<PAGE> 1
AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1995
REGISTRATION NO. 33-63737
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
Amendment No. 1
to
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MICRODYNE CORPORATION
(Exact name of registrant as specified in charter)
MARYLAND
(State or other jurisdiction
of incorporation or organization)
52-0856493
(I.R.S. Employer
Identification No.)
3601 Eisenhower Avenue
Alexandria, Virginia 22304
(703) 739-0500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
William Marshall Ellison, II
Assistant Treasurer and Controller
Microdyne Corporation
3601 Eisenhower Avenue
Alexandria, Virginia 22304
(703) 739-0500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
Curtis M. Coward, Esquire Howard L. Shecter, Esquire
McGuire, Woods, Battle & Boothe, L.L.P. Morgan, Lewis & Bockius LLP
8280 Greensboro Drive 101 Park Avenue
McLean, Virginia 22102-3892 New York, New York 10178
(703) 712-5000 (212) 309-6030
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED NOVEMBER 9, 1995
3,500,000 SHARES
[MICRODYNE LOGO]
COMMON STOCK
------------------------
Of the 3,500,000 shares of Common Stock, offered hereby, 2,000,000 shares
are being offered by Microdyne Corporation ("Microdyne" or the "Company") and
1,500,000 shares are being offered by the Selling Stockholders. See "Principal
and Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares by the Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MCDY." On November 8, 1995, the last reported sales price of the
Company's Common Stock on the Nasdaq National Market was $25.50 per share. See
"Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
Total(3)............... $ $ $ $
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- -------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company estimated
at $300,000.
(3) A Selling Stockholder has granted the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an additional 525,000
shares of Common Stock for the purpose of covering over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Selling Stockholders will be
$ , $ and $ , respectively. See
"Underwriting".
------------------------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel, or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates representing the
shares will be made against payment on or about , 1995 at the offices
of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center, New York,
New York 10281.
------------------------
OPPENHEIMER & CO., INC.
SCHRODER WERTHEIM & CO.
TUCKER ANTHONY
INCORPORATED
The date of this Prospectus is , 1995
<PAGE> 3
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<S> <C>
DESCRIPTION OF ARTWORK IN CONNECTION
WITH THIS
Inside Front Cover OFFERING, THE
- ------------------ UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS
A single page advertisement identifying and listing features and providing a WHICH STABILIZE OR MAINTAIN THE
pictorial array of various local area network adapter cards marketed by MARKET PRICE OF THE COMMON STOCK OF
Microdyne. THE COMPANY AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NASDAQ NATIONAL
MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED
AT ANY TIME.
IN CONNECTION WITH THIS OFFERING,
CERTAIN UNDERWRITERS AND SELLING
GROUP MEMBERS (IF ANY) AND THEIR
RESPECTIVE AFFILIATES MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
</TABLE>
2
<PAGE> 4
DESCRIPTION OF ARTWORK
First Gatefold Page
- -------------------
A diagram providing a simplified view of an Ethernet local area network
linking desk and laptop computers to printers and file servers and highlighting
the local area network adapter cards offered by Microdyne to facilitate
network connectivity.
<PAGE> 5
DESCRIPTION OF ARTWORK
Second Gatefold Page
- --------------------
A diagram providing a simplified view of remote access connectivity between
desk and laptop computer users, their local area networks and remote databases
or on-line services and highlighting the products offered by Microdyne which
facilitate remote access connectivity.
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
financial and share information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. Beginning with the fiscal year ended
October 1, 1995 ("fiscal 1995"), the Company's fiscal year is a 52/53 week year
ending on the Sunday nearest the last day of September in each year. References
to fiscal years prior to fiscal 1995 mean the fiscal years ended September 30
(e.g., "fiscal 1994" is the fiscal year ended September 30, 1994).
THE COMPANY
Microdyne Corporation ("Microdyne" or the "Company") designs, manufactures,
markets and supports a broad line of data communications hardware products that
enable local area network ("LAN") and remote network access communications. The
Company has established itself as a leading supplier of LAN adapter cards which
provide the essential connection between computers (including personal
computers, file servers, minicomputers and mainframe computers) and the network.
The Company's products support all established computer bus structures, wiring
systems, and network topologies, including Ethernet, Fast Ethernet and Token
Ring. The Company also sells a line of products directed to the emerging remote
access market permitting both dial-up access to LANs and LAN access to remote
databases. The Company believes that its products provide a combination of
reliable, high performance, fully featured solutions at attractive prices.
Networks began as a way to perform file and print sharing functions among
users on the LAN and have evolved to become an essential element to
organizational productivity, delivering critical applications to network users.
The networking of each personal computer ("PC") requires the purchase of a LAN
adapter card. There are numerous types of adapter cards based on LAN topology,
the PC's bus architecture and the physical wiring scheme of the network.
According to International Data Corporation ("IDC"), in 1995 there are an
estimated 143 million PCs installed in businesses worldwide and 88 million PCs,
or 61%, are connected to LANs. By 1999, the installed base of business PCs is
expected to rise to 210 million, and 167 million of these PCs, or 79%, are
expected to be connected to a network. As user requirements for the network have
increased -- including the need for greater throughput speeds and
bandwidth -- new bus architectures, network topologies and transmission media
have been developed. The resulting upgrade and sale of new PCs, adapter cards
and ancillary networking hardware to the installed base have further stimulated
growth in the LAN hardware market. The improved price and performance of laptop
and notebook PCs, combined with falling telecommunications costs and growth in
online services and the Internet, have fueled demand for remote access to and
from networks. In response, Microdyne has developed both board- and system-level
hardware that facilitate remote connectivity.
The Company sells its products through a broad base of leading domestic and
international distributors as well as smaller regional distributors. The Company
has leveraged Novell Inc.'s ("Novell") position as the dominant supplier of LAN
operating system software by licensing the Novell brand name and certain Novell
technology for use on many of the Company's networking hardware products.
Further, Novell has authorized Microdyne as an original equipment manufacturer
("OEM") supplier of NetWare bundled with Microdyne products to selected
distributors that are outside Novell's traditional distribution channel.
Microdyne's strategy is to introduce new products and enhance existing
products that respond to established market demand, actively manage its
distribution channels and marketing programs and maintain a low-cost
infrastructure to enable competitive pricing. In addition, Microdyne has
enhanced its internal revenue growth with four product line acquisitions since
1994. These acquisitions have leveraged the Company's existing distribution
channels and marketing capabilities, created a broader selection of products and
facilitated customer transition to new network standards.
The Company also manufactures and markets a line of advanced radio
receivers for use in aerospace telemetry applications and provides outsourced
manufacturer support services. Those two businesses, collectively, represented
17% of Microdyne's revenue for the fiscal year ended October 1, 1995.
3
<PAGE> 7
THE OFFERING
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<S> <C>
Common Stock offered by the Company.................... 2,000,000 shares
Common Stock offered by Selling Stockholders........... 1,500,000 shares
Common Stock to be outstanding after the Offering...... 14,789,666 shares(1)
Use of Proceeds........................................ For repayment of all outstanding bank
debt, working capital and other general
corporate purposes. A portion of the
net proceeds may be used for future
acquisitions.
Nasdaq National Market Symbol.......................... MCDY
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,
1991(2) 1992 1993 1994 1995
------------- ------------- ------------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................ $56,533 $72,693 $78,174 $ 101,294 $170,078
Gross profit........................... 24,739 31,658 25,649 28,035 52,770
Restructuring charges.................. -- 8,503 3,462 -- --
Earnings (loss) from operations........ 11,268 (4,441)(3) (17)(4) 7,799 23,204
Earnings (loss) from operations before
provision for income taxes........... 10,918 (4,617) (485) 7,300 20,400
Cumulative effect of an accounting
change............................... -- -- 1,744 -- --
Net earnings (loss).................... $ 8,824 $(2,156)(3) $ 1,511(4) $ 4,599 $ 12,594(5)
======= ======= ======= ======== ========
Net earnings (loss) per share.......... $ 0.76 $ (0.15)(3) $ 0.10(4) $ 0.35 $ 0.96(5)
======= ======= ======= ======== ========
Shares used in computing net earnings
(loss) per share..................... 11,617 14,592 14,428 13,088 13,096
======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 1, 1995
---------------------------
AS
ACTUAL ADJUSTED(6)
------------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 40,572 $ 73,495
Total assets........................................................................... 110,382 138,505
Long-term debt......................................................................... 16,999 1,899
Total stockholders' equity............................................................. 39,488 87,511
</TABLE>
- ---------------
(1) Excludes, as of October 1, 1995, outstanding stock options to purchase
660,712 shares of Common Stock at a weighted average price of $5.36 per
share.
(2) Data for the period prior to June 21, 1991 are for Federal Technology
Corporation, a predecessor company. See "The Company."
(3) Includes a restructuring charge of $8,503 for the de-emphasis of certain
networking products and other Company operations. Excluding such
restructuring charge, Microdyne's earnings from operations would have been
$4,062, net earnings would have been $3,094 and net earnings per share would
have been $0.21.
(4) Includes a restructuring charge of $3,462 applied to earnings from
operations. Net earnings includes the after-tax effect of the restructuring
charge applied to pre-tax income and the benefit of an accounting change in
the amount of $1,744. Excluding this charge and benefit, Microdyne's net
earnings would have been $1,905 and net earnings per share would have been
$0.13.
(5) Includes a litigation settlement of $875 applied to non-operating expense.
Excluding such settlement, net earnings would have been $13,202 and net
earnings per share would have been $1.01.
(6) Adjusted for the sale by the Company of 2,000,000 shares of Common Stock
offered hereby at the assumed public offering price of $25.50, less
underwriting discount and estimated offering expenses payable by the
Company, and the application of the estimated net proceeds as described in
"Use of Proceeds."
4
<PAGE> 8
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In
evaluating an investment in the Common Stock, prospective investors should
consider carefully the following risk factors in addition to the other
information presented in the Prospectus.
New Product Development and Rapid Technological Change. The market for
Microdyne's products is characterized by rapidly changing technology, evolving
industry standards and frequent introductions of new products and enhancements.
As a result, Microdyne's future success will depend in part on its ability to
enhance existing products and to introduce new products on a timely basis. The
inability of the Company to develop new products or enhance existing products in
a timely manner in response to changing technology, industry standards or
customer requirements would have a material adverse effect on the Company. The
introduction of new or enhanced products also requires the Company to manage the
transition from older products to minimize disruption in customer ordering
patterns, avoid excessive levels of older product inventories and ensure that
adequate supplies of new products can be delivered to meet customer demand. The
failure to manage any such transition successfully would have a material adverse
effect on the Company.
Highly Competitive Environment. The market for Microdyne's products is
highly competitive. The Company believes that its ability to compete
successfully depends on a number of factors including price, product features,
performance and reliability, name recognition, international certification, the
retention of experienced sales, marketing and service organizations, development
of new products and enhancements, adherence to rapidly changing industry
standards and product introductions and announcements by competitors. In the
network products market, the Company competes with a number of vendors,
including 3Com Corporation, Standard Microsystems Corporation and Intel
Corporation, that have significantly greater financial, marketing, technical and
other resources as well as the capacity to obtain components at lower cost
either by purchasing large quantities of such components or by fabricating such
components in-house. These competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements, devote
greater resources to the development, promotion and sale of their products or
control the timing of, or respond more effectively to, new product
introductions. In addition, current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to address the networking needs of the Company's prospective customers.
Increased competition from existing competitors, competitive alliances or new
entrants to the market could result in price reductions and loss of market share
to the Company, which would have a material adverse effect on the Company.
Because Microdyne sells through distributors that also carry competing product
lines, rather than directly to end-user customers, the Company is more likely to
find its products compared with others on the basis of price, creating greater
pressure to reduce prices. There can be no assurance that Microdyne will be able
to continue to compete successfully with existing or new competitors or that
competitive pressures faced by the Company will not have a material adverse
effect on the Company. See "Business -- Competition."
Dependence on Novell. Microdyne derives the majority of its revenues from
products sold under license from, or OEM agreements with Novell. In fiscal years
1993, 1994 and 1995, Microdyne's Novell-related revenue accounted for 57%, 47%
and 73%, respectively, of total revenue. Most of the Company's adapter cards are
marketed under the Novell brand-name and "NE" (for "Novell Ethernet")
designation, for which Microdyne pays Novell (under a non-exclusive license) a
minimum royalty and royalty based on sales into distribution. There can be no
assurance that Novell will not withdraw Microdyne's right to use the Novell name
and NE designation, change the terms of Microdyne's license in a manner adverse
to Microdyne or grant to companies other than Microdyne licenses to use the
Novell marks. Microdyne is also dependent upon Novell for the right to sell
Novell's NetWare network operating system as an OEM product. Under a 1993
agreement which is terminable at Novell's discretion, Microdyne is authorized to
produce and sell NetWare as part of a "bundled solution" together with certain
Microdyne products, principally adapter cards, to certain Novell-approved
distributors. In this regard, included in cost of goods sold are product
purchases from Novell of $3,067,000, $25,758,000 and $43,455,000 for the years
ended September 30, 1993, September 30, 1994 and October 1, 1995, respectively.
There can be no assurance that Novell will not change its distribution policies
to permit such distributors to sell NetWare as a stand-alone product, which
would adversely affect Microdyne's sales of bundled products. From time to time
Novell amends the discount
5
<PAGE> 9
structure granted to Microdyne. These amendments have had an impact on
profitability in the past and there can be no assurance that future amendments
will not render such sales by Microdyne uneconomic. The Company's business is
dependent to a substantial extent on the ability of Novell to maintain a
significant market share of the network operating systems software market.
Novell faces competition from several sources, including Microsoft Corporation's
Windows NT network operating system. The loss by the Company of the right to
sell products under the Novell brand-name, the loss of the right to sell NetWare
under OEM license, or a substantial decline in Novell's share of the network
operating system market would have a material adverse effect on the Company.
Reliance on Distributors. Microdyne's networking products ("Networking
Products") are sold primarily through distributors, the four largest of which
accounted for $52.2 million, or 37% of Microdyne's Networking Products revenue
in fiscal 1995. Distributors sell Microdyne's products primarily to Value Added
Resellers ("VARs") that, in turn, sell to or install networks for end-user
customers. Generally, the Company must manufacture products in advance of orders
from distributors and must, therefore, estimate demand as accurately as
possible. Accordingly, information regarding VAR and end user demand is very
important to the Company because distributors' orders can be expected to largely
reflect such demand. However, as a general practice, distributors do not reveal
the names of their customers to manufacturers. As a result, Microdyne learns the
name of end-user customers only if such customers contact the Company for
warranty service, technical support, or of their own volition. Distributors
provide certain information regarding their levels of sales to VARs and other
customers, called Point of Sale ("POS") data, but such POS information cannot be
assured to be either timely or accurate. In this regard, some of the Company's
distributors provide only cursory information. In addition, distributors
maintain target stocking levels of products, and such targeted levels may change
without notice, which could decrease Microdyne's sales in a given period.
