Schedule 4. This Additional
Consulting Fee, if earned, will extend the $10,000 monthly fee
for up to an additional twenty-four (24) months. For example,
if there is $1,000,000 in Licensed Products sold during the
Transitional Period from Schedule 4, then $200,000 Additional
Consulting Fees will be "earned", which will result in a
twenty (20) month extension of the consulting agreement,
resulting in a total consulting payment
-11-
<PAGE> 12
of $10,000 per month for thirty-two (32) months. As another
example, if $2,000,000 of Licensed Products are sold during
the Transitional Period from Schedule 4, then $400,000
Additional Consulting Fees will be "earned". In this event,
since this payment would exceed thirty-six (36) months if paid
at the rate of $10,000 per month, the consulting fee will be
increased for twenty-four (24) equal payments, so that the
total consulting period is thirty-six (36) months. In this
case, since $400,000 will have been earned, payments in the
thirteenth (13th) through the thirty-sixth (36th) month will
be $16,666.67.
(d) Herley agrees to advance ACES up to $100,000 against any
consulting fees earned under Section 10(c) hereof but for which payment is not
yet due. Such advance will bear interest at the then prevailing prime rate of
interest until such time as the payment is due and owing by Herley.
11. IMPROVEMENTS.
During the term of this Agreement, any improvements relating to the
Licensed Product which may be conceived or discovered by either party shall be
communicated to the other party without any undue delay, and Herley shall have
the right to use the same without any charge.
-12-
<PAGE> 13
12. GOVERNMENT PROHIBITION.
If any department or agency of the United States Government shall
prohibit ACES from communicating certain data or information to Herley, then the
failure to communicate such data or information because of such refusal or
prohibition shall not constitute a breach of any obligation of ACES under this
Agreement. Correspondingly, if Herley shall fail either to communicate any
inventions or improvements subject to this License Agreement or otherwise permit
ACES access to its facility as provided herein because of the interdiction or
prohibition thereof by any governmental department or agency having jurisdiction
thereof, then, such refusal or failure shall not constitute a breach by Herley
of its incumbent obligations hereunder.
13. INFRINGEMENT.
(a) Each party hereto shall promptly notify and give full
information to the other party concerning any and all legal proceedings, suits,
actions, controversies and claims which may be brought or made, affecting or
regarding the Licensed Product or any patent, trademark, invention or
improvement relative to the Licensed Product. In such event, the parties will
consult with each other as to the action to be taken and each party will give
the other party its full assistance and cooperation as reasonably required.p
-13-
<PAGE> 14
(b) ACES covenants and represents that the rights granted to
Herley under this Agreement are free from infringement of patents and/or other
proprietary rights of others.
14. EVENTS OF DEFAULT BY HERLEY.
(a) In the event that (i) Herley fails to pay to ACES
royalties when due in accordance with the provisions of this Agreement and for a
period of thirty (30) days after written notice by ACES to Herley thereof
specifying the amount claimed to be due; and/or (ii) Herley breaches any of the
material terms of this Agreement and fails to remedy the same within thirty (30)
days after written notice from ACES specifying the breach, then ACES may, at its
option, terminate this Agreement by notice in writing to Herley.
(b) Should this Agreement be terminated as provided above,
Herley shall be obligated to pay to ACES all accrued royalties and such other
sums then due under this Agreement.
15. EVENTS OF DEFAULT BY ACES.
(a) Subject to (b) below, in the event that ACES shall breach
or fail to perform any of the terms and conditions, covenants or representations
in this Agreement and fails to remedy the same for a period of thirty (30) days
after written
-14-
<PAGE> 15
notice from Herley specifying such breach or non-performance, Herley may elect
to terminate this Agreement by written notice to ACES and/or to avail itself of
any and all rights it may have to redress the same, at law or in equity, on a
non-mutually exclusive basis.
(b) In the event that Herley's rights to manufacture and/or
sell the Licensed Product hereunder are impaired, restricted or enjoined and/or
Herley becomes liable for damages as the result of any interlocutory or final
determination that the manufacture or sale by Herley of the Licensed Product
infringes upon a patent or violates the superior proprietary rights of a third
party; that ACES does not have paramount title to the Licensed Product; and/or
that ACES did not have the right to grant a License to Herley to manufacture and
sell the Licensed Product, then Herley shall have the right to terminate this
Agreement immediately by written Notice to ACES and shall be entitled to recover
damages from ACES in an amount equal to one-half of all damages which Herley is
required to pay to any third party, including legal fees, whether by judgment or
settlement, but not to exceed the sum of the Initial Fee and all royalties paid
by Herley to ACES hereunder.
-15-
<PAGE> 16
16. CONFIDENTIALITY.
During the term and after the termination of this Agreement for any
reason whatsoever, Herley will not reveal or disclose to any third party,
without the written authorization of ACES, any confidential information or data
relating to the Licensed Product, processes and methods of production of same,
or the Manufacturing Technology, provided, however, that Herley may employ
subcontractors for the manufacture of parts, which subcontractors shall have the
same obligations of nondisclosure as Herley. Herley agrees to refrain from
publishing articles containing any confidential information relating to the
Licensed Product without consulting ACES prior to such publication and obtaining
the written consent of ACES, which shall not be unreasonably withheld.