Moreover, distributors characteristically sell products at a small mark-up to
the price from which they are obtained from manufacturers, and terms of sale may
influence a distributor's decision to carry certain products. If, based on
inadequate POS and end user information, unanticipated distributor targeted
stocking levels, unanticipated price competition, or otherwise, the Company is
unable to estimate production requirements of its distributors and future sales
levels generally, the Company's quarterly results of operations may fluctuate
due to production in excess of demand. Moreover, the inability of the Company to
timely market such excess inventory on economically viable terms could have a
material adverse effect on the Company. On the other hand, if the Company's
production is insufficient to satisfy demand, the Company could be adversely
affected.
Fluctuation in Quarterly Results and Timing of Orders. Microdyne's
quarterly operating results depend upon a variety of factors including the
timing of significant orders, the timing of product enhancements and new product
introductions by Microdyne and its competitors, the pricing of the Company's
products, changes in product mix, competitive conditions and general economic
conditions. The Company has historically operated with limited backlog because
its products are shipped shortly after orders are received, and frequently
realizes a substantial portion of its net revenues in the last month of the
quarter. As a result, revenue in any period is substantially dependent on orders
booked and shipped in the last month of that period. Delays in receipt of
end-of-quarter orders in a given quarter may adversely affect the Company's
results of operations for that quarter, as the Company's expense levels are
based primarily on full-quarter revenue estimates and only a small portion of
the Company's operating expenses vary with its revenue. Moreover, Microdyne's
revenue may fluctuate based on the level of inventories of the Company's
products maintained by the Company's distributors in any particular quarter.
Accordingly, the Company may be subject to significant and unanticipated
quarter-to-quarter fluctuations.
Declining Average Selling Prices. The selling price of computer networking
hardware products, including LAN adapter cards, has consistently declined in
recent years. To remain profitable, the Company must continually reduce the
manufacturing cost of its products, and there can be no assurance that such
reductions can be achieved on a regular basis. Even if Microdyne is able to
achieve these reductions, gross margins will be subject to pressure should
another manufacturer reduce the price of a competing product. When announcements
of price reductions are made, Microdyne must choose whether to meet the
competitor's new, lower price. If the price is not met, the Company risks losing
customers who purchase networking products principally on the basis of price. If
the price is met, Microdyne must provide price protection for all
6
<PAGE> 10
unsold inventory, subject to certain limitations, in the hands of distributors
and reprice such existing inventory. While the Company believes it maintains
adequate financial reserves for price protection when appropriate, there can be
no assurance that these reserves will be sufficient. Moreover, there can be no
assurance that the Company can reduce manufacturing costs of the affected
product line to offset lower selling prices.
Dependence on Subcontractors and Suppliers. The Company is dependent on a
small number of third-party subcontractors for the manufacture and assembly of
substantially all of its networking products. In the event that any of these
subcontractors were to become unable or unwilling to manufacture Microdyne's
products in required volumes, Microdyne would have to identify and qualify
additional subcontractors. The identification and qualification process could be
lengthy, and no assurance can be given that any replacement subcontractors will
be available to the Company on a timely basis. The failure to identify and
qualify replacement subcontractors on a timely basis would have a material
adverse effect on the Company. Certain components used in the Company's products
are only available from a single supplier or a limited number of suppliers. Each
of the Token Ring chip sets used by Microdyne for its IRMAtrac LAN adapter card
and the 10/100 ISA chip set used on Microdyne's 10/100 ISA adapter card is
available only from a single source. Moreover, Microdyne is subject to long lead
times or allocations for certain semiconductor products, including random access
memory chips. If Microdyne is unable to obtain sufficient supply of components
from its traditional suppliers, it will be required to purchase such components
in the open market, typically at a premium to the price normally paid. While the
Company believes that it will be able to obtain from its suppliers sufficient
quantities of the components the Company requires to satisfy its anticipated
needs, there can be no assurance that such supplies will be available at
satisfactory prices. The Company generally purchases components pursuant to
purchase orders and has no guaranteed supply arrangements with its suppliers.
Further, the availability of many of these components is dependent in part on
the Company's ability to provide its suppliers with accurate forecasts of its
future requirements, which is largely dependent upon the Company's ability to
obtain accurate POS data. A reduction or interruption in supply of these
components or increases in component costs would have a material adverse effect
on the Company.
Dependence Upon a Single Customer at Manufacturer Support Services. The
Company's Manufacturer Support Services operation, which provides outsourced
telephone technical support, warranty administration and whole unit repair
services, has only one customer; a large, multinational electronics
manufacturer. The Company's contract with this customer expires at the end of
1995 and is currently being negotiated for an additional five year term. Should
that customer terminate its relationship with the Company, the resulting loss of
business would have a material adverse effect on the Company.
Limited Product Line. Microdyne's product line is focused on hardware
products that facilitate local area networking. During the past few years,
several companies, including 3Com Corporation, Cisco Systems, Inc., Bay
Networks, Inc. and Cabletron Corporation have positioned themselves as providers
of complete solutions for the LAN, wide-area network, remote access, and
internetwork (the "enterprise-wide" network). These companies market their
product families as being optimized to work together, and encourage customers to
purchase a single brand of products, including local area networking hardware.
Because Microdyne products address only local and remote network functions, an
acceleration in the trend toward "enterprise-wide" product purchases may have
the effect of curtailing Microdyne's growth.
Acquisition Risk. The Company's future success is dependent in part on its
ability to acquire technology or products that expand its product lines or that
can be used in future product developments or enhancements. Since July 1994, the
Company has acquired four product lines. Because these acquisitions have been
made only recently, there can be no assurance that the acquired products or
technologies will achieve commercial success or be successfully assimilated by
the Company. No assurance can be given that past or future acquisitions will
produce the anticipated technological enhancements, products or results. In
addition, there can be no assurance that acquisition opportunities will be
available at prices that are acceptable to the Company.
Lack of Proprietary Technology. The Company's success and ability to
compete is dependent in part upon its ability to differentiate its products from
those of its competitors. The Company does not possess any meaningful
combination of patent, copyright or trade secrets that would allow Microdyne to
distinguish its
7
<PAGE> 11
products as materially superior to competing products. While the Company does
not believe its competitors possess such intellectual property rights, there can
be no assurance that the Company's competitors will not independently develop
technologies that are substantially superior to the ones used by Microdyne. The
Company is also subject to the risk of adverse claims and litigation alleging
infringement of the proprietary rights of others. From time to time, the Company
has received claims of infringement of other parties' proprietary rights. While
the Company is not aware that any of its products infringe any patents, there
can be no assurance that third parties will not assert infringement claims in
the future with respect to the Company's current or future products or that any
pending or future claims will not require the Company to enter into license
arrangements or result in protracted and costly litigation, regardless of the
merits of such claims. No assurance can be given that any necessary licenses
will be available or that, if available, such licenses can be obtained on
commercially reasonable terms. The failure to obtain such royalty or licensing
agreements on a timely basis, or the Company's involvement in patent or related
litigation, could have a material adverse effect on the Company. See
"Business -- Patents and Proprietary Rights."
Risks Associated with International Operations. The Company expects that
revenue outside the United States, which accounted for approximately 35%, 29%
and 25%, of net revenue in fiscal 1993, 1994 and 1995, respectively, will
continue to represent a significant portion of its total revenue. In addition,
the Company purchases components manufactured in China, Malaysia, Singapore and
Hong Kong. Sales to customers outside the United States and reliance on foreign
suppliers involve a number of risks, including unexpected changes in regulatory
requirements and tariffs, possible difficulties in enforcing agreements and
intellectual property rights, longer payment cycles, exchange rate fluctuations,
difficulties obtaining export licenses, the imposition of withholding or other
taxes, embargoes or exchange controls or the adoption of other restrictions on
foreign trade. One or more of the foregoing factors could have a material
adverse effect on the Company.
Dependence on Personnel. Microdyne believes that its future success will
depend in large part upon its ability to attract and retain highly skilled
engineering, managerial, sales, marketing and operations personnel. Except with
regard to the Chief Executive Officer, who entered into a four year employment
agreement as of October 24, 1995, the Company does not have employment contracts
with its key personnel. Competition for such personnel is intense, especially in
the areas of engineering, sales and marketing. The loss of key management or
technical personnel would have a material adverse effect on the Company.
Management of Growth. Microdyne has recently experienced rapid growth
which has placed, and could continue to place, a significant strain on the
Company's management, operations and internal systems. The failure of management
to effectively manage future growth could have a material adverse effect on the
Company.
Potential Volatility of Stock Price. The market price of the Company's
Common Stock has been, and could be, subject to wide fluctuations in response
to, among other things, quarterly fluctuations in operating results, adverse
circumstances affecting the introduction or market acceptance of new products or
enhancements offered by the Company, failure to meet published estimates of, or
changes in earnings estimates by, securities analysts, announcements of new
products or enhancements by competitors, sales of Common Stock by existing
holders, loss of key personnel, market conditions in the industry, shortages of
key components and general economic conditions. In addition, stock prices for
many technology companies, including the Company, have experienced significant
volatility for reasons unrelated to operating results. These fluctuations could
adversely affect the market price of the Company's Common Stock.
8
<PAGE> 12
THE COMPANY
Microdyne was incorporated in Maryland in 1967. On June 21, 1991 Microdyne
acquired all of the outstanding common stock of Federal Technology Corporation
("FTC") in a transaction accounted for as a reverse acquisition in which FTC's
sole stockholder acquired voting control of Microdyne (the "FTC Transaction").
Since the FTC Transaction, the Company has operated under the Microdyne name
with corporate headquarters in Alexandria, Virginia.
FTC was incorporated in Virginia in 1984. Prior to the acquisition of
Microdyne, FTC designed and engineered networking systems, provided third-party
maintenance of data communications systems, manufactured and distributed
hardware- and software-based communications networking products, and performed
outsourced technical services. Beginning in 1990, FTC de-emphasized most aspects
of its professional services business to concentrate its resources on networking
products. Prior to its acquisition, Microdyne designed, manufactured and
marketed aerospace telemetry receivers and ancillary equipment; produced
earth-station components for satellite communications; manufactured industrial
telemetry products; and provided system integration services for satellite-based
wide-area networks. All of Microdyne's pre-acquisition activities except those
associated with aerospace telemetry were sold or discontinued between 1991 and
1994. Microdyne operates in a single industry segment encompassing three broad
areas of technology having data communications as a common element: Networking
Products, Aerospace Telemetry and Manufacturer Support Services. Microdyne's
corporate headquarters is located at 3601 Eisenhower Avenue, Alexandria,
Virginia 22304. The Company's telephone number is (703) 329-3700.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company are estimated to be approximately $48.0
million, based on an assumed public offering price of $25.50, after deducting
the underwriting discounts and commissions and the estimated offering expenses
payable by the Company. The Company will not receive any proceeds from the sale
of Common Stock offered by the Selling Stockholders.
The Company intends to use approximately $19.9 million of the net proceeds
to repay all outstanding bank debt. The outstanding balance and interest rate of
such indebtedness was $19.9 million and 7.75%, respectively, at October 1, 1995.
Of such indebtedness, $12.0 million was used to acquire the Eagle Technology
business from Artisoft, Inc. in January 1995. The Company expects to use the
balance of such net proceeds for general corporate purposes, including working
capital. A portion of the net proceeds may also be used for the acquisition of
businesses, products and technologies. The Company is not currently engaged in
active discussions with respect to any significant acquisition and has no
commitments or understandings for any such acquisitions, and no portion of the
net proceeds has been allocated for any specific acquisition. Pending such uses,
the net proceeds to the Company of this offering will be invested in short term,
investment grade, interest bearing securities.
DIVIDEND POLICY
The Company has never paid cash dividends and currently intends to retain
its earnings to finance future growth. Therefore, the Company does not
anticipate paying any cash dividends for the foreseeable future. Any future
determination relating to dividend policy will be made at the discretion of the
Board of Directors of the Company and will depend on a number of factors,
including the future earnings, capital requirements, financial condition and
future prospects of the Company and such other factors as the Board of Directors
may deem relevant.
9
<PAGE> 13
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol MCDY. The following table sets forth for the fiscal periods indicated
the high and low sales prices of the Common Stock, as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
--------------------
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year Ended September 30, 1994:
First Quarter ended December 31, 1993............................. $ 5.375 $ 4.000
Second Quarter ended March 31, 1994............................... 6.250 4.000
Third Quarter ended June 30, 1994................................. 5.000 3.375
Fourth Quarter ended September 30, 1994........................... 5.500 3.750
Fiscal Year Ending October 1, 1995:
First Quarter ended December 31, 1994............................. 10.625 4.500
Second Quarter ended March 31, 1995............................... 15.500 10.125
Third Quarter ended June 30, 1995................................. 21.625 13.875
Fourth Quarter ended October l, 1995.............................. 26.375 18.875
Fiscal Year Ending September 29, 1996:
First Quarter (through November 8, 1995).......................... 31.250 22.250
</TABLE>
On November 8, 1995, the last reported sales price of the Common Stock on
the Nasdaq National Market was $25.50. As of October 1, 1995, there were an
estimated 975 holders of record of the Common Stock.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 1, 1995, and as adjusted to reflect the sale by the Company of 2,000,000
shares of Common Stock hereby, based on an assumed public offering price of
$25.50, after deducting the underwriting discounts and commissions and the
estimated offering expenses payable by the Company and the application of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
OCTOBER 1, 1995
-------------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings and current maturities of long-term obligations..... $ 5,483 $ 683
======= =======
Long-term obligations, net of current maturities.......................... $16,999 $ 1,899
Stockholders' equity:
Common stock, $.10 par value, authorized 50,000,000 shares,
12,789,666 issued and outstanding actual;
14,789,666 issued and outstanding, as adjusted.................. 1,279 1,479
Additional paid-in-capital................................................ 10,040 57,863
Retained earnings......................................................... 28,169 28,169
------- -------
Total stockholders' equity........................................... $39,488 $ 87,511
------- -------
Total capitalization............................................ $56,487 $ 89,410
======= =======
</TABLE>
10
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of operations data for each
of the three years in the period ended October 1, 1995 and the consolidated
balance sheet data at September 30, 1994 and October 1, 1995 are derived from
consolidated financial statements of the Company contained elsewhere herein,
which have been audited by Grant Thornton LLP. The consolidated statement of
operations data for the years ended September 30, 1991 and 1992 and the
consolidated balance sheet data at September 30, 1991, 1992 and 1993 have been
derived from consolidated financial statements audited by Grant Thornton LLP
that are not included herein. The selected consolidated financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the consolidated
financial statements, including the notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,
1991(1) 1992 1993 1994 1995
------------- ------------- ------------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................ $56,533 $72,693 $78,174 $ 101,294 $ 170,078
Cost of goods sold................. 31,794 41,035 52,525 73,259 117,308
---------- ---------- ---------- ----------- ----------
Gross profit....................... 24,739 31,658 25,649 28,035 52,770
Operating expenses:
Selling, general and
administrative.............. 12,705 23,710 18,032 16,650 24,369
Research and development...... 766 3,886 4,172 3,586 5,197
Restructuring charges......... -- 8,503 3,462 -- --
---------- ---------- ---------- ----------- ----------
Total operating
expenses............... 13,471 36,099 25,666 20,236 29,566
---------- ---------- ---------- ----------- ----------
Earnings (loss) from operations.... 11,268 (4,441) (17) 7,799 23,204
Other income (expense)............. (350) (176) (468) (499) (2,804)
---------- ---------- ---------- ----------- ----------
Earnings (loss) before income
taxes............................ 10,918 (4,617) (485) 7,300 20,400
Provision (benefit) for income
taxes............................ 2,094 (2,461) (252) 2,701 7,806
---------- ---------- ---------- ----------- ----------
Net earnings before cumulative
effect of accounting change...... 8,824 (2,156) (233) 4,599 12,594
Cumulative effect of accounting
change........................... -- -- 1,744 -- --
---------- ---------- ---------- ----------- ----------
Net earnings (loss)................ $ 8,824 $(2,156) $ 1,511 $ 4,599 $ 12,594
========== ========== ========== ========== ========
Net earnings (loss) per share...... $ 0.76 $ (0.15) $ 0.10 $ 0.35 $ 0.96
========== ========== ========== ========== ========
Shares used in computing net
earnings (loss) per share........ 11,617 14,592 14,428 13,088 13,096
========== ========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,
1991 1992 1993 1994 1995
------------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents, and
short-term investments............ $ 2,142 $ 1,602 $ 2,135 $ 2,628 $ 4,587
Working capital..................... 19,444 17,711 19,965 22,744 40,572
Total assets........................ 41,622 45,226 48,174 55,840 110,382
Long-term obligations............... 1,126 425 817 11,675 16,999
Total stockholders' equity.......... 24,067 24,119 26,094 18,290 39,488
</TABLE>
- ---------------
(1) Data for the period prior to June 21, 1991 are for Federal Technology
Corporation only.
11
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Microdyne operates in a single industry segment encompassing three broad
areas of technology having data communications as a common element. These
operations include Networking Products, Aerospace Telemetry and Manufacturer
Support Services. The following table sets forth revenue from each of
Microdyne's operations for fiscal years 1993, 1994 and 1995:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
SEPT. 30, SEPT. 30, OCT. 1,
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Networking Products........................................... $52,269(2) $ 80,546(2) $ 141,300(2)
Aerospace Telemetry........................................... 13,358 12,255 17,358
Manufacturer Support Services................................. 5,250 8,021 12,100
Other operations(1)........................................... 7,601 738 --
--------- --------- ---------
Total Revenue............................................ $78,478 $ 101,560 $ 170,758
======== ======== ========
</TABLE>
- ---------------
(1) Other operations consist of Systems Integration, which was discontinued in
September 1993, and Industrial Telemetry, which was sold in December 1993.
(2) Before deducting early payment discounts of $304, $265 and $680 in fiscal
years 1993, 1994 and 1995, respectively.
Microdyne has sought to increase its revenue through the development of new
products and the acquisition of new product lines. In fiscal 1995, the Company
introduced internally developed "Plug and Play" ISA- and PCI-bus LAN adapter
cards and two- and four-port remote access LAN Expanders. Microdyne also
introduced the ACS 4400, a new remote access communications server that combines
industry-standard software with advanced user features, and the NMSLplus, a new
generation adapter card that allows file servers on networks to back up data
more quickly. Since the end of fiscal 1995, the Company has introduced a lower
cost ISA-bus Token Ring LAN adapter card, a PCI-bus Token Ring LAN adapter card,
and a family of Fast Ethernet products. Since July 1994, the Company has made
the following four acquisitions to diversify and enhance its technology and
product mix. Revenue from those products are included in Networking Products as
of the date of each acquisition.
In July 1994, Microdyne acquired the IRMAtrac product line from Digital
Communications Associates ("DCA," which has since merged with Attachmate Corp.
("Attachmate")). That acquisition brought Microdyne an established line of Token
Ring adapter cards that had been developed and marketed by DCA beginning in
1991. Microdyne purchased DCA's inventory for approximately $4.0 million, agreed
to pay a minimum royalty of $3.0 million over five years and hired certain DCA
engineers to support Token Ring software and hardware. DCA also agreed to
continue to sell the Token Ring product line through its direct sales force.
In September 1994, Microdyne acquired the assets of Gateway Communications,
Inc. ("Gateway"), rights to remote access products and certain other products
and technology. Microdyne purchased Gateway's assets, consisting principally of
inventory, for $2.0 million. Gateway's remote access product line is now
marketed as Microdyne's WNIM family wide-area adapter boards and the LAN
Expander family of remote access solutions.
In January 1995, Microdyne acquired from Artisoft, Inc. ("Artisoft") the
Eagle Technology ("Eagle") business consisting of a family of Ethernet adapter
cards, file server adapter cards, hubs and print server cards. Microdyne
purchased the Eagle business for $16.5 million, including inventory of $8.3
million, fixed assets of $700,000 and all rights to all Eagle technology for
$7.5 million. Artisoft, through its Eagle business, was one of two companies
(the other was National Semiconductor) that, along with Microdyne, were licensed
by Novell to market adapter cards using the Novell name and "NE" designation.
The Company has begun to
12
<PAGE> 16
consolidate its adapter card business with that of Eagle to provide both a
Novell-label and Eagle-brand line of products.
In September 1995, Microdyne acquired the Ethernet adapter card product
line of National Semiconductor ("National") which had been introduced by
National in 1993. Microdyne agreed to pay a total of $5.3 million, including
$3.5 million for National's 10Mbps and 10/100Mbps ("10/100") Ethernet adapter
card inventory, and $1.8 million for rights to National's 10/100 technology,
including a period of exclusivity ending in June 1996 on the purchase of
National's 10/100 ISA chip set, and certain intangibles. As a result of the
National acquisition, in September 1995, Microdyne introduced a 10/100 ISA
adapter card as part of its Fast Ethernet family of products.
The effective average selling price of LAN adapter cards, which accounted
for 45% of total fiscal 1995 revenue, continued to decline in fiscal 1995. To
remain profitable, the Company must continually reduce its manufacturing and
operating costs. As a result, the Company must maintain low operating costs to
remain competitive in the market, and there can be no assurance that cost
reductions can be achieved on a regular basis. Any inability to respond to
increased price competition for the Company's products would have a material
adverse effect on the Company. See "Risk Factors -- Declining Average Selling
Prices."
The majority of the Company's Networking Products revenue is derived from
licenses from, or OEM agreements with, Novell. In addition, the Company
purchases a significant amount of product from Novell. The Eagle and National
acquisitions in fiscal 1995 further increased the Company's reliance upon the
Novell brand name. The loss by the Company of the right to sell products under
the Novell brand name, the loss of the right to sell Novell software under OEM
license, or a substantial decline in Novell's share of the network operating
system market would have a material adverse effect on the Company. See "Risk
Factors -- Dependence on Novell."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
information from the Company's Consolidated Statements of Operations, expressed
as a percentage of revenue:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------
SEPT. 30, SEPT. 30, OCT. 1,
1993 1994 1995
--------- --------- -------
<S> <C> <C> <C>
Revenue................................................. 100.0% 100.0% 100.0%
Cost of goods sold...................................... 67.2 72.3 69.0
--------- --------- -------
Gross profit............................................ 32.8 27.7 31.0
Operating expenses:
Selling, general and administrative................ 23.1 16.4 14.3
Research and development .......................... 5.3 3.5 3.1
Restructuring charges.............................. 4.4 -- --
--------- --------- -------
Total operating expenses...................... 32.8 20.0 17.4
--------- --------- -------
Earnings (loss) from operations......................... (0.0) 7.7 13.6
Other income (expense).................................. (0.6) (0.5) (1.6)
--------- --------- -------
Earnings (loss) before income taxes..................... (0.6) 7.2 12.0
Provision (benefit) for income taxes.................... (0.3) 2.7 4.6
--------- --------- -------
Net earnings (loss) before cumulative effect of
accounting change..................................... (0.3) 4.5 7.4
Cumulative effect of accounting change.................. 2.2 -- --
--------- --------- -------
Net earnings (loss)..................................... 1.9% 4.5% 7.4%
======== ======== ======
</TABLE>
13
<PAGE> 17
FISCAL YEARS ENDED OCTOBER 1, 1995 AND SEPTEMBER 30, 1994
Revenue. Revenue for fiscal 1995 increased to $170.1 million from $101.3
million in fiscal 1994, an increase of 67.9%. This increase was a result of
internal growth in each of the Company's three operations and Networking
Products acquisitions.
Networking Products revenue increased to $141.3 million in 1995 from $80.5
million in 1994, an increase of 75.5%. The growth reflects acquisitions by
Microdyne, the continued growth of the LAN products industry and the Company's
increased market share. PC Connectivity products, which include the Company's
Ethernet and Token Ring adapter cards, increased to $76.5 million in 1995 from
$31.6 million in 1994, an increase of 142.0%. The increase reflects recent
acquisitions, particularly the Eagle acquisition in January 1995. Total Ethernet
revenue increased to $60.6 million in 1995 from $27.3 million in 1994. Token
Ring revenue increased to $15.9 million in 1995 from $4.4 million in 1994. Token
Ring revenue in 1994 represented sales made between the date of the DCA
acquisition (July 1994) through September 1994. Reflecting an increased number
of participating distributors and higher sales at certain of those distributors,
revenue from sales of Microdyne hardware bundled with Novell software ("Bundled
Products") increased to $51.5 million in 1995 from $28.8 million in 1994.
Reflecting industry trends, Minicomputer Connectivity and Mainframe Connectivity
product revenue declined $4.1 million in 1995 from 1994.
Aerospace Telemetry revenue increased to $17.4 million in 1995 from $12.3
million in 1994, largely as a result of demand for the Company's new telemetry
products and U.S. Government ("Government") contracts received late in 1994.
Manufacturer Support Services revenue increased to $12.1 million from $8.0
million in fiscal 1994, reflecting continued growth in support activities for
the Company's customer. The Industrial Telemetry operations, which contributed
$738,000 in 1994, was sold in December 1993.
Gross Profit. Gross profit increased to $52.8 million in 1995 from $28.0
million in 1994, and as a percentage of revenue increased to 31.0% from 27.7%.
The increase in gross margin is attributable to higher gross margins in the
Company's Networking Products activity. Within Networking Products, the gross
margins improved in the Company's Ethernet product line due to declining
manufacturing costs which more than offset declining sales prices. Gross margins
increased in Bundled Products due to changes in product mix. Gross profit also
increased in the Aerospace Telemetry and Manufacturer Support Services
operations.
Selling, General and Administrative. Selling, general and administrative
expense grew to $24.4 million in 1995 from $16.7 million in 1994, but decreased
as a percentage of revenue to 14.3% from 16.4%. Management believes that further
reductions as a percentage of revenue will be more difficult to achieve than in
the past due, in part, to increased amortization of product line acquisition
cost. Amortization of product line acquisition cost from acquisitions made to
date will result in an annual expense of approximately $1.3 million for the next
six fiscal years and approximately $900,000 in the following year.
Research and Development. Research and development expense increased to
$5.2 million in 1995 from $3.6 million in 1994 but decreased as a percentage of
revenue to 3.1% from 3.5%. The dollar increase is attributable to the addition
of former DCA Token Ring engineers in the fourth quarter of 1994 as well as the
development of new products introduced in 1995.
Other Income (Expense). Other expense in both 1995 and 1994 includes
interest expense associated with outstanding borrowings against the Company's
line of credit. The higher interest expense in 1995 was due to larger
outstanding borrowings which financed the Eagle acquisition. Also included in
1995 are one-time charges totaling $875,000, in connection with the settlement
of a stockholder class action lawsuit filed against the Company in 1992.
Provision for Income Taxes. Provision for income taxes was $7.8 million
(38.3% of pre-tax earnings) and $2.7 million (37.0% of pre-tax earnings) in 1995
and 1994, respectively. The increase in the effective tax rate resulted in part
from reduced tax credits, the impact of which was partially offset by lower
percentage state income taxes and benefits from the Company's foreign sales
corporation.
14
<PAGE> 18
FISCAL YEARS ENDED SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1993
Revenue. Revenue for fiscal 1994 increased to $101.3 million from $78.2
million in fiscal 1993, an increase of 29.6%. This growth was attributable to an
increase in Networking Products revenue to $80.5 million in fiscal 1994 from
$52.3 million in fiscal 1993. Bundled Product revenue increased to $28.8 million
in 1994 from $3.4 million in 1993, reflecting a full year of Bundled Product
sales as opposed to three months of sales for such products in fiscal 1993.
Token Ring and Gateway product revenue of $4.3 million and $1.1 million,
respectively, represented new sales in the fourth quarter of fiscal 1994
resulting from the DCA and Gateway acquisitions. Reflecting industry trends,
Minicomputer Connectivity product revenue declined to $5.6 million in 1994 from
$7.9 million in 1993. Aerospace Telemetry revenue decreased to $12.3 million in
1994 from $13.4 million in 1993, largely due to Government procurement orders
which were delayed until late in the fourth quarter of fiscal 1994. Manufacturer
Support Services revenue increased to $8.0 million in 1994 from $5.2 million in
1993, reflecting continued growth in support activities for the Company's
customer. Industrial Telemetry contributed revenues of $738,000 in sales in
fiscal 1994 and $3.4 million in fiscal 1993. The assets of the Industrial
Telemetry operation were sold in the first quarter of fiscal 1994.
Gross Profit. Gross profit increased to $28.0 million in fiscal 1994 from
$25.6 million in 1993, but as a percentage of sales decreased to 27.7% from
32.8% in 1993. The percentage decrease reflects a rising percentage of
Networking Products revenue, which carries a lower gross margin than the
Company's other two operations.
Selling, General and Administrative. Selling, general and administrative
expense decreased to $16.5 million in 1994 from $18.0 million in 1993 and
decreased as a percentage of sales to 16.4% from 23.1%, respectively. The
reduction in 1994 was the result of continued cost controls combined with
savings realized from discontinued and sold businesses.
Research and Development. Research and development expense decreased to
$3.6 million in 1994 from $4.2 million in 1993. As a percent of revenue,
research and development decreased to 3.5% in 1994 from 5.3% in 1993. The
decline in 1994 is attributed to the savings realized from consolidating the
Company's engineering facilities in the first quarter in 1994.
Restructuring Charges. In the fourth quarter of fiscal 1993, the Company
recognized approximately $3.5 million in restructuring charges which represented
adjustments to certain inventories and costs associated with a planned fiscal
1994 facilities consolidation.
Other Expense. Other expense primarily consists of interest expense
associated with borrowings against the Company's line of credit. Other expense
increased to $499,000 in 1994 from $468,000 in 1993. The increase was
attributable to a higher level of average borrowings in fiscal 1994 arising from
the Company's Dutch Auction tender offer in February 1994.
Provision (Benefit) for Income Taxes. In 1994, the Company's provision for
income taxes was $2.7 million, representing 37.0% of pre-tax earnings. The
Company received an income tax benefit of $252,000 in 1993, representing 52.0%
of the 1993 pre-tax loss. The tax benefit resulted primarily from the
recognition of net operating losses and certain tax credits.
Change in Accounting Principle. In 1993, Microdyne adopted SFAS 109,
"Accounting for Income Taxes," reflecting the tax benefit to be derived from
future net operating loss carryforwards. This accounting change resulted in a
$1.7 million benefit to pre-tax income.