17. PROCEDURE UPON TERMINATION.
(a) Should this Agreement be terminated by reasons of Herley
default as provided for in Section 15 hereof, Herley agrees that it will not
manufacture or sell for a period of two (2) years after the effective date of
such termination, any device which is the same as, similar to, or in competition
with, the Licensed Product.
(b) Should notice of termination of this Agreement be given by
either party under any of its provisions, ACES, from
-16-
<PAGE> 17
the date of such notice, shall not be under any obligation to supply or make
available to Herley, the Manufacturing Technology, or any other data or
information whatsoever relating to the Licensed Product, nor shall Herley, in
such event, be authorized to visit the facilities of ACES.
18. PARTNERSHIP, JOINT VENTURE OR AGENCY.
Nothing contained in this Agreement shall be deemed or construed to
constitute or create between the parties hereto a partnership, association,
joint venture or agency.
19. NOTICES.
All notices required to be sent by either party to this Agreement to
the other shall be sent by air mail, registered to the respective addresses of
the parties hereto, as above set forth, or to such other addresses as may
hereafter be designated in writing by one party to the other.
20. CONTROLLING LAW.
This Agreement shall be construed and interpreted according to the
laws of the State of New York without regard to its conflicts of laws
provisions. Any suit, action or proceeding arising out of this Agreement shall
be instituted in the state or federal courts in the State of New York.
-17-
<PAGE> 18
21. WAIVER
The failure of either party to exercise any right hereunder or to
take any action permitted on a breach by the other party shall not be deemed a
waiver of such right or of any other rights for any prior or subsequent breaches
of a like or different nature.
22. ENTIRE UNDERSTANDING.
This Agreement contains the entire understanding of the parties and
supersedes all oral or written representations or written agreements of license,
rights, and privileges or understandings between the parties; it shall not be
modified except by an agreement in writing signed by both of the parties hereto.
23. ASSIGNMENT.
This Agreement and/or the rights, entitlements or obligations
hereunder shall not be assigned by either party without the written consent of
the other except that Herley shall be entitled to assign this Agreement to any
of Herley's subsidiaries on prior notice to, but without obtaining the consent
of ACES. Any assignment in violation of this section shall be void and of no
legal effect.
-18-
<PAGE> 19
24. BINDING EFFECT.
This Agreement shall be binding upon and enure to the benefit of the
successors and assigns of the respective parties hereto.
25. DUPLICATE ORIGINALS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned parties have caused this
Agreement to be executed by their respective duly authorized officers the day
and year first above written.
Attest: HERLEY INDUSTRIES, INC.
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- ----------------------- ----------------------------
Asst. Secretary
Title: CHMN
-------------------------
CLEM WHITTEMORE
d/b/a ALLIED CONSULTING AND
ENGINEERING SERVICES
Witnessed by:
/s/ Tammy E. Mumma /s/ CLEM WHITTEMORE
- ----------------------- ----------------------------
-19-
<PAGE> 20
SCHEDULE 1
Peripheral Equipment
1. ACES Acceptance Test Set, Part Number TS001
<PAGE> 21
SCHEDULE 2
ACES Existing Backlog
1. Northrop Corporation
Point Of Contact: Ed Delaney
P0 # 110-28 1026AK, Two (2) Airborne Transponders, $40,000
P0 # 1 10-281025AK, Flight Test, $7,500
2. Teledyne Ryan Aeronautical
Point Of Contact: Gordon Boyer
Description of Purchase Order: Ground Station and two (2)
Airborne Transponders. Engineering and consulting hours.
P0 # 90534002F, $195,400 ($83,318.09 total invoiced as of 1/1/94)
<PAGE> 22
SCHEDULE 3
Inventory of Finished Products
1. Components- Duplexers, Mixers, Amplifiers, Oscillators, Connectors, etc.
2. WIP (work in process) assemblies, such as Enclosures, Printed Circuit
Boards, etc.
Total of items I and 2 are approximately $21,000.
3. Ground RF Module, part number 30100, $30,000
4. Relay, part number AC1001R01, $25,000
<PAGE> 23
SCHEDULE 4
Prospective Contracts
1. Northrop Corp./NAVSEA (AEGIS Program)
Chukar, BQM-74E
POC: Ed Delaney (301) 322-8442
2. PMTC
AQM-34L/M and BQM-34A/S Retrofit
Chukar
NAVSEA/NAVAIR
POC: Harry Lee, (805) 989-5926
3. PMRF, Ballistic Re-Entry
BQM-345, BQM-74E, etc.