15
<PAGE> 19
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial
information for each of the Company's last eight quarters. The data have been
prepared on a basis consistent with the Company's audited consolidated financial
statements included elsewhere in this Prospectus and include all necessary
adjustments, consisting only of normal recurring accruals that the Company
considers necessary for a fair presentation. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------------------
SEPT.
DEC. 31, MAR. 31, JUNE 30, 30, DEC. 31, MAR. 31, JUNE 30, OCT. 1,
1993 1994 1994 1994 1994 1995 1995 1995
-------- -------- -------- -------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........................ $21,835 $23,568 $24,261 $31,630 $31,819 $40,577 $47,663 $50,019
Cost of goods sold............. 15,601 17,448 17,792 22,417 22,029 27,922 32,827 34,530
-------- -------- -------- -------- -------- -------- -------- -------
Gross profit................... 6,234 6,120 6,469 9,213 9,790 12,655 14,836 15,489
Operating expenses:
Selling, general and
administrative........... 3,854 3,719 3,950 5,127 4,735 5,819 6,687 7,128
Research and development... 952 796 717 1,121 1,162 1,344 1,426 1,265
-------- -------- -------- -------- -------- -------- -------- -------
Total operating
expenses............. 4,806 4,515 4,667 6,248 5,897 7,163 8,113 8,393
-------- -------- -------- -------- -------- -------- -------- -------
Earnings (loss) from
operations................... 1,428 1,605 1,802 2,965 3,893 5,492 6,723 7,096
Other income (expense)......... (27) (118) (158) (198) (1,055) (555) (537) (657)
-------- -------- -------- -------- -------- -------- -------- -------
Earnings before income taxes... 1,401 1,487 1,644 2,767 2,838 4,937 6,186 6,439
Provision (benefit) for income
taxes........................ 546 580 641 933 1,107 1,925 2,413 2,361
-------- -------- -------- -------- -------- -------- -------- -------
Net earnings (loss)............ $ 855 $ 907 $ 1,003 $ 1,834 $ 1,731 $ 3,012 $ 3,773 $ 4,078
======= ======== ======== ======== ======= ======== ======== =======
Net earnings (loss) per
share........................ $ 0.06 $ 0.07 $ 0.08 $ 0.15 $ 0.14 $ 0.24 $ 0.29 $ 0.31
======= ======== ======== ======== ======= ======== ======== =======
Shares used in computing net
earnings (loss) per share.... 14,413 13,497 12,231 12,210 12,431 12,669 13,149 13,281
======= ======== ======== ======== ======= ======== ======== =======
</TABLE>
The following table sets forth the above unaudited quarterly financial
information as a percentage of net revenue:
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------------------
SEPT.
DEC. 31, MAR. 31, JUNE 30, 30, DEC. 31, MAR. 31, JUNE 30, OCT. 1,
1993 1994 1994 1994 1994 1995 1995 1995
-------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............. 71.4 74.0 73.3 70.9 69.2 68.8 68.9 69.0
-------- -------- -------- -------- -------- -------- -------- -------
Gross profit.................... 28.6 26.0 26.7 29.1 30.8 31.2 31.1 31.0
Operating expenses:
Selling, general and
administrative............ 17.7 15.8 16.3 16.2 14.9 14.3 14.0 14.3
Research and development.... 4.4 3.4 3.0 3.5 3.7 3.3 3.0 2.5
-------- -------- -------- -------- -------- -------- -------- -------
Total operating
expenses.............. 22.0 19.2 19.2 19.8 18.5 17.7 17.0 16.8
-------- -------- -------- -------- -------- -------- -------- -------
Earnings (loss) from
operations.................... 6.5 6.8 7.4 9.4 12.2 13.5 14.1 14.2
Other income (expense).......... (0.1) (0.5) (0.7) (0.6) (3.3) (1.4) (1.1) (1.3)
-------- -------- -------- -------- -------- -------- -------- -------
Earnings (loss) before income
taxes......................... 6.4 6.3 6.8 8.7 8.9 12.2 13.0 12.9
Provision (benefit) for income
taxes......................... 2.5 2.5 2.6 2.9 3.5 4.7 5.1 4.7
-------- -------- -------- -------- -------- -------- -------- -------
Net earnings (loss)............. 3.9% 3.8% 4.1% 5.8% 5.4% 7.4% 7.9% 8.2%
======= ======== ======== ======== ======= ======== ======== ======
</TABLE>
The Company has historically operated with limited backlog because its
products are shipped shortly after orders are received, and frequently realizes
a substantial portion of its net revenues in the last month of the quarter. As a
result, revenue in any period is substantially dependent on orders booked and
shipped in the last month of that period. Delays in receipt of end-of-quarter
orders in a given quarter may adversely affect the Company's results of
operations for that quarter, as the Company's expense levels are based primarily
on full-quarter revenue estimates and only a small portion of the Company's
operating expenses vary with its revenue. Moreover, Microdyne's revenue may
fluctuate based on the level of inventories of the Company's products maintained
by the Company's distributors in any particular quarter. Accordingly, the
Company may be subject to significant and unanticipated quarter-to-quarter
fluctuations. See "Risk Factors -- Reliance on Distributors" and
"-- Fluctuations in Quarterly Results and Timing of Orders."
16
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
During the past three years, the Company has financed its operations
principally through internally generated funds. However, the Company has sought
external financing in connection with acquisitions and the repurchase of its
common stock.
External financing has been provided through bank borrowings. As of October
1, 1995, the Company had $19.9 million of bank debt, consisting of a $7.9
million term note due in May 1997 and $12.0 million in outstanding borrowings
under a revolving line of credit facility that expires in January 1998, the
limit of which was increased by $5.0 million on October 26, 1995 to $22.5
million. The term note bears an interest rate of prime or a variable rate from
1.5% to 1.9% over the London Interbank Offer Rate ("LIBOR") and requires a
monthly repayment of $400,000. The revolving credit facility note bears an
interest rate of prime or a variable rate from 1.4% to 1.8% over LIBOR. Both
notes are secured by accounts receivable, equipment and inventories. On October
1, 1995, the Company had $4.6 million of cash and, after giving effect to the
$5.0 million limit increase discussed above, the Company would have had $10.5
million available for borrowing under the revolving credit facility.
During fiscal 1995, net cash provided by operating activities was $7.7
million, primarily due to net earnings and increases in accounts payable,
accrued liabilities and depreciation, offset principally by increases in
accounts receivable and inventories. The increases in accounts payable, accrued
liabilities, accounts receivable and inventories principally reflect the
Company's increased business activity and longer trade cycles. Cash used in
investing activities during fiscal 1995 was $21.9 million, $20.9 million of
which was related to product line acquisitions. Cash provided by financing
activities was $16.1 million, consisting of $8.0 million of net new borrowing,
$3.3 million from the exercise of stock options and a $4.9 million tax benefit
related to the exercise of those options. Capital expenditures in fiscal 1995
were $887,000. The Company has no material commitments for future capital
expenditures.
Microdyne believes its available cash, funds generated from operations and
funds available under its credit facilities should be sufficient to finance its
continuing operations. The Company may also, from time to time, consider the
acquisition of businesses, products or technologies that may require additional
funds. A portion of the net proceeds of this offering may be used for such
acquisitions. However, the Company is not currently engaged in active
discussions with respect to any significant acquisitions and has no commitments
or understandings for any such acquisitions.
INFLATION
For the past three years, inflation has not had a significant impact on the
Company's operations.
17
<PAGE> 21
BUSINESS
INTRODUCTION
Microdyne designs, manufactures, markets and supports a broad line of data
communications hardware products that enable local area and remote network
access communications. The Company has established itself as a leading supplier
of LAN adapter cards which provide the essential connection between computers
(including personal computers, file servers, minicomputers and mainframe
computers) and the network. The Company's products support all established
computer bus structures, wiring systems and network topologies, including
Ethernet, Fast Ethernet and Token Ring. The Company also sells a line of
products directed to the emerging remote access market permitting both dial-up
access to LANs and LAN access to remote databases. The Company believes that its
products provide a combination of reliable, high performance, fully featured
solutions at attractive prices.
Microdyne offers a broad product mix covering a variety of networking
standards and computer platforms. Microdyne's product family consists of more
than 100 individual products grouped into five principal categories: PC
Connectivity, Remote Access, IBM Connectivity, Minicomputer Connectivity and
Bundled Products consisting of Microdyne hardware packaged with Novell NetWare
or other Novell software.
The Company sells its products through a broad base of leading domestic and
international distributors as well as smaller regional distributors. The Company
has leveraged Novell's position as the dominant supplier of LAN operating system
software by licensing the Novell brand name and certain Novell technology for
use on many of the Company's networking hardware products. Further, Novell has
authorized Microdyne as an OEM supplier of NetWare bundled with Microdyne
products to selected distributors outside of Novell's traditional distribution
channel.
BACKGROUND
The computer networking industry represents one of the fastest growing
segments of the technology industry. Industry growth has been a product of a
rising number of personal computers in use within organizations, generational
upgrades of computers, standardization of network operating system software (led
by Novell's NetWare), the rising importance of network communications as an
organizational productivity tool and the increasing speed and flexibility of
networks. According to IDC, in 1995 there are an estimated 143 million PCs
installed in businesses worldwide and 88 million PCs, or 61%, are connected to
LANs. By 1999, the installed base of business PCs is projected to rise to 210
million, of which 167 million, or 79%, are expected to be connected to a
network.
Local area networks connect groups of personal computers, file servers,
printers and other devices, thereby facilitating communications among those
devices. Most LANs utilize one of two generally accepted networking topologies:
Ethernet (approximately 80% of networks, according to IDC) or Token Ring
(approximately 20%). Generally, Ethernet LANs transmit data over a network at 10
megabits per second ("Mb" or "Mbps"); Token Ring LANs generally operate at 4 or
16Mbps. A new standard called Fast Ethernet (also called 10/100 Ethernet or
100BaseT) transmits data at 100Mbps. For any PC connected to a network there is
a need for a LAN adapter card, which translates data to and from the computer in
a format understandable to the network. The adapter card must conform to the LAN
topology (Ethernet or Token Ring), to the internal architecture of the PC (the
16-bit ISA bus or newer 32-bit PCI bus used in Pentium-class PCs) and to the
physical wiring scheme of the network (there are three commonly used wiring
systems, the most popular one of which is called 10BaseT). As such, there are
numerous permutations of adapter cards required to meet the needs of network
users. In addition, small groups of networked PCs are linked by devices called
concentrators or unmanaged hubs, which in turn are connected to file servers and
printers, each of which also requires a specialized adapter card linking the
device to the network. File servers may also have links to redundant storage
devices to insure against loss of data in the event of a catastrophic failure of
the file server; such links require specialized adapter cards at each device.
Minicomputers and mainframe computers may also reside on a LAN and such
connections require adapter cards specific to the operating system of each
18
<PAGE> 22
larger computer. In each of the preceding descriptions, Microdyne manufactures,
markets and sells the card required for connections to the network.
Networks have become an essential element of organizational productivity.
Initially, LANs performed simple file and print sharing tasks among a group of
PC users. As a result of faster processing capabilities of PCs, inexpensive,
more powerful mass storage file and application servers, generally falling
hardware prices and faster network speeds, LANs are now used to also deliver
critical applications among network users. These new applications include fax
origination and delivery, e-mail access, document imaging, storage and
manipulation, desktop conferencing, real-time workgroup use of common images and
other CPU-intensive networking activities. The growth in client/server computing
has also raised the importance of the LAN as a communication medium. As user
requirements for the network have increased -- including the need for greater
throughput speeds and bandwidth -- new bus architectures, network topologies and
transmission media have been developed. The resulting upgrade and sale of new
PCs, adapter cards and ancillary networking hardware to the installed base have
further stimulated market growth.
LAN usage has expanded from a group of physically proximate users connected
by wires to include remote users requiring periodic access to certain computers
and file servers. The lower price and improved performance and versatility of
laptop and notebook PCs, combined with improved modem technology, higher
transmission speeds, falling telecommunications costs and growth in online
services and the Internet, have fueled demand for remote access to and from
networks. Remote access allows users to dial-in to LANs from remote sites and to
access dial-up networks (e.g., Compuserve, Lexis/Nexis, the Internet) via their
office PC without the requirement of a dedicated telephone line or modem. Remote
access requires specialized software and board- or system-level hardware.
Microdyne manufactures, markets and sells board- and system-level remote access
hardware.
The Company believes that as LANs have evolved, many segments of local area
networking have become non-proprietary, price sensitivity has increased and
buyers have come to favor multi-product vendors. In addition, buyers have become
more cautious about embracing new technology if adopting it renders a large part
of an existing networking investment obsolete. As a result, the Company believes
that an ability to differentiate products through enhancements and added
features, the timing of product introductions, effective distribution and
marketing, efficient manufacturing and a low-cost infrastructure are critical
elements for success.
STRATEGY
Microdyne attempts to anticipate changes in the networking market and to
develop a strategy for continued growth and profitability. This strategy
consists, in part, of the following:
- Focus on LAN Products. Microdyne focuses its core business around the
development and marketing of board-level LAN hardware products. The
Company's strategy is to expand its presence in this market by
continuing to add features and functionality to existing products and
to develop and acquire new products to broaden its product portfolio.
The Company believes it can successfully compete in this market
because of its broad distribution capabilities, focused sales and
marketing activities, competitive pricing strategy and use of the
Novell brand name.
- Maintain Low Cost Structure. The market for LAN products is
characterized by declining average selling prices. Microdyne's
strategy to improve earnings in this environment includes constraining
the growth of its operating expenses while focusing on maintaining or
improving gross margins on its products. The Company attempts to
constrain general and administrative expenses by maintaining a small
headquarters staff. The Company focuses its engineering resources on
cost reduction and manufacturing efficiency programs. Microdyne
attempts to maintain or improve gross margins by outsourcing
manufacturing, aggressively negotiating component part prices and
continually reviewing vendor costs.
- Optimize Market Entry Timing. The market for LAN products is
characterized by evolving standards. The adoption of a new standard is
related to the evolution of PC hardware (e.g., the
19
<PAGE> 23
PCI bus) and networking topology (e.g., Fast Ethernet). Microdyne
seeks to introduce new products in response to these technological
changes at a point in time when unit volume shipments out of
distribution make entering the market economically attractive. By
seeking to optimize market entry timing, the Company believes it is
able to better judge market nuances, such as customer-demanded changes
in driver sets or features, while avoiding the cost of developing and
introducing first-generation products for which demand may be limited.
- Actively Manage Distribution Channels. Microdyne seeks to actively
manage and maximize the use of the computer products industry's
established distribution system. The Company sells its products
through the largest, best-known national and international
distributors such as Ingram Micro, Inc., Tech Data, Inc. and C2000
GmbH and also through a second tier of smaller, regional distributors.
Microdyne develops and tailors marketing and training programs for
each tier of distributors, and develops and maintains programs that
seek to convince resellers to buy and specify Microdyne products.
- Use Acquisitions to Expand Sales and Product Lines. The Company seeks
to capitalize on the consolidation currently taking place in the
networking industry by acquiring complementary product lines or
technologies. Through acquisitions, Microdyne attempts to leverage its
core competencies in sales, marketing, distribution and product
development and to enhance its market position. Microdyne selectively
pursues acquisitions at prices advantageous to the Company.