POC: Rick Daly, (808) 335-4416
4. Teledyne Ryan Aeronautical
410/435, BQM-345/Commercial version
POC: Norm Sakamoto, (619) 291-7311, est 4366
5. Gamma International/REBA-J
MQM 107
POC: Bob Jones, (410) 472-4732
6. Moller International
AMGSS Program
POC: Al Ellis, (410) 363-6216
<PAGE> 24
HERLEY
INDUSTRIES
INC
- --------------------------------------------------------------------------------
July 27, 1995
Mr. Clem Whittemore
2441 N. Main
Suite #8
Sunset, UT 84015
Dear Clem:
This letter will serve as an amendment to the agreement between yourself and
Herley Industries, Inc. of March 1,1994.
As we have agreed, the Technical Assistance/Consulting portion of the agreement
will be extended, so that Paragraph 10(c) (i) should be changed to read:
(i) "a consulting fee of $10,000 per month for the first 18 months of
this Agreement, and"
Paragraph 1. (b), the "licensed Product" description, should be updated and
read:
"Licensed Product MAGIC(2) (Multiple Aircraft GPS Integrated Command and
Control), previously referred to as MOTHR. The MAGIC(2)
product includes all software for both Ground and Airborne
System for all vehicles. This includes all future product
enhancements and modifications. Future product enhancements
include, but are not limited to:
o New Frequency Bands
o New vehicle types
- Different Drones
- UAVs
- Land Vehicles
- Tanks
- Surveillance
- Water Vehicles
- Boats
- Ships
o New data link formats
- Different Data Rates
- Different Message formats
o Telemetry only systems, providing GPS position
information
o Range Instrumentation"
<PAGE> 25
Mr. Clem Whittemore July 27, 1995
Page 2 of 2
All other terms and conditions of the agreement will remain in effect.
If you are in agreement with this arrangement, please so indicate by signing one
copy of this letter and returning it to Herley Industries, Inc. If you have any
questions or comments, please do not hesitate to contact me.
Sincerely,
HERLEY INDUSTRIES, INC.
By:
/s/ Myron Svoy President
- --------------------------------
/csb
Enclosure
Accepted:
/s/ Clem Whittemore 7-27-95
----------------------------------------
Clem Whittemore Date
<PAGE> 1
Exhibit 10.19
Executed in 3 Dated April 11, 1996
Counterparts
Agreement for Sale of Real Estate
LEE N. BLATT, 10 Industry Drive, Lancaster, PA 17603, hereinafter
called "SELLER", agrees to sell and convey to HERLEY INDUSTRIES, INC.,
hereinafter called "BUYER", and BUYER agrees to purchase, on the terms
hereafter stated, the following real estate to Lancaster County,
Pennsylvania (hereafter called the "premises"):
20.4 acres, more or less, located along Running Pump Road, East
Hempfield Township.
Recorded title source: Record (Deed) Book _____, Vol. 4932, Page 255
PRICE
1. The price shall be Nine Hundred Forty Thousand Dollars ($940,000,000),
payable in funds acceptable to SELLER, as follows:
<TABLE>
<S> <C> <C> <C>
(a) "Down payment" consisting of --
X Cash $ 94,000.0
--- ----------
--- Non-interest-bearing non-negotiable note payable at settlement $
----------
or on BUYER'S default
---furnished herewith to, and receipt of which is acknowledged by,
--- SELLER -- ____ Seller's listing broker or other escrow agent named
in Escrow Agent's Agreement at end hereof. $
----------
( )
(X) Balance at settlement $846,000.0
----------
Total $940,000.0
==========
</TABLE>
Financing Contingency
2. This Agreement, and BUYER'S obligation to make settlement--
(a) X Are NOT CONTINGENT upon BUYER'S obtaining financing of any kind
or receiving settlement for any other real estate.
(b) ___ ARE CONTINGENT upon BUYER'S procuring by ________ a commitment
for _______ mortgage financing for at least $ ________________, with interest
not exceeding ________% per annum, amortized over at least _______ years, with
total monthly payments of principal and interest (but not including taxes or
insurance) not exceeding $ _______. BUYER will seek the above mortgage
financing--______ without aid of a broker--______ through the broker, and on the
terms stated in Brokers' Financing Assistance Agreement at end hereof.
<PAGE> 2
Condensed Special Provisions
3. The following condensed special terms printed on this page for
convenience, are amplified or restricted by, and are to be construed with, the
more detailed general provisions on subsequent pages in Paragraphs indicated in
left margin below:
Read w/paragraph
4(a) (a) Settlement date: March 31, 1998
8(a) (b) State & local realty transfer tax to be paid equally by buyer and
Seller.
8(a) (c) Real Estate taxes to be apportioned on a fiscal year basis.
6(b) (d) Seller's Insurance: $ _________ __ Standard fire -- _____
Extended Coverage -- _____ Homeowner's -- ________ -- _______
Vandalism -- _______ Malicious Mischief -- ____ $____________ Flood
5(b) (e) Special fixture inclusions: None
5(b) (f) Special fixture exclusions: None
7(a) (g) Zoning is Light Industrial.
12 (h) Deadline for complete signing: ________, 1996
4(b) (I) Possession to be given subject to the following existing tenancies:
None
SETTLEMENT, TENDER & POSSESSION
4. (a) Settlement shall be made on or before the date stated in Par. 3(a)
at such attorney's or title company's office in Lancaster County, Pa, as BUYER
may designate (unless some later time or other place shall hereafter be mutually
agreed upon). Formal tender of deed and purchase money are waived.
(b) Possession shall be given by SELLER to BUYER at settlement, subject
to any existing tenancies listed in Par. 3(I).
TITLE
5. (a) SELLER shall convey to BUYER, by special (or "fiduciary", if
applicable) warranty deed, good and marketable for simple title to the premises
or title insurable at regular rates by title insurance company of BUYER'S
choice, free of all liens and encumbrances not expected herein, but SUBJECT TO
existing zoning and land subdivision ordinances and other governmental
regulations, wall rights, building or use restrictions, encroachments on public
highways, encroachments of cornices, trim or spouting over property boundaries,
easements within utility reserve strips or in developments or within legal
limits of highways, easements for utility for utility services to these premises
and other easements which reasonable physical examination would disclose.
<PAGE> 3
INCLUSIONS IN SALE
(b) This sale (and the above-stated price) -- except for any
exclusions stated in Par. 3(f) -- INCLUDES all--
(I) Buildings, improvements, rights, privileges, appurtenances
and damages due or to become due from exercise of any power of eminent domain
either prior to the date hereof or prior to settlement;
(II) Gas, electric, heating, plumbing, lighting, water, water
softening and central air conditioning -fixtures and systems, cook stoves,
built-in ovens, laundry tubs, roller and venetian blinds, curtain and drapery
rods and hardware, radiator covers, cabinets, radio and television aerials,
masts and rotor equipment, storm doors and windows, screen doors and fitted
window screens, awnings, and any articles permanently affixed to the property.
(III) Trees and shrubbery, and flowers or plants in ground --
- -- now on or pertaining to the premises;
(IV) Heating and cooking fuel (including fireplace wood) on
the premises at time of settlement or earlier delivery of possession; and
(V) Any special inclusions listed in Par. 3(e).
SELLER warrants title, free of liens or security agreements, to the foregoing
personal property or "fixture" items, which warranty shall not be extinguished
by settlement.
RISK & INSURANCE
6. (a) At settlement, the premises and all appurtenant property (except
fuel) mentioned in Par. 5(b) shall be in substantially the same condition as at
present, except for (I) ordinary reasonable wear and tear, (II) damage of any
kind for which full or partial recovery may be had under the SELLER'S or BUYER'S
insurance, (III) damage which occurs after possession has been given to BUYER,
or (IV) any taking by eminent domain.
(b) Neither damage by any casualty insured against by BUYER or
SELLER nor any taking by eminent domain shall avoid, impair or delay BUYER'S
obligation to make settlement hereunder unless BUYER'S financing provided for in
Par. 2(b) shall become unobtainable because thereof; but in partial mitigation
of this risk to BUYER, SELLER agrees to continue in force his present insurance
of amounts and type stated in Par. 3(d) until delivery of deed or possession to
BUYER (whichever shall first occur), and in case of loss will credit on account
of the purchase price at settlement any insurance collected or collectible
(--either by Seller or any mortgagee or other loss-payee--) therefore BUYER
accepts notice that if he considers SELLER'S insurance inadequate in amount or
type, or it he takes possession before settlement, he should, at his own
expense, procure such additional amounts, types and/or/policy/ies of insurance
as he may deem prudent to protect his risk.
SELLER'S REPRESENTATIONS
7. SELLER represents to BUYER that --
(a) Zoning is as stated in Par. 3(g); and that,
EXCEPT as may be noted to the contrary at the end of this paragraph --
<PAGE> 4
(b) There are no pending unsettled eminent domain proceedings and no
appropriations by filing of State Highway plans in the Recorder's Office
affecting the premises, of which the SELLER has knowledge;
(c) No part of the premises, except within utility reserve strips in
developments or within legal limits of highways, is, or at settlement will be,
subject to any currently-used or enforceable easement for any underground
electric or telephone cable or sever, gas or water pipe serving other than these
premises, any petroleum products pipeline or public storm sewer, or any other
easement which is not apparent upon reasonable physical inspection;
(d) No present use or condition of the premises violates any
enforceable building or use restriction in the chain of title; and
(e) No assessment for any public improvement has been made against
the premises which remains unpaid and no work has been commenced on any public
improvement being financed on an assessment basis on, adjacent to or benefiting
the premises, of which SELLER has knowledge, and no notice or order has been
received by SELLER or his agent from any governmental authority requiring the
doing of work or correction of conditions on the premises which has not been
complied with, or with respect to which agreement is not made in a subsequent
Paragraph hereof as to time, cost and/or burden (as between SELLER and BUYER) of
compliance, or as to non-compliance, appeal procedures, etc.