- Selectively Expand Other Areas of Microdyne's Business. While
Networking Products accounted for 83% of Microdyne's fiscal 1995
revenue, the Company's two other operations -- Aerospace Telemetry and
Manufacturer Support Services -- contributed to growth in revenue and
income without requiring substantial capital investment, thereby
helping to finance growth of Networking Products. As such, the Company
seeks to expand these operations.
NETWORKING PRODUCTS
Microdyne offers a broad product family consisting of more than 100
individual products. The Company's products are grouped into five principal
categories: PC Connectivity, Remote Access, IBM Connectivity, Minicomputer
Connectivity and Bundled Products.
PC Connectivity Products are the essential devices that connect personal
computers, printers and file servers to LANs. Microdyne markets a wide range of
such products, primarily LAN adapter cards, which shape the output of PCs into
formats understandable by the network, and which originate, monitor and
terminate LAN sessions. Microdyne's PC adapter cards address the myriad
combinations of PC bus structure (ISA, EISA, MCA, or PCI), network topology
(Ethernet or Token Ring) and network wiring scheme (coaxial cable, 10BaseT,
among others) used by customers. Microdyne's LAN adapter cards also support all
major network operating systems (NetWare, OS/2, Windows NT, Vines, Lantastic).
Microdyne also markets laptop and notebook computer LAN adapter cards that
conform to the PCMCIA standard. In response to the progression from today's
widely applicable 10Mbps standard to the evolving 100Mbps Ethernet standard,
Microdyne markets several LAN adapter cards that support both speeds and which
automatically adjust to the applicable network speed. Microdyne's broad,
flexible product capability allows customers to upgrade to new network standards
without the cost of replacing the existing network infrastructure. Microdyne
also strives to support all current and prospective networking standards and
innovations, including those dealing with ease of installation ("plug and play
ready") or conformation to PC operating system management tools (Desktop
Management Interface or DMI). Further, Microdyne differentiates its products by
its readiness and ability to quickly incorporate third party innovations such as
virus protection ROM chips.
Microdyne's PC connectivity product line also includes LAN adapter cards
for file servers and printers. Microdyne products include: the SYNC+ router
controller card, which allows a file server to perform the functions of a
router; the NetWare Mirrored Server Link ("NMSL") card, a high-speed
bi-directional serial link between servers running Novell's SFT software that
allows one file server to backup another as a "hot
20
<PAGE> 24
standby" in the event of catastrophic failure; and a variety of hubs and
concentrators, which link together clusters of PCs.
Remote Access Products enable LAN users to connect to external databases (e.g.,
Compuserve, Lexis/Nexis, the Internet) without the use of dedicated external
phone lines or modems. Microdyne markets both board-and system-level products
that provide for cost-effective connections by LAN users to such databases.
Microdyne also markets a family of remote access products that permit persons at
remote sites who are not physically connected to a LAN to access or dial into
the LAN over telephone lines and gain access to files and applications as if
physically connected. Microdyne's products also permit groups of users to share
a small number of modems and direct lines connected to a network. Microdyne's
remote access products support assorted applications involving varying numbers
of simultaneous in-bound or out-bound sessions handled ("ports"), differing
technology used to support those sessions ("remote node" or "remote control")
and various software packages which provide network connections and security.
Microdyne's remote access solutions are fully featured products with high levels
of network security, protocol support and scalability. Microdyne also markets a
set of systemlevel solutions (e.g. LAN Expander) and a wide-area networking
board (the "WNIM series") that permits value added resellers ("VAR") or end
users to build customized solutions for an organization.
IBM Connectivity Products are adapter cards that enable a PC to operate in an
environment in which there is a direct connection to an IBM mainframe. In such
cases, the PC must emulate an IBM 3270-series terminal in order to communicate
with the mainframe. Microdyne's products support IBM's Systems Network
Architecture ("SNA") and Systems Application Architecture ("SAA"), the
specialized network protocols used in IBM mainframe environments.
Minicomputer Connectivity Products are specialized adapter cards that permit
minicomputers to be connected to LANs. Although demand for minicomputers has
fallen from peak 1980s levels, many organizations continue to run critical
applications on minicomputers, generating modest demand for adapter cards which
facilitate such connectivity. Microdyne's products allow DEC, Prime, Data
General, NCR and other minicomputer platforms to be connected to LANs.
Bundled Products are pre-packaged combinations of one or more of the Company's
networking products packaged with OEM versions of Novell software. These bundled
products are sold to selected distributors that would otherwise not have access
to these Novell products. Bundled products include Novell's NetWare network
operating system software or LAN Workplace for DOS combined with the Company's
Ethernet adapter cards, Novell's SFT software combined with NMSL boards,
Novell's Multiprotocol Router software combined with the SYNC+ board, Novell's
SAA for Windows combined with the SAA adapter card, and NetWare Connect software
combined with WNIM wide-area adapter cards.
The table on the following pages lists Microdyne's principal products and
provides a brief description and list of key product features for each group.
21
<PAGE> 25
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
PRODUCT CATEGORY OR NAME DESCRIPTION KEY PRODUCT FEATURES
PC CONNECTIVITY PRODUCTS
<S> <C> <C>
ETHERNET ADAPTER CARDS
Novell NE2000plus series 16-bit ISA adapters the industry-standard PC adapter,
lifetime warranty
Novell NE2500 series 16-bit ISA adapters plug and play ready, fast frame
exchange technology, virus
protection, DMI interface
Novell NE5500 32-bit PCI adapter plug and play ready, easy
installation, fast frame exchange
technology, DMI interface
Novell NE3200 series 32-bit EISA adapters bus master technology, low CPU
utilization, designed for
multi-vendor environment
Novell NE4200 PCMCIA adapter dual media, switchless automatic
configuration, 4 diagnostic LEDs
Novell NE/2 series MCA 16- and 32-bit adapters full driver support for Micro
Channel Architecture-bus PCs and
workstations
EP-series 16- and 32-bit adapters value-priced, fully featured
adapters
FAST ETHERNET PRODUCTS
Novell NE10/100 ISA 16-bit Fast Ethernet auto-sensing for 10 or 100Mb
adapter for ISA bus networks, plug and play ready, half-
or full duplex modes
Novell NE10/100 PCI 32-bit Fast Ethernet auto-sensing for 10 or 100Mb
adapter for PCI bus networks, plug and play ready, half-
or full duplex modes
Eagle Switch 4+100 switch with 4 10Mb and 1 enhanced store-and-forward, dynamic
100Mb ports buffer allocation, SNMP management,
serial port
Eagle Switch 4x4 switch with 4 10Mb and 4 enhanced store-and-forward, dynamic
100Mb ports buffer allocation, SNMP management,
serial port
Eagle Century hub 12-port 100Mb hub preamble regeneration, retiming,
collision detection
TOKEN RING ADAPTER CARDS
IRMAtrac Hardtop 16-bit ISA adapter 4/16Mb selectable, ROMShield virus
protection
IRMAtrac Convertible 16-bit ISA or MCA adapter 4/16Mb selectable, bus master
technology, remote program load
support
IRMAtrac PNP 4/16 16-bit ISA adapter bus master technology, 512K,
on-board memory, plug and play ready
IRMAtrac PCI 4/16 32-bit PCI adapter bursting bus master data transfer,
128K on-board memory
OTHER PC CONNECTIVITY PRODUCTS
Novell NetWare Mirrored Server Link bi-directional serial link fiber or coaxial connectors, 32-bit
(NMSL) between servers data transfers, fastest throughput
Novell NPE400 print server high-speed print server pocket-sized adapter connecting
directly to printer parallel port
Novell SYNC+ series WAN adapters router controller card optimized for Novell's Multiprotocol
Router software, intelligent, high
speed
EH-series hubs 8- or 12-port concentrator expandable, advanced monitoring,
diagnostics
5000plus-series concentrators 8- or 16-port 10BaseT small size, low power consumption,
concentrator can be cascaded, extensive network
management
IRMAtrac Token Ring MAUs media access unit lobe-port status lights, automatic
loop back
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
PRODUCT CATEGORY OR NAME DESCRIPTION KEY PRODUCT FEATURES
REMOTE ACCESS PRODUCTS
<S> <C> <C>
LAN Expander LX-RC 2-port dial-in, dial-out remote control technology,
management
LAN Expander LX-2 and LX-4 2- or 4-port dial-in, dial- remote-node technology, dial-out
out modem sharing, easy installation,
entry-level price
Novell WNIM+ and WNIM 3000 asynchronous adapters supports 4 or 8 ports for
user-designed remote access
solutions, optimized for NetWare
ACS 4400 4-port dial-in, dial-out based on Novell's NetWare Connect
software, integrated, ready-to-use,
network security
Novell NW2000 WAN adapter communications adapter optimized for Novell's Multiprotocol
Router software, useful for
branch-office solutions
<CAPTION>
IBM CONNECTIVITY PRODUCTS
<S> <C> <C>
SAA Synchronous Adapter for PC and 3270 serial adapters RS232C and V.35 connectivity,
PS/2 operates with Novell's NetWare for
SAA
Synchronous and V.35 Synchronous 3270 serial adapter connects a PC to IBM 37XX
Adapter for PC communications processor at speeds
up to 19.2Kbps
Coax Adapter for PC 3270 adapter supports 3270 CUT Workstation and
Workstation for Windows, SNA Gateway
Coax/Mux Adapter coaxial interface adapter emulates 3299 mux, supports up to 40
concurrent DFT-mode 3270 sessions
from LAN
SNA Gateway LAN-to-mainframe software enables up to 97 LAN workstations to
access IBM SNA host computers
3270 LAN Workstation for SNA Gateway workstation-to-SNA software provides LAN client workstations
with access to IBM SNA host
computers
<CAPTION>
MINICOMPUTER CONNECTIVITY PRODUCTS
<S> <C> <C>
EXOS 201 and 301 MULTIBUS adapter supports NCR Tower, Concurrent,
Prime, Intel, and UNISYS system
connections to LANs
EXOS 203 Q-BUS adapter supports DEC MicroVAX connection to
LANs
EXOS 204 and 304 UNIBUS adapters on-board LAN co-processor, providing
efficient CPU utilization
<CAPTION>
BUNDLED PRODUCTS
<S> <C> <C>
NetWare 3.x/4.x bundles hardware/software Novell NetWare with Novell
NE2000plus series adapter cards
LAN Workplace for DOS bundles hardware/software Novell LAN Workplace for DOS with
NE2000+3 adapters
SAA NetWork Select hardware/software Novell SAA for Windows with Novell
SAA synchronous adapters
MPR+ NetWork Select hardware/software Novell Multiprotocol Router software
with Microdyne's SYNC+ adapter
Remote Network Select hardware/software Novel NetWare Connect software with
Microdyne WNIM adapter
</TABLE>
23
<PAGE> 27
Acquisitions
Microdyne seeks to expand its product and technology base by selectively
acquiring companies or product lines that complement the Company's technologies,
expand the Company's markets and leverage the Company's channels of
distribution. Microdyne evaluates each potential acquisition independently and
the decision process includes factors related to the acquisition's long-term
potential for contribution to sales, earnings or technology. Evaluation criteria
may change from time to time. Among the criteria the Company currently uses are
the following:
- The extent to which the acquisition could be immediately accretive to
revenue and earnings;
- The extent to which the products purchased could be marketable through
Microdyne's existing distribution channel;
- The extent to which the acquisition would fit with the Company's LAN
products strategy;
- The extent to which the acquisition would be for specific technology
or product lines, rather than organizations; and
- The extent to which the technology purchased is fully developed and
immediately marketable.
Since 1989, Microdyne has attempted to enhance its revenue growth and
technology base by either licensing products or by acquiring businesses or
product lines. The following table provides a chronology of certain of those
transactions:
[CAPTION]
<TABLE>
<CAPTION>
PRODUCT LINE LICENSED/
YEAR LICENSED OR ACQUIRED ACQUIRED FROM NATURE OF PRODUCT LINE OR BUSINESS
<C> <S> <C> <C>
1989 Excelan Novell Minicomputer connectivity products
1991 CXI Novell IBM connectivity products
1992 NE-series adapter cards Novell Ethernet adapter cards
1992 SAA adapter cards Novell Serial adapter cards for IBM hardware
1992 NetWare Access Server Novell Co-developed and marketed remote access solution
1993 SYNC+ Novell Router adapter card
1993 NMSL Novell Mirrored Server Link hardware
1994 IRMAtrac product line DCA Token Ring adapter cards
1994 Gateway Communications Gateway Remote access products, WNIM wide-area network
Communications adapter
1995 Eagle Technology Artisoft Ethernet adapter cards, print server, hubs,
wide-area networking adapters
1995 InfoMover National Ethernet adapter cards, Fast Ethernet technology
Semiconductor and adapter cards
</TABLE>
Since July 1994, the Company has made the following acquisitions to
diversify and enhance its technology and product mix:
In July 1994, Microdyne acquired the IRMAtrac product line from Attachmate.
That acquisition brought Microdyne an established line of Token Ring adapter
cards that had been developed and marketed by DCA beginning in 1991. Microdyne
purchased DCA's inventory for approximately $4.0 million, agreed to pay a
minimum royalty of $3.0 million over five years, and hired certain DCA engineers
to support Token Ring software and hardware. DCA also agreed to continue to sell
the Token Ring product line through its direct sales force. See "-- Marketing,
Sales and Customer Support."
In September 1994, Microdyne acquired Gateway's rights to remote access
products and certain other products and technology and certain assets,
consisting principally of inventory, for $2.0 million. Gateway's
24
<PAGE> 28
remote access product line is now marketed as Microdyne's WNIM family wide-area
adapter boards and the LAN Expander family of remote access solutions.
In January 1995, Microdyne acquired from Artisoft the Eagle Technology
business consisting of a family of Ethernet adapter cards, file server adapter
cards, hubs and print server cards. Microdyne purchased the Eagle business for
$16.5 million, including inventory of $8.3 million, fixed assets of $700,000 and
all rights to all Eagle technology for $7.5 million. Artisoft, through its Eagle
business, was one of two companies (the other was National Semiconductor) that,
along with Microdyne, was licensed by Novell to market adapter cards using the
Novell name and "NE" designation. The Company has begun to consolidate its
adapter card business with that of Eagle to provide both a Novell-label and
Eagle-brand line of products.
In September 1995, Microdyne acquired National's Ethernet adapter card
product line, which had been introduced in 1993. Microdyne agreed to pay a total
of $5.3 million, including $3.5 million for National's 10Mb and 10/100 Ethernet
adapter card inventory, and $1.8 million for rights to National's 10/100
technology, including a period of exclusivity ending in June 1996 on the
purchase of National's 10/100 ISA chip set, and certain intangibles. As a result
of the National acquisition, in September 1995, Microdyne introduced a 10/100
ISA adapter card as part of its Fast Ethernet family of products.
Distribution
The Company's Networking Products are principally sold to end users through
a two-step distribution process consisting of distributors and resellers.