EXCEPTIONS TO REPRESENTATIONS (IF ANY)
APPORTIONMENTS, ASSESSMENTS, GOVT. ORDERS
8. (a) Sewer and water rents shall be apportioned to date of settlement or
prior delivery of possession. Any rentals of tenants to whose possession BUYER
is taking subject shall be apportioned to date of settlement, at which time all
written leases shall be assigned and delivered to BUYER. Realty transfer taxes
annual real estate taxes shall be paid or apportioned as stated in Pars. 3(b)
and (c).
(b) Legally-adequate description, acknowledgments to deed, and
preparing, obtaining and/or recording releases, other documents, or surveys
reasonably required by BUYER'S attorney or title insurer to make SELLER'S title
good and marketable or insurable at regular rates, shall be provided and/or paid
for by SELLER.
(c) Preparation of deed (and mortgage and bill of sale for personal
property, if any), examination of title insurance at regular rates, title
company service or settlement fees (whether purported to be billed against BUYER
or SELLER), and any surveys desired by BUYER (but not necessary for furnishing
legally-adequate description) shall be paid by BUYER. Any escrow fees shall be
paid by the party for whose account the escrow is required.
(d) BUYER will be responsible for assessments for public improvements
commenced, and for connection fees and installation charges for any
municipally-required sewer or water connections to or on the premises made,
after the date of this agreement. Work or correction of conditions required by
any governmental authorities by orders issued after the date of this agreement
shall be performed by, and at the cost of, SELLER if of minor and/or temporary
nature; but if of substantial nature, and of longer-term benefit to the premises
continuing after settlement date, SELLER and BUYER shall negotiate concerning
compliance or appeal proceedings and by whom, when (--within times permitted by
the governmental orders or appeal procedures--) and at whose cost, required work
<PAGE> 5
shall be performed. If SELLER does not fully comply with such orders, and the
parties fail to agree on these matters to be negotiated, prior to settlement
date, either party, by at least 14 days' written notice to the other, may
rescind this agreement, and in such case BUYER shall be entitled to return of
his down payment upon his surrendering to SELLER for cancellation of his
copy/ies of this agreement -- after which all further obligation of this
agreement on both parties shall terminate.
RESCISSION, DEFAULTS: MAKING TIME OF ESSENCE
9. (a) If Par. 2(b) is marked as applicable, BUYER shall promptly apply
for and use his best efforts to obtain the mortgage commitment therein provided
for, and promptly notify SELLER when it has been obtained. If BUYER fails to
obtain this commitment by the date specified in Par. 2(b), or if any other
contingency specified in Par. 2 is not fulfilled, either party may rescind this
agreement by written notice to the other, and in such case the down payment in
Par. 1(a) shall be returned to BUYER upon his surrendering to SELLER for
cancellation his copy/ies hereof.
(b) If either party shall default in performing any act herein required
of him by the date(s) specified therefor, the other party, by written notice to
him at or after such default, may fix a deferred time, not less than 14 days
distant, for performance of the defaulted act, and may make performance by such
deferred date "of the essence of the contract".
(c) If BUYER shall fail to make any payment due under Par. 1 by any
time which has been made of the essence of the contract under Par. 9(b), his
entire down payment and any subsequent payments hereunder (whether required or
not) may be retained (and any note/s included therein may be collected) by
SELLER, and shall be applied by SELLER either on account of the purchase price
or as liquidated damages for the breach, as SELLER may elect; and if applied as
liquidated damages, SELLER shall be released from all further liability to
convey to BUYER.
(d) If SELLER is unable to give title as provided in Par. 5(a), BUYER
may elect either (I) to take such title as SELLER on can give, or (II) to
require SELLER to return to BUYER all payments including any note/s theretofore
made to SELLER on account of the purchase price, and to reimburse BUYER for all
costs of searching title, appraisals, inspections, and preparation of deed,
mortgage and other settlement papers which BUYER reasonably may have incurred,
upon which return and payment all further obligation of this agreement on both
parties shall terminate.
(e) If BUYER shall acquire possession of the premises before payment of
the entire purchase price and shall default in completing payment at any time
made "of the essence" under Par. 9(b) or other wise, or if SELLER shall have
received the entire purchase price and shall have failed to deliver possession
to BUYER, the Prothonotary or any attorney of any court is hereby authorized, to
the extent and under the conditions, if any , then permitted or prescribed by
law, to appear for and confess judgment in ejectment against the defaulting
party and in favor of the party who is not in default, for the premises, and to
direct the issuing of a writ of possession, with accompanying money execution
for costs.
RECORDING
10. This agreement may be recorded only if acknowledged by SELLER.
NOTICE
11. Mailing of any notice provided for herein to a party at his
above-stated address shall be
<PAGE> 6
as effectual as personal service thereof.
12. If this agreement is not signed by both SELLER and BUYER at the
same time, it shall constitute merely an offer by the first-signing party which
shall be subject to acceptance by the other party (--by his signature and
procuring actual delivery of a fully-executed counterpart to the first-signing
party--) only on the date stated in par 3(h), unless this time is extended by
the first-signing party. If not so accepted, all tendered copies of this
agreement, and any tendered down payment, shall be immediately returned to the
first-signing party.
IN WITNESS WHEREOF the parties, intending to be legally bound, have executed
this agreement on the date above stated.
SELLER: BUYER:
HERLEY INDUSTRIES INC.
_____________________________ (SEAL) By:______________________ (SEAL)
Myron Levy, President
<PAGE> 7
COMMONWEALTH OF PENNSYLVANIA :
: SS:
COUNTY OF LANCASTER :
On this 11 day of April, 1996, before me, the undersigned officer,
personally appeared LEE N. Blatt, known to me to be the person whose name is
subscribed to the within instrument, and acknowledged that he executed the same
for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
_____________________________________
Notary Public
#70015
<PAGE> 1
Exhibit 10.20
[LETTERHEAD OF JANNEY MONTGOMERY SCOTT INC.]
October 30, 1997
Mr. Lee N. Blatt
Chairman of the Board and
Chief Executive Officer
Herley Industries, Inc.
10 Industry Drive
Lancaster, Pennsylvania 17603
Re: Proposed Equity Offering
Dear Mr. Blatt:
You have shown us, among other things, draft audited financial statements
for fiscal 1997 and audited financial statements for prior years for Herley
Industries, Inc. ("HRLY" or the "Company") as well as projections for the fiscal
years ending approximately July 31, 1998 through 2000. The signing of this
letter will represent that nothing has come to your attention since the
preparation of this information which would adversely change the business
prospects of the Company. Janney Montgomery Scott Inc. ("JMS") has indicated
that upon execution of this letter of intent JMS will continue its due diligence
investigation into the Company's business and prospects.
Based upon the foregoing, satisfactory completion of our due diligence
investigation, our favorable evaluation of the Company's business and our
favorable assessment of general conditions in the securities markets, we have
discussed with you a proposed financing as detailed below.
Co-Manager: Southwest Securities, Inc. will co-manage the
transaction with JMS, together the "Managing
Underwriters".
Securities to be Common Stock: 700,000 from the Company.
Offered: 700,000 from Selling Shareholders.
Warrants: 1,050,000 from the Company.
350,000 from Selling Shareholders.
Estimated The Common Stock at approximately the bid price
Offering Price: immediately preceding the execution of the Underwriting
Agreement ("Offering Price") and the Warrant at $.10
each.
<PAGE> 2
Herley Industries, Inc.
Page 2
Warrant Terms: The Warrants will expire, unless extended by the issuer,
25 months from the date of issuance. Each Warrant will
entitle a holder to purchase one Common share initially
and for a period of 13 months at an exercise price of
120% of the Offering Price of the Common Stock and
subsequently for 12 months at 130% of the Offering Price
of the Common Stock.
Overallotment: Solely for the purpose of covering their short position
in the offering, the Managing Underwriters will have an
overallotment option from the Company which would allow
for the purchase of up to 15% of the Common shares and
Warrants offered at their net offering prices for a
30-day period after the offering. As currently
contemplated, the overallotment would be for 210,000
Common Shares and 210,000 Warrants.
Use of Proceeds: Working capital and expansion including potential
acquisitions.
Form of Offering: A firm commitment underwriting.
Underwriters' The Underwriters will be paid 6.5% of the gross proceeds
Fees: of the offering and a 1.33% financial advisory fee based
on gross proceeds to the Company.
Managing For $.01 per Managing Underwriters' Warrant, on 10% of
Underwriters' the securities offered, priced in accordance with NASD
Warrants: regulations (i.e., not exercisable in the first year and
thereafter at 120% above the Offering Price). Managing
Underwriters' Common Stock-Purchase Warrants will have a
five- year term and the Managing Underwriters'
Warrant-Purchase Warrants will have a two-year term.
Registration The Company agrees that, to the extent permitted under
Rights for the applicable rules, regulations and policies of the
Common Stock SEC and the NASD:
and Warrants:
(a) At the Company's expense for one time, the
Company will, upon the request of holders of at least
50% of the Managing Underwriters' Warrants and/or
underlying Common Stock (the "Request"), file and
maintain an effective registration statement for up to
24 months on any qualifying form (either as a post
effective registration statement to the original
offering or otherwise) and file applications and other
documents as shall be required to qualify under state
securities laws of such jurisdictions as shall be
reasonably requested, in order to permit the offer and
sale to the
<PAGE> 3
Herley Industries, Inc.
Page 3
public of the Managing Underwriters' Warrants and/or
underlying Common Stock or Warrants. At the Company's
expense, the Managing Underwriters' Warrants and/or
underlying Common Stock or Warrants will be entitled to
unlimited piggy-back registrations.
(b) In addition to the registration rights in
paragraph (a) above, the registration statement will be
kept effective for the public Warrants.
(c) The expense to be borne by the Company
relating to any offering of Common Stock or Warrants
under paragraph (a) above, shall not include
underwriting commissions, if any. Fees of the sellers'
counsel will be paid by the Company which fee shall not
exceed $10,000.