Electronics distributors stock products from hundreds of manufacturers. The
industry includes several hundred distributors specializing in computer products
and these firms serve regional, national or international markets. Microdyne's
largest distributors include Ingram Micro Corporation, DistribuPro, Inc.,
Southern Electronics Corporation, Tech Data, Inc., Merisel Inc. and C2000 GmbH.
The customers of those distributors are, in turn, the more than 50,000 worldwide
computer products resellers (including retail stores that sell to end users),
VARs (which sell to systems integrators that specify, assemble and install
networks for end user customers) and integrators (which install components and
systems as a service to customers). The Company believes that selling through
distributors carries specific benefits, including limiting the Company's
customers to a finite number of generally well-financed entities, limiting the
amount of finished-goods inventory which the Company must carry and lessening
the need for a direct sales force. According to IDC, distributors accounted for
more than 75% of all networking products sold in the United States in 1994.
The Company provides terms of net 30 days for most of its products.
Microdyne periodically offers rebates to distributors or permits distributors to
extend payment terms to gain favored attention for the Company's products.
Microdyne's agreements with distributors allow defective products to be returned
for credit and generally permit stock rotation, a standard practice in the
electronics industry. Stock rotation enables a distributor to return a set
percentage of slow-moving product for a like amount of a comparable but
faster-selling product. In order to minimize stock rotation, the Company
attempts to balance distributor inventory with perceived customer demand and
from time to time sells products on a non-cancellation, no-return basis.
Distributor agreements also provide distributors with protection against price
decreases which are applicable to products in the distributors' inventory at the
time of the decrease. The Company has established reserves for defective product
returns, stock rotations and price decreases, which reserves management believes
to be adequate.
Microdyne treats sales to distributors outside the United States (or
U.S.-based distributors with a majority of their sales in international markets)
in a manner substantially similar to U.S.-based accounts. All products are
priced to distributors in dollars and distributors assume any risk of currency
fluctuation.
Extended Distribution Program; Novell Agreements
Microdyne has broadened its customer reach by adding a second group of
distributors for which Microdyne is a source of networking hardware products and
Novell NetWare network operating system software and other Novell-label
software. Microdyne combines its networking hardware products with
25
<PAGE> 29
appropriate Novell software in one package. The resulting combinations, or
Bundled Products, are sold under the Extended Distribution Program.
The Extended Distribution Program was introduced in 1993 with the
cooperation of Novell. Pursuant to an agreement with Novell, Microdyne is
authorized to seek out distributors that are not otherwise authorized by Novell
to sell NetWare and other Novell software products. Distribution terms and
discount policies are set by Novell. The Company believes that by participating
in the Extended Distribution Program, Microdyne enhances its position as a
supplier of networking hardware products and increases the likelihood that its
products will be recommended by these distributors.
The Company has had a long-standing relationship with Novell that commenced
in 1984. The Company presently is party to several agreements with Novell
concerning the licensing, manufacture and marketing of Novell products and
products incorporating Novell technology, which are material to the Company. See
"Risk Factors -- Dependence on Novell." In return for royalties, which generally
consist of a minimum payment and a payment based upon sales into distribution,
the Company has the non-exclusive, worldwide right to manufacture and distribute
various networking products utilizing Novell licensed technology. These
licensing agreements have different termination dates and typically provide for
renewal for additional one-year periods with the consent of Novell and the
Company, and each party has the right to terminate such agreements upon 90 or
180 days prior written notice. The Company's OEM agreement with Novell
concerning Bundled Products has a month-to-month term and is terminable by
either party upon 30 days prior written notice.
Marketing, Sales and Customer Support
Because there are several levels of intermediaries between the Company and
its end user customer, Microdyne devotes its sales resources to working with
distributors ("push" programs) and must rely upon marketing efforts to reach
resellers and end user customers ("pull" programs). It is critical to the
Company's success that distributors' telemarketing representatives are familiar
with Microdyne's products and can explain to their customers how Microdyne
products are differentiated from those of its competitors. To that end, the
Company conducts periodic training programs for its distributors' telemarketing
representatives. The Company may also periodically run push programs including
promotions and rebates aimed at distributors' telemarketing representatives.
The Company's pull programs are aimed at resellers and end users. These
programs take the form of print advertising in computer industry trade
publications that reach resellers and corporate information systems managers,
direct mail to resellers, trade press publicity about new products and product
features, participation in the networking industry's trade shows, promotions
designed to increase sales in a specific period and rebates.
The Company uses its Novell and Eagle brand names to establish and retain
customer loyalty to Microdyne's products. Microdyne believes the Novell name
connotes quality and reliability in the minds of customers, and that the Eagle
name is well established in the minds of many customers as a reliable, price-
competitive brand.
As part of the Company's acquisition of the IRMAtrac product line,
Attachmate assumed certain obligations for the continued sale of those products
for a period of five years commencing July 19, 1994. Microdyne is dependent upon
Attachmate's efforts for the sale of Token Ring products.
Microdyne maintains a toll-free telephone technical support center in
Alexandria, Virginia and San Jose, California where help is available 12 hours a
day, five days a week. Networking products have a lifetime warranty against
failure or defective workmanship. The Company replaces its products upon
submission of the failed product together with purchase documentation.
Research and Development
Research and development expense increased to $5.2 million in fiscal 1995
from $3.6 million in fiscal 1994. This increase is attributable to the addition
of former DCA Token Ring engineers in the fourth quarter of fiscal 1994 as well
as the development of new products introduced in fiscal 1995. Microdyne's
expenditures
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<PAGE> 30
for research and development in its Networking Products business was $3.8
million in 1995, $2.3 million in 1994 and $2.9 million in 1993. Research and
development activities are carried out at the Company's facility in San Jose,
California by a staff of approximately 30 engineers.
The Company focuses its engineering efforts on product cost reduction,
extension of existing product lines and enrichment of features on existing
products. The Company has historically obtained new technologies or new products
primarily through OEM relationships or the purchase of technology as part of
larger business acquisitions. Each of the four acquisitions completed between
July 1994 and September 1995 has contributed specific new products and/or
technologies to Microdyne.
Manufacturing and Supply
Because of variable demand for its products and the availability of
low-cost contract production capabilities, Microdyne outsources virtually all of
its board-level Networking Products manufacturing to contract manufacturers,
which are primarily established, U.S.-based corporations. The Company believes
it can maintain a high level of quality while reducing its cost of goods sold
below that which the Company would incur if it manufactured products in-house.
The Company believes there are a sufficient number of contract manufacturers to
ensure adequacy of supply for the foreseeable future. Microdyne has experienced
no substantial difficulty purchasing components and raw materials in the open
market from multiple suppliers; however, certain integrated circuits are
available from a single vendor and can require long lead times to obtain in
quantity.
Competition
The networking products market is very competitive. The Company believes
its ability to compete successfully depends on a number of factors, including:
price; product features; product quality; performance and reliability; name
recognition; international certification; retention of experienced sales,
marketing and service personnel; development of new products and enhancements;
and adherence to rapidly changing industry standards.
Microdyne competes with a number of vendors, including 3Com Corporation,
Standard Microsystems Corporation and Intel Corporation, that have significantly
greater financial, marketing, technical and other resources as well as the
capacity to obtain components at lower cost either by purchasing large
quantities of such components or by fabricating such components in-house. These
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, devote greater resources to the
development, promotion and sale of their products or control the timing of, or
respond more effectively to, new product introductions.
AEROSPACE TELEMETRY
Overview
Data gathering and analysis is a basic requirement in the testing and
analysis of any process or operation. When the process or device being measured
is close at hand, it is a relatively simple task to attach probes, sensors or
other measuring devices to the object. These devices convert physical
measurements (e.g., temperature, rotation, pressure) into a variable stream of
electrical current. The current flows over wires and is either shown on an
analog display (a thermometer or voltmeter, for example) or converted into
digital form and fed into a computer file. This well-established practice works
well so long as the object or process to be measured is sufficiently close to
permit wires to connect those probes and sensors with the computer logging the
resulting output.
Telemetry is the technology of measuring various equipment performance
parameters at a distance, and is required when the object under test is moving
too quickly or is at too great a distance to use wires. In telemetry, a highly
selective radio receiver is needed to gather information which is sent, usually
in a rapid burst form, from, for example, a transmitter on board an aircraft or
space vehicle. The information will consist of readings from hundreds of sensors
recording such things as heat, vibration, stress and operational
27
<PAGE> 31
performance. Each sensor will produce its own data stream which must be
transmitted and captured. In other applications such as weather satellites or
space vehicles, the information will consist of data and video transmissions.
Since 1968, Microdyne has manufactured telemetry receivers, the
sophisticated radio receivers that can accurately tune in and hold the telemetry
signals from aircraft and space vehicles. During the past three years, Microdyne
has expanded and updated its telemetry product line, including the addition of
card-level products that perform essentially the same functions as the Company's
traditional rack-mounted devices. Two trends are pushing telemetry receivers
toward becoming board-level systems with computer control. First, very powerful
personal computers can process telemetry data at rates previously unattainable.
Second, telemetry receivers are increasingly being used in mobile environments
such as aircraft and on board ships where the receivers' light weight and
compactness are an advantage over larger rack mounted devices. The Company's new
telemetry products include:
- A single-card telemetry receiver designed to plug into a VME, VXI or
PC/AT ISA bus which contains much of the functionality of one of
Microdyne's traditional rack-mounted receivers; and
- A board-level diversity combiner which is a special device to take
the input of two telemetry receivers, each of which has been tuned
to the same sets of frequencies, but at different polarity, and
combine those two signal streams into one continuously readable data
stream. This type of product is required whenever the telemetry
stream comes from a vehicle that is maneuvering or rotating.
Other Aerospace Telemetry products include compact telemetry receivers and
a sophisticated signal simulation source for use in calibrating telemetry
equipment and systems, to ensure that a system is set up correctly and fully
operational prior to a mission; and diversity combiners that allow data loggers
to record an uninterrupted stream of data from two receivers, regardless of the
polarity of the signal from the telemetry source.
Marketing and Sales
Telemetry systems are used in a variety of applications involving missiles,
aircraft, satellites and other space vehicles. The four major user groups
include Government testing ranges, aerospace companies engaged in the
development and manufacture of missiles and satellites, companies that design
and manufacture antennae used in tracking and receiving signals being sent from
missiles and satellites and meteorological systems used to gather weather data.
Microdyne markets its products directly to these user groups through a
sales and marketing department located at the Company's Ocala, Florida facility.
Because most telemetry products are purchased directly or indirectly with
Government funding, much of Microdyne's marketing effort is channeled into
establishing and maintaining name and product recognition for the Company with
Government agencies and aerospace and defense contractors. Beginning in 1993,
Microdyne began undertaking projects combining the Company's telemetry
components and subsystems with those of other manufacturers for international
customers. In addition, Microdyne maintains customer support operations in
several cities in the U.S.
Government agency and Government prime contractor revenue in fiscal 1995
was $9.6 million, or 55.3% of total Aerospace Telemetry revenue, compared to
$5.4 million, or 44.1% in 1994. Some of the Company's telemetry Government
contracts contain price re-determination clauses. Through the end of fiscal
1995, Microdyne has received no claims based on such clauses. The Aerospace
Telemetry business can be adversely affected by any substantial decreases in
Government procurement of the Company's products and services. Microdyne's
dependence upon such procurement has lessened significantly as the Company has
shifted its emphasis to the commercial sale of Networking Products, although the
telemetry industry remains dependent upon Government procurement. The Company
believes there is growth potential in international markets, and has established
a sales office in London. Microdyne also uses international manufacturers'
representatives.
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<PAGE> 32
Research and Development and Manufacturing
Expenditures for Aerospace Telemetry research and development totaled $1.4
million, or 8.0% of telemetry revenue in 1995. This compared to $1.2 million, or
9.7% of telemetry revenue in 1994 and $1.1 million, or 8.3% of revenue in 1993.
Microdyne maintains a volume manufacturing facility in Ocala, Florida.
Competition
The Company believes the domestic market for telemetry products is mature,
with total revenue relatively stable from year to year. Microdyne believes it
has the largest market share for telemetry receivers sold in the world. However,
the market for defense electronics is very competitive and marked by a shift
toward fewer, but much larger vendors. Microdyne believes that the relative
maturity of the overall defense electronics market could attract competition
from vendors in related fields of defense electronics that are seeking to expand
total corporate sales by leveraging relationships with existing customers to
include additional product lines in ancillary fields.
MANUFACTURER SUPPORT SERVICES
Overview
Large electronics manufacturers with established markets and sizable
installed bases typically have an in-house technical support, warranty repair
and after-warranty service capability. However, organizations new to the U.S.
market or without large installed bases may determine that the cost of creating
and maintaining such an activity is prohibitive. Further, manufacturers with
in-house capabilities may require peak-demand assistance in these areas; such
demand being created by the introduction of a new product or by seasonal sales.
In such cases, manufacturers may turn to third-party organizations to staff and
operate telephone technical support, warranty repair and after-warranty service
centers.
Since 1989, the Company has provided outsourced services to one computer
electronics manufacturer. These activities include telephone technical support,
component and board repair and warranty administration. Microdyne provides its
customer with trained personnel, including, as of October 1, 1995, a staff of
252 full-time and 85 part-time employees in the customer's facilities near Los
Angeles, California and in Indianapolis, Indiana. The Company's revenue is based
on the number of employees assigned to each aspect of the customer's business,
the number of hours worked by those employees and the rate at which Microdyne is
paid for such services.
The Company maintains a contract with its customer which is currently set
to expire in December 1995. Microdyne is optimistic that a new contract will be
in place at or before the expiration of the existing contract, although no
assurance can be given in this regard.
Marketing
Microdyne seeks to expand its manufacturer support services business. While
the Company's primary focus is maintaining and expanding its relationship with
its current customer, Microdyne believes it has the resources and expertise to
serve other customers. Microdyne solicits contracts for this activity directly
from such manufacturers.
Competition
The principal competition for manufacturer support services is in-house
sourcing. Microdyne's customer may, upon notice, sever its contract with the
Company and elect to perform these tasks using its own employees. Also, other
third-party support vendors could win the customer's business by offering better
terms. While the Company believes that its relationship with the customer is
generally good, and the level of work performed for the customer has expanded
significantly during the past two years, Microdyne seeks to reduce the risk of
being displaced by either in-house staff or another third-party provider. The
Company continually recruits highly skilled staff to meet the customer's growing
requirements, upgrades the work skills of its staff
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<PAGE> 33
through training, provides its staff with a career path to reduce turnover and
increases efficiency so as to lower costs to the customer.
PATENTS AND PROPRIETARY RIGHTS
The Company does not consider that its business is dependent upon patent
protection. Nevertheless, the Company is subject to the risk of adverse claims
and litigation alleging infringement of the proprietary rights of others. From
time to time the Company has received claims of infringement of other parties'
proprietary rights. Although the Company believes that it does not infringe the
valid patents of others, there can be no assurance that third parties will not
assert infringement claims in the future with respect to the Company's current
or future products or that any such claims will not require the Company to enter
into license arrangements or result in protracted and costly litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonable terms.
EMPLOYEES
As of October 1, 1995, Microdyne had 588 full-time and 85 part-time
employees. None of Microdyne's employees is covered by a collective bargaining
agreement. The Company believes its labor relations to be generally good.