Expenses: The Company will pay the expenses of the issue,
including but not limited to all fees and expenses of
its counsel, all original issue and transfer taxes, NASD
filing fees, postage and printing costs, advertising
costs, the costs of the "road shows", accounting fees
and the cost of Blue Sky qualification, including
related counsel fees.
In the event that the proposed offering does not proceed
after the signing of this letter of intent because the
Company or Selling Shareholders are unwilling to
proceed, or in the event of a materially adverse change
in the financial condition of the Company or similar
Company event, the Company shall pay the Managing
Underwriters' accountable out-of-pocket expenses which
will include the Managing Underwriters' reasonable legal
fees. In the event the Company or Selling Shareholders
are unwilling to proceed because of market conditions,
the Company shall pay the Managing Underwriters'
accountable out-of-pocket expenses, including their
reasonable legal fees, provided that such payment shall
not exceed $100,000. If the Managing Underwriters are
unable to market the securities for reasons unrelated to
a market decline, materially adverse change or similar
Company event, no out-of-pocket expenses will be due.
If the proposed offering is canceled because the Company
has made, or proposes to make, a private placement
within six months from the date hereof which will
provide it with substantial alternative funding through
another investment banker or agent, the Managing
Underwriters shall be entitled to a cash fee equal to 1%
of the
<PAGE> 4
Herley Industries, Inc.
Page 4
gross amount of such funding, whether effectuated by the
Company before or after such cancellation of the
proposed offering.
Investment Pre Offering: If this proposed offering is canceled
Banking Agree- because the Company, or any subsidiary or affiliate
ment: thereof, is to be sold, whether by merger (in which the
Company is not the survivor), sale of stock, sale of
assets or otherwise ("Sale Transaction"), the Managing
Underwriters shall be paid a cash fee of 2% of the Sale
Transaction value on the closing date(s) of the Sale
Transaction. The Company agrees to choose JMS as its
investment banker in connection therewith and agrees to
enter into an engagement agreement whereby, among other
provisions, JMS will be retained to render a fairness
opinion, relative to the Transaction, from a financial
point of view for which JMS will be paid a cash fee of
$200,000 in addition to any other fees relating to our
engagement hereunder.
Post Offering: For a period of 6 months after the
offering, if the Company enters into a Sale
Transaction, the Managing Underwriters will be retained
as the Company's joint investment bankers and be paid an
aggregate cash fee at the closing date(s) equivalent to
1.0% of the Sale Transaction value. At the time
negotiations are initiated, the Managing Underwriters
and Company will enter into an engagement agreement
providing for the payment of the fee provided above and
other provisions generally found in such agreements,
including appropriate indemnification from the Company
to the Managing Underwriters. Further, if the Sale
Transaction Value is less than $10 million and the
Company's Board of Directors seeks a fairness opinion
for the Sale Transaction, JMS will be retained for such
purpose at a fee to be mutually agreed upon, but not
less than $100,000. In addition, if the Sale Transaction
Value exceeds $10 million, JMS will be retained for a
cash fee of $200,000, in addition to any other fees
relating to our engagement hereunder, to render its
fairness opinion, relative to the Sale Transaction, as
to whether such Sale Transaction is fair to the
Company's shareholders from a financial point of view.
For a 12-month period beginning upon completion of the
offering, if either Managing Underwriter is instrumental
in introducing an acquisition candidate to the Company
and the transaction ("Acquisition Transaction") is
consummated within 24 months from the date of the
offering, the introducing Managing Underwriter will
receive a cash fee from the Company equivalent to 1 % of
the Acquisition Transaction value (to be mutually agreed
upon in
<PAGE> 5
Herley Industries, Inc.
Page 5
writing) and the "Other Managing Underwriter", provided
the Acquisition Transaction value exceeds $10.0 million,
shall be retained by the Company, for a cash fee to be
mutually agreed upon but in no instance to be less than
$100,000, to render a fairness opinion as to whether the
Acquisition Transaction is fair from a financial point
of view to the Company and its shareholders. For
Acquisition Transaction values less than $10 million and
if the Board of Directors seeks an Acquisition
Transaction fairness opinion, the Company agrees to
retain the Other Managing Underwriter for a fee to be
mutually agreed upon to render an opinion as to the
fairness of the Acquisition Transaction from a financial
point-of-view.
Disposition of The Selling Shareholders will agree not to dispose of
Securities: securities of the Company (except in response to an
offer to shareholders generally) for a period of 180
days after the offering without JMS' approval. The
Company will obtain an agreement from its officers and
directors not to dispose of securities of the Company
(except in response to an offer to shareholders
generally) for a period of 120 days after the offering
without JMS' approval to insure an orderly disposition.
Corporate The Company, as a condition to this proposed
Governance: underwriting, will implement certain corporate
governance and officer compensation provisions as
outlined in Exhibit A attached hereto.
Directors: Two independent directors will be appointed to the
Company's Board of Directors ("Board") prior to the
offering and the two independent directors, together
with Admiral Allshouse, shall be the members of both the
Company's Compensation Committee and the Board's Audit
Committee.
Registration The Company will promptly prepare a registration
Statement: statement relating to the proposed offering satisfactory
to the Managing Underwriters. The Company will register
or apply for an exemption under such state securities
laws as the Managing Underwriters shall designate.
Indemnification: The underwriting agreement will contain customary
indemnification clauses acceptable to the Managing
Underwriters.
Finder's Fee: The Company hereby agrees to indemnify the Managing
Underwriters against any finder's fee that may be owed
to any other broker/dealers or third parties.
<PAGE> 6
Herley Industries, Inc.
Page 6
Southwest The Company hereby confirms that all prior agreements
Agreement: with Southwest Securities, Inc. have been terminated by
mutual consent of the parties thereto.
Stonegate The Company agrees to terminate its agreement with
Agreement: Stonegate Securities Inc., dated July 25, 1997 upon
signing of this agreement.
This letter is a statement of mutual intention to effect the proposed
transaction along the lines indicated. It does not constitute a binding contract
on the part of the Managing Underwriters or the Company, except as to the
commitments of the Company to make certain payments to the Managing Underwriters
as provided under the captions "Expenses" and "Investment Banking Agreement",
which commitments are binding. A binding contract will come into existence upon
execution of the underwriting agreement to be entered into between JMS and the
Company when the offering is declared effective by the SEC.
If the foregoing adequately reflects our understanding, kindly sign the
duplicate copy of this letter and return it to the undersigned.
Very truly yours,
JANNEY MONTGOMERY SCOTT INC.
By: /s/ Herbert M. Gardner
-------------------------
Herbert M. Gardner
Senior Vice President
Accepted and Agreed to:
HERLEY INDUSTRIES, INC.
By: /s/ Lee N. Blatt
--------------------
Lee N. Blatt
Chairman of the Board and
Chief Executive Officer
<PAGE> 7
EXHIBIT A
Governance: The following policies will be implemented by the Company:
1. Investments policy shall provide for cash to be invested only
in high quality short term securities.
2. Two new outside directors to be appointed and appear in
prospectus giving the Company three independent outside
directors.
3. Three outside directors to be on the Compensation Committee
and Audit Committee.
4. No "Certain Transactions" going forward, except with the
unanimous consent of the outside (non-employee) disinterested
directors.
5. All loans to or from officers repaid at closing.
6. No stock options granted to either Lee Blatt or Myron Levy for
two years from the date of the offering.
7. No future repricing of stock options.
8. Compensation including issuance of options to Company
executive officers and directors shall be based on standards
relating to similar-sized public companies.
9. Employment agreements with Chairman, Chief Operating Officer
and Gerald I. Klein to be modified as follows:
Chairman: Principal Terms:
a. Base salary reduced by $100,000 to $375,000.
b. Bonus of 5% of pro-forma pre-tax earnings (as defined in c
below) not to exceed base salary.
c. Bonus based on pre-tax income in excess of a 10% pre-tax
return on starting shareholders' equity plus proceeds from
sale of equity securities on a time proportioned basis.
d. Base salary only to increase for inflation.
e. No option or warrant grants for two years.
f. Employment Agreement to be reduced to three years.
<PAGE> 8
President: Principal Terms:
a. Bonus of 4% of pro-forma pre-tax earnings not to exceed base
salary.
b. Base salary only to increase for inflation.
c. Employee Agreement reduced to five years plus existing
consulting arrangement.
d. No option or warrant grants for two years.
e. Bonus calculation based on formula identical to that used for
Chairman.
Gerald I. Klein: Principal Terms:
a. Bonus calculation based on current contract percentage but
applied to pro-forma pre-tax earnings as defined above.
<PAGE> 1
Exhibit 11.1
HERLEY INDUSTRIES, INC.
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
52 Weeks ended
53 Weeks ended -----------------------------
August 3, 1997 July 28, 1996 July 30,1995
-------------- ------------- ------------
<S> <C> <C> <C>
Net Income (loss) $ 4,803,659 $ 3,668,956 $(4,890,166)
=========== =========== ===========
Weighted average shares outstanding:
Shares outstanding from beginning of period 3,914,829 4,021,317 5,567,585
Shares issued for options exercised 371,696 96,363 27,223
Treasury shares acquired (223,020) (331,504) (679,016)
Common equivalents - options and warrants 670,177 467,609 63,076
----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 4,733,682 4,253,785 4,978,868
=========== =========== ===========
Earnings (loss) per common and
common equivalent share $ 1.01 $ .86 $ (.98)
=========== =========== ===========
</TABLE>
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Registrant
Metraplex Corporation
Stewart Warner Electronics Corp
Mission Design, Inc.
Microwave Holding Corp.
HMS Global Ltd.
Carlton Industries, Inc.
Undersea Systems Technology Corporation
Sayco, Ltd. (direct subsidiary of Undersea Systems Technology Corporation)
<PAGE> 1
EXHIBIT 23.2
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 Form S-1 Registration Statement.
/s/ Arthur Andersen LLP
-------------------------------------
Arthur Andersen LLP
Lancaster, PA.
November 6, 1997