Employment by operation is as follows:
<TABLE>
<CAPTION>
FULL-TIME PART-TIME
--------- ---------
<S> <C> <C>
Networking Products....................................... 182 0
Aerospace Telemetry....................................... 138 0
Manufacturer Support Services............................. 252 85
Corporate Headquarters.................................... 16 0
--
---
Total................................................ 588 85
======= =======
</TABLE>
Networking Products employees are located in Alexandria, Virginia and San
Jose, California; Aerospace Telemetry employees are located in Ocala, Florida;
Manufacturer Support Services employees are located at customer-owned facilities
near Los Angeles, California and in Indianapolis, Indiana. Corporate
headquarters employees are located in Alexandria, Virginia.
PROPERTIES
At October 1, 1995, the Company's principal facilities consist of the
following:
<TABLE>
<CAPTION>
LOCATION FACILITY SIZE OWN/LEASE FUNCTION
- ----------------- ---------------- ----------- -------------------------------------
<S> <C> <C> <C>
Alexandria, VA 26,000 sq. ft. Leased Headquarters, marketing, sales
Ocala, FL 112,000 sq. ft. Owned Aerospace Telemetry
San Jose, CA 95,000 sq. ft. Leased Manufacturing, engineering, warehouse
</TABLE>
A portion of the Ocala facility was financed by and stands as collateral
for industrial revenue bonds, of which $304,000 was outstanding at October 1,
1995. The Ocala facility includes 5.5 acres of land.
BACKLOG
The Company does not believe backlog is a meaningful indicator of future
business trends. Microdyne's Networking Products operation is not based upon
either long lead times for delivery or contract delivery schedules. Rather, with
the exception of out of stock products, Networking Products are generally
shipped upon receipt of order. Aerospace Telemetry backlog is dependent upon the
receipt or renewal of Government contracts, the timing over which the Company
has no control. Company backlog amounted to $2.7 million at October 1, 1995 and
$5.9 million at September 30, 1994.
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<PAGE> 34
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table lists the names of and position held by each executive
officer and director of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Philip T. Cunningham........... 58 Chairman of the Board, President and Chief Executive
Officer
Christopher M. Maginniss....... 58 Treasurer, Executive Vice President, Chief Financial
Officer and Director
R. Dale D'Alessio.............. 41 Senior Vice President -- Sales and Marketing
A. Ralph Mason................. 52 Senior Vice President -- Business Development
David G. Laposata.............. 31 Vice President -- Operations
Neal H. Sanders................ 46 Vice President and Corporate Secretary
Christian J. Spitz............. 44 Vice President -- Aerospace Telemetry
William Marshall Ellison II.... 40 Controller and Assistant Treasurer
Curtis M. Coward(2)............ 49 Director
Gregory W. Fazakerley(1)(2).... 47 Director
H. Brian Thompson(1)(2)........ 56 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
PHILIP T. CUNNINGHAM has served as the Chairman of the Board, President and
Chief Executive Officer of the Company since the FTC Transaction in June 1991.
Mr. Cunningham served as President and Chairman of the Board of FTC from its
inception in 1984 through the date of the merger. Mr. Cunningham served as a
career naval officer from 1959 to 1979. He holds a BS from Holy Cross and an MBA
from Harvard Business School.
CHRISTOPHER M. MAGINNISS has served as Treasurer, Executive Vice President,
Chief Financial Officer and Director of the Company since the FTC Transaction in
1991. Mr. Maginniss served as Executive Vice President of FTC from June 1987
through the date of the FTC Transaction. Mr. Maginniss served as a career naval
officer from 1959 to 1982. Subsequently, he was President of the Community
Service Credit Union, in Groton, Connecticut.
R. DALE D'ALESSIO has served as Senior Vice President -- Sales and
Marketing of the Company since 1992 and as General Counsel of the Company since
the FTC Transaction in 1991. Mr. D'Alessio also served as Secretary of the
Company from 1991 until November 1994. Mr. D'Alessio joined FTC in 1985 serving
as FTC's Director of Corporate Planning and Development until 1987, when he was
promoted to Vice President and General Counsel, which positions he held until
the FTC Transaction.
A. RALPH MASON has served as Senior Vice President -- Business Development
of the Company since the FTC Transaction in 1991. Mr. Mason joined FTC in 1986,
serving as Director of Sales until 1988, when he was promoted to Vice President
of Sales, which position he held until his 1991 promotion to Senior Vice
President of FTC.
DAVID G. LAPOSATA has served as Vice President -- Operations of the Company
since 1992. Mr. Laposata joined FTC in 1987 serving as a pricing analyst until
his 1991 promotion to Assistant Vice President of Systems Integration and
Services, which position he held until the FTC Transaction.
NEAL H. SANDERS has served as the Company's Vice President since joining
the Company in 1992 and as the Company's Corporate Secretary since November
1994. Mr. Sanders served as Director of Investor Relations for Occidental
Petroleum from 1990 to 1991 and Director of Corporate Communications for Bolt
Beranek and Newman, Inc. from 1982 to 1990.
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<PAGE> 35
CHRISTIAN H. SPITZ has served as Vice President -- Aerospace Telemetry of
the Company since 1993. Prior to 1993, Mr. Spitz was Vice President for Finance
at Development Resources, Inc.
WILLIAM MARSHALL ELLISON II has served as the Company's Controller and
Assistant Treasurer since the FTC Transaction in 1991. Mr. Ellison served as
FTC's controller from 1990 to 1991. Mr. Ellison is a Certified Public
Accountant.
CURTIS M. COWARD was appointed to the Board in September 1995 to fill a
vacancy that arose following the death of a board member. He has been a Partner
in the law firm of McGuire, Woods, Battle & Boothe L.L.P., McLean, Virginia
since 1986. He is also special counsel to the Republic of Kazakstan. Previously,
Mr. Coward was President and Chief Executive Officer of Air Virginia/AVAIR from
1982 to 1986 and was Chairman of the Board of Directors of the Regional Airline
Association in 1985. He is a Director of the Atlantic Council of the United
States and a trustee of the U.S. Naval Academy Foundation.
GREGORY W. FAZAKERLEY has served as a member of the Board of Directors of
the Company since 1991. Mr. Fazakerley has served as Chairman and Chief
Executive Officer of Development Resources, Inc., a Washington, D.C.-based real
estate development firm since 1983. Mr. Fazakerley is also the Managing General
Partner of C/G Investments, a real estate partnership; President of the District
of Columbia Building Industry Association; and a member of the Board of
Directors of the YMCA of the Greater Metropolitan Washington area.
H. BRIAN THOMPSON has served as a member of the Board of Directors of the
Company since 1991. Mr. Thompson has served as Chairman of the Board and Chief
Executive Officer of LCI International, a world-wide long distance
telecommunications company based in McLean, Virginia since 1991. From 1981 to
1990, Mr. Thompson served as Executive Vice President of MCI Communications
Corporation. Mr. Thompson also served as the President of Subscription
Television of America from 1979 to 1981. Beginning in 1968, Mr. Thompson spent
nine years with McKinsey & Company, an international management consulting firm.
Mr. Thompson is also a director of Comcast UK Cable Partners and a trustee of
Capitol College.
DIRECTOR COMPENSATION
Directors of the Company who are not also officers receive $1,000 per
meeting, whether regularly scheduled or special; $500 for telephone meetings;
and reimbursement of reasonable expenses incurred in attending meetings.
Directors who are not also executive officers receive, in addition to the
foregoing fees and expense reimbursements, a quarterly fee of $4,000.
Non-employee directors may, at their option, elect payment in the form of the
Company's stock.
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<PAGE> 36
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth individual compensation information for the
Chief Executive Officer and the four other most highly paid executive officers
for services rendered in all capacities during the fiscal years ended October 1,
1995, September 30, 1994 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION OTHER ANNUAL OPTIONS
----------------------------- COMPENSATION AWARDED
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) (IN SHARES)
- ----------------------------------------------- ---- --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Philip T. Cunningham........................... 1995 251,250 250,000 200,000(2) --
Chairman of the Board 1994 222,500 230,000 200,000(2) --
President and Chief Executive Officer 1993 200,000 75,000 200,000(2) --
Christopher M. Maginniss....................... 1995 209,625 175,000 -- 25,000
Treasurer, Executive Vice President 1994 186,438 165,000 -- 46,000
Chief Financial Officer and Director 1993 162,000 40,625 -- --
R. Dale D'Alessio.............................. 1995 185,000 96,022 -- 30,000
Senior Vice President -- Sales and Marketing 1994 175,625 13,535 -- 30,000
1993 147,500 -- -- --
A. Ralph Mason................................. 1995 175,000 99,206 -- --
Senior Vice President -- Business Development 1994 175,000 68,890 -- 10,000
1993 150,000 -- -- --
David G. Laposata.............................. 1995 150,000 27,459 -- --
Vice President -- Operations 1994 130,000 15,652 -- 75,000
1993 110,000 -- -- 25,000
</TABLE>
- ---------------
(1) Does not include compensation associated with perquisites because such
amounts do not exceed the lesser of either $50,000 or 10% of total salary
and bonus disclosed.
(2) Compensation pursuant to Mr. Cunningham's Noncompetition Agreement.
Option Grants
The following table sets forth certain information with respect to stock
options granted during fiscal year 1995 to the executive officers named in the
Summary Compensation Table above. Also shown below is the potential realizable
value over the term of the option (the period from the grant date to the
expiration date) based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. These amounts are based on certain assumed rates of
appreciation and do not represent the Company's estimate of future stock price.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of the common stock.
<TABLE>
<CAPTION>
OPTION GRANTS IN YEAR ENDED OCTOBER 1, 1995 POTENTIAL REALIZABLE
--------------------------------------------------- VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION OPTIONS FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTION IN PRICE EXPIRATION -------------------------
NAME GRANTS FISCAL YEAR ($/SHARE) DATE 5% 10%
- ------------------------------------- --------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Philip T. Cunningham................. -- -- -- -- -- --
Christopher M. Maginniss............. 25,000(1) 9.3% $4.25 10/01/04 $ 66,750 $ 169,335
R. Dale D'Alessio.................... 30,000(2) 11.2% 8.69 11/22/04 164,100 415,000
A. Ralph Mason....................... -- -- -- -- -- --
David G. Laposata.................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) All are exercisable from the date of grant as follows: one-third after one
year; two-thirds after two years; and 100% after three years.
(2) All are exercisable as of May 22, 1995.
Option Exercises
The following table sets forth information with respect to option exercises
and the aggregate value of unexercised options for the year ended October 1,
1995, held by each of the executive officers named in the
33
<PAGE> 37
Summary Compensation Table above. The value of unexercised in-the-money options
at October 1, 1995 equals the market value of the underlying common stock at
October 1, 1995 minus the exercise price.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED OCTOBER 1, 1995
AND OCTOBER 1, 1995 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT IN-THE-MONEY OPTIONS AT
SHARES OCTOBER 1, 1995 OCTOBER 1, 1995
ACQUIRED VALUE ------------------------------ ------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE NON-EXERCISABLE EXERCISABLE NON-EXERCISABLE
- -------------------------- ----------- ----------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Philip T. Cunningham...... -- -- -- -- -- --
Christopher M.
Maginniss............... 75,000 $ 1,268,498 140,368 47,334 $ 3,146,454 $ 1,005,140
R. Dale D'Alessio......... 178,999 2,202,529 30,203 20,000 504,990 423,750
A. Ralph Mason............ 178,300 2,385,800 45 6,667 925 137,090
David G. Laposata......... 48,000 574,459 9,647 58,333 197,657 1,074,791
</TABLE>
EMPLOYMENT AGREEMENTS
Effective June 21, 1991, the date of the FTC Transaction, the Company
entered into an Executive Employment Agreement with Mr. Cunningham. Under the
terms of the Executive Employment Agreement, Mr. Cunningham became the Company's
Chairman of the Board, President and Chief Executive Officer. The employment
agreement had a term of three years with an initial base annual salary of
$200,000. On October 24, 1995, the Company entered into a new Executive
Employment Agreement with Mr. Cunningham with respect to the same positions at
an initial base annual salary of $275,000, which can be adjusted upward by the
Board of Directors. The agreement also provides, among other things, that Mr.
Cunningham is eligible to participate in discretionary bonuses authorized and
declared by the Board of Directors and that Mr. Cunningham's employment can be
terminable (i) upon his death or (ii) by the Company in the event he became
permanently disabled, in which case Mr. Cunningham would be entitled to certain
salary continuation rights. The agreement expires in 1999.
NONCOMPETITION AGREEMENTS
On June 21, 1991, Mr. Cunningham entered into a Noncompetition Agreement
with the Company pursuant to which he agreed that, during the term set forth
within the agreement, he would not, among other things, participate in any
manner described in the agreement in any business which competes with the
Company's. This Noncompetition Agreement was extended on June 21, 1995 for an
additional term of four years. The Noncompetition Agreement also generally
prohibits Mr. Cunningham from soliciting business from certain customers and
suppliers of the Company and from disclosing certain information about the
Company. The Noncompetition Agreement initially provides for the payment to Mr.
Cunningham of $200,000 per year commencing June 21, 1995 and continuing for four
years thereafter, unless Mr. Cunningham fails to comply with certain of the
covenants set forth in the agreement. Mr. Cunningham is entitled to continue to
receive the payments under the Noncompetition Agreement notwithstanding
termination of his employment for any reason.
CERTAIN TRANSACTIONS
During fiscal 1995, Philip T. Cunningham, Chairman and Chief Executive
Officer of the Company, was indebted to the Company for advances made to finance
certain educational costs. Mr. Cunningham's largest outstanding loan balance
during fiscal 1995, as well as the balance at October 1, 1995, was $77,000. A.
Ralph Mason, Senior Vice President -- Business Development, was indebted to the
Company for advances made to finance a real estate purchase. Mr. Mason's largest
outstanding loan balance during fiscal 1995 and balance at October 1, 1995 were
$150,000 and $91,000, respectively. All of such borrowings have a scheduled
repayment date of October 1996 and a stated interest rate of 8% per annum.
Curtis M. Coward, who was appointed to the Board of Directors to fill a vacancy
in September 1995, is a Partner in the law firm of McGuire, Woods, Battle &
Boothe, L.L.P., which provided legal services to the Company during fiscal 1995
and is acting as counsel to the Company in connection with this Offering.
34
<PAGE> 38
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth (i) certain information regarding beneficial
ownership of the Company's Common Stock as of October 1, 1995 by (1) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (2) each director and executive officer of the Company
and (3) all directors and executive officers of the Company as a group and (ii)
the information set forth in (i) as adjusted to reflect the sale of the shares
offered hereby. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING(2)
----------------------- SHARES TO BE -----------------------
NAME NUMBER(1) PERCENT(1) SOLD IN OFFERING NUMBER(1) PERCENT(1)
- ------------------------------ --------- ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Philip T. Cunningham.......... 6,299,946(2) 49.3% 1,369,797 4,930,149(3) 33.3%(3)
Christopher M. Maginniss...... 140,368 1.1% 100,000 40,368 *
Gregory W. Fazakerley......... 33,000(4) * -- 33,000 *
H. Brian Thompson............. 39,000(5) * -- 39,000 *
Curtis M. Coward.............. 10,000 * -- 10,000 *
R. Dale D'Alessio............. 30,203 * 30,203 -- *
A. Ralph Mason................ 45 * -- 45 *
David G. Laposata............. 10,647 * -- 10,647 *
Neal H. Sanders............... 4,567 * -- 4,567 *
Wm. Marshall Ellison, II...... 3,333 * -- 3,333 *
Christian J. Spitz............ 5,000 * -- 5,000 *
All Directors and Executive
Officers as a Group (11
Persons).................... 6,576,109 51.4% 1,500,000 5,076,109 34.3%
</TABLE>
- ------------
* Less than 1%
(1) Number of shares of Common Stock and percentage amounts include shares
issuable pursuant to stock options that are exercisable within 60 days after
October 1, 1995.
(2) Includes 894,763 shares held in a trust of which Mr. Cunningham is trustee.
(3) Does not reflect the potential sale of 525,000 shares of Common Stock to the
Underwriters pursuant to their exercise of an option, exercisable within 30
days of the date of this Prospectus for the purpose of covering
over-allotments, if any. See "Underwriting." Assuming the complete exercise
of such over-allotment option, Mr. Cunningham would own 4,405,149 shares, or
29.8%, of the outstanding Common Stock.
(4) Includes 3,000 shares beneficially owned by a trust for Mr. Fazakerley's son
of which Mr. Fazakerley is a co-trustee (Mr. Fazakerley shares voting and
dispositive power with respect to such shares).
(5) Includes 5,000 shares directly owned by Mr. Thompson, 2,000 shares
beneficially owned by Mr. Thompson's spouse as trustee for Mr. Thompson's
son, and 2,000 shares beneficially owned by Mr. Thompson's spouse as trustee
for Mr. Thompson's daughter. Mr. Thompson disclaims beneficial ownership of
the shares held in trust for his son and daughter.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, $0.10 par value per share. Holders of Common Stock are entitled
to one vote for each share held on all matters submitted to a vote of
shareholders and do not have cumulative voting rights. Accordingly, holders of a
majority of the Common Stock entitled to vote in any election of directors may
elect all the directors standing for election. Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors at its discretion from funds legally available therefore. See
"Dividend Policy." Upon the liquidation, dissolution or winding up of the
Company, the holders of the Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of debts and other
liabilities. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding Common Stock are, and the
Common Stock offered hereby when issued and paid for will be, fully paid and
non-assessable. As of October 1, 1995, there were 12,789,666 shares of Common
Stock outstanding held by approximately 975 holders of record.
35
<PAGE> 39
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company, the Selling Stockholders and Oppenheimer & Co., Inc.,
Schroder Wertheim & Co. Incorporated and Tucker Anthony Incorporated as
representatives (the "Representatives") of the Underwriters (the "Underwriting
Agreement"), the Underwriters named below have severally agreed to purchase from
the Company and the Selling Stockholders, and the Company and the Selling
Stockholders have agreed to sell to the several Underwriters, the number of
shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Oppenheimer & Co., Inc. .................................................
Schroder Wertheim & Co. Incorporated.....................................
Tucker Anthony Incorporated..............................................
---------
Total............................................................... 3,500,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all of the above shares
offered hereby if any are purchased.
The Underwriters propose to offer the Common Stock directly to the public
at the offering price set forth on the cover page of this Prospectus and at such
price less a concession of not in excess of $ per share to certain
securities dealers, of which a concession of not in excess of $ per
share may be reallowed to certain other securities dealers. After this offering,
the public offering price, allowances, concessions and other selling terms may
be changed by the Representatives.
A Selling Stockholder has granted the Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase from such Selling
Stockholder up to an aggregate of 525,000 additional shares of Common Stock to
cover over-allotments, if any, at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. See
"Principal and Selling Stockholders." If the Underwriters exercise their
over-allotment option to purchase any of the 525,000 additional shares of Common
Stock, the Underwriters have severally agreed, subject to certain conditions, to
purchase approximately the same percentage thereof as the number of shares to be
purchased by each of them bears to the 3,500,000 shares of Common Stock offered
hereby. Such Selling Stockholder will be obligated, pursuant to the
over-allotment option, to sell shares to the Underwriters to the extent such
over-allotment option is exercised.
Certain stockholders of the Company holding 4,930,149 shares in the
aggregate after the Offering have agreed, pursuant to lock-up agreements, not to
sell, make any short sale of, loan, grant any option for the purchase of or
otherwise dispose of any shares or any securities convertible into or
exchangeable or exercisable for shares without the consent of Oppenheimer & Co.,
Inc. for 180 days after the date of the Prospectus. Certain other stockholders
of the Company which beneficially own 145,960 shares in the aggregate after the
Offering have agreed, pursuant to lock-up agreements, not to sell, make any
short sale of, loan, grant any option for the purchase of or otherwise dispose
of any shares or any securities convertible into or exchangeable or exercisable
for shares without the consent of Oppenheimer & Co., Inc. for 90 days after the
date of the Prospectus. The Company has agreed that it will not, without the
consent of Oppenheimer & Co., Inc., offer, sell, or dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock until 180
days after the date of this Prospectus (except for (i) shares issued pursuant to
stock options outstanding on the date hereof and (ii) stock options issued
pursuant to employee benefit or incentive compensation plans in effect on the
date hereof).
36
<PAGE> 40
The Company and the Selling Stockholders have agreed to indemnify the
Representatives of the Underwriters against certain liabilities, including
without limitation, liabilities under the Securities Act.
In connection with this offering, the Underwriters and selling group
members (if any) or their respective affiliates intend to engage in passive
market making transactions in the Common Stock of the Company on the Nasdaq
National Market in accordance with Rule 10b-6A under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") during the two business day period
before commencement of offers or sales of the shares of Common Stock offered
hereby. The passive market making transactions must be identified as such and
comply with applicable volume and price limits. In general, a passive market
maker may display its bid at a price not in excess of the highest independent
bid for the security; if all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded.
37
<PAGE> 41
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
hereby will be passed upon for the Company by McGuire, Woods, Battle & Boothe,
L.L.P., McLean, Virginia, of which Curtis M. Coward, a director of the Company
and a holder of options to acquire 10,000 shares of the Company's Common Stock,
is a Partner. Certain legal matters will be passed upon for the Underwriters by
Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company for the three years in
the period ended October 1, 1995 are included herein in reliance on the report
dated November 2, 1995 of Grant Thornton LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The financial statements of Eagle Technology (A Business Unit of Artisoft,
Inc.) for the six months ended December 31, 1994 and for the six months ended
June 30, 1994 included in the Company's Current Report on Form 8-K/A filed on
April 11, 1995 are incorporated herein by reference in reliance on the report of
KPMG Peat Marwick L.L.P., independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements incorporated in this Prospectus by reference to
the financial statements of Eagle Technology for the year ended December 31,
1993 included on pages 14 to 22 of Microdyne Corporation's Form 8-K/A dated
April 11, 1995 have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
TRADEMARKS
The Company sells products under various trademarks and trade names to
which reference is made in this Prospectus that are the property of owners other
the Company. Such owners have reserved all rights with respect to their
respective trademarks and trade names.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). These reports, proxy
statements, and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and 75 Park Place, 14th Floor, New York, NY 10007. Copies of such material
also can be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The common
stock is listed for trading on the NASDAQ National Market. Reports, proxy and
information statements, and other information concerning the Company can be
inspected at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments, exhibits and schedules thereto) on Form S-3
under the Securities Act of 1933, as amended, with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement may be inspected
38
<PAGE> 42
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 or obtained from the Commission
at the same address at prescribed rates.
INCORPORATION BY REFERENCE
The following documents of the Company, which have been filed with the
Commission, are hereby incorporated by reference in this Prospectus and made a
part hereof:
(a) the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994;
(b) the Company's Current Report on Form 8-K dated January 6, 1995 as
amended by Form 8-K/A dated April 11, 1995;
(c) the Company's Current Report on Form 8-K dated January 26, 1995;
(d) the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994;
(e) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995;
(f) the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995;
(g) all other reports filed by the Company pursuant to Section 13(a)
or 15(d) of the Exchange Act since the end of the fiscal year
covered by the Annual Report referred to in (a) above; and
(h) the response to Item 1 in the Form 8-A Registration Statement
which the Company filed with the Commission in 1970 pursuant to
Section 12(b) of the Exchange Act (File No. 0-4384); and the
information set forth under "Description of Microdyne's
Securities" in the Company's Registration Statement on Form S-4
filed on May 31, 1991, under the Securities Act of 1933.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering (the "Offering") shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of the filing of such documents. Any statement contained
herein or in a document incorporated by reference shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein or in any accompanying prospectus
supplement modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon oral or written request, a copy of any or all of
the foregoing documents incorporated herein by reference other than exhibits to
such documents (unless the exhibits are specifically incorporated by reference
into such documents). Requests should be directed to William Marshall Ellison,
II, Assistant Treasurer and Controller, Microdyne Corporation, 3601 Eisenhower
Avenue, Alexandria, Virginia 22304, telephone number (703) 739-0500.
39
<PAGE> 43
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS...................................................... F-3
CONSOLIDATED STATEMENTS OF EARNINGS.............................................. F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.................................. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS............................................ F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....................................... F-7
</TABLE>
F-1
<PAGE> 44
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Microdyne Corporation
We have audited the accompanying consolidated balance sheets of Microdyne
Corporation (the Company) as of October 1, 1995 and September 30, 1994, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended October 1, 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 consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of Microdyne
Corporation as of October 1, 1995 and September 30, 1994, and results of its
operations and its cash flows for each of the three years in the period ended
October 1, 1995 in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Washington, D.C.
November 2, 1995
F-2
<PAGE> 45
MICRODYNE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 1,
1994 1995
------------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................ $ 2,628 $ 4,587
Accounts receivable, net (note C)............................... 30,249 59,681
Inventories (notes A2 and D).................................... 11,725 25,917
Loan receivable -- officers (note L)............................ 28 193
Income tax receivable (note I).................................. 140 1,306
Prepaid expenses and deposits................................... 1,791 1,240
Deferred income tax asset (note I).............................. 1,698 1,243
---------- ---------
Total current assets....................................... 48,259 94,167
PROPERTY AND EQUIPMENT, net (notes A3 and E)......................... 4,086 4,749
PRODUCT LINE ACQUISITION COST (note B)............................... 2,057 10,333
OTHER ASSETS (note A4)............................................... 1,438 1,133
---------- ---------
$55,840 $110,382
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations (note H)............ $ 3,195 $ 5,483
Accounts payable -- trade....................................... 12,286 26,509
Accrued liabilities (note G).................................... 9,608 21,603
Income tax payable (note I)..................................... 426 --
---------- ---------
Total current liabilities.................................. 25,515 53,595
LONG-TERM OBLIGATIONS, net of current maturities (note H)............ 11,675 16,999
DEFERRED INCOME TAX PAYABLE (note I)................................. 360 300
COMMITMENTS AND CONTINGENCIES (note J)............................... -- --
STOCKHOLDERS' EQUITY (note K)
Common stock, $.10 par value, authorized 50,000,000 shares,
12,789,666 shares, issued and outstanding at October 1, 1995 and
11,814,697 shares issued and outstanding at September 30,
1994............................................................ 1,181 1,279
Additional paid-in capital...................................... 1,534 10,040
Retained earnings............................................... 15,575 28,169
---------- ---------
Total Stockholders' Equity................................. 18,290 39,488
---------- ---------
$55,840 $110,382
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 46
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,
1993 1994 1995
------------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue (note A1)....................................... $78,174 $ 101,294 $ 170,078
Cost of goods sold...................................... 52,525 73,259 117,308
---------- ----------- ----------
Gross profit....................................... 25,649 28,035 52,770
Operating expenses:
Selling, general and administrative expense........ 18,032 16,650 24,369
Research and development........................... 4,172 3,586 5,197
Restructuring charges (note O)..................... 3,462 -- --
---------- ----------- ----------
Total operating expenses...................... 25,666 20,236 29,566
---------- ----------- ----------
Earnings (loss) from operations......................... (17) 7,799 23,204
Other (expense) income
Interest expense................................... (542) (554) (1,820)
Other.............................................. 74 55 (984)
---------- ----------- ----------
Earnings (loss) before income taxes..................... (485) 7,300 20,400
Provision (benefit) for income taxes (note I)
Current............................................ (2,638) 644 7,410
Deferred........................................... 2,386 2,057 396
---------- ----------- ----------
(252) 2,701 7,806
---------- ----------- ----------
Earnings (loss) before cumulative effect of change in
accounting principle.................................. (233) 4,599 12,594
Cumulative effect of change in accounting principle for
income taxes (note I)................................. 1,744 -- --
---------- ----------- ----------
Net earnings............................................ $ 1,511 $ 4,599 $ 12,594
========== ========== =========
Earnings per share...................................... $ 0.10 $ 0.35 $ 0.96
========== ========== =========
Weighted average shares outstanding (note A5)........... 14,428 13,088 13,096
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 47
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL
NUMBER OF PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS
--------- --------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, October 1, 1992.............................. 13,929 $ 1,393 $ 13,261 $ 9,465
Issuance of stock associated with stock options....... 104 11 324 --
Issuance of stock associated with stock purchase
plan................................................ 13 1 55 --
Tax benefit from option exercises..................... -- -- 127 --
Compensation from issuance of stock options........... -- -- (54) --
Net earnings.......................................... -- -- -- 1,511
--------- --------- ---------- --------
Balance, September 30, 1993........................... 14,046 1,405 13,713 10,976
Issuance of stock associated with stock options....... 50 5 256 --
Issuance of stock associated with stock purchase
plan................................................ 10 1 39 --
Unrealized loss on marketable equity security......... -- -- (33) --
Purchase and cancellation of common stock............. (2,291) (230) (12,441) --
Net earnings.......................................... -- -- -- 4,599
--------- --------- ---------- --------
Balance, September 30, 1994........................... 11,815 1,181 1,534 15,575
Issuance of stock associated with stock options....... 965 97 3,526 --
Issuance of stock associated with stock purchase
plan................................................ 10 1 112 --
Tax benefit from option exercises..................... -- -- 4,868 --
Net earnings.......................................... -- -- -- 12,594
--------- --------- ---------- --------
Balance, October 1, 1995.............................. 12,790 $ 1,279 $ 10,040 $ 28,169
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 48
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,
1993 1994 1995
------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net earnings....................................... $ 1,511 $ 4,599 $ 12,594
Adjustments to reconcile net earnings to net cash
from operating activities, exclusive of effect of
acquisitions and dispositions:
Depreciation and amortization................. 1,737 1,771 2,094
Provision for doubtful accounts receivable and
inventory obsolescence...................... 619 1,316 1,734
Gain on disposal of property and equipment.... (11) (1) --
Changes in assets and liabilities:
Increase in accounts receivable.......... (5,031) (10,939) (30,703)
(Increase) decrease in inventories....... 3,153 3,585 (3,865)
Decrease (increase) in prepaid
expenses............................... 318 (557) 159
Decrease (increase) in other assets...... (435) 198 392
(Increase) decrease in income tax
receivable............................. (2,461) 3,091 (1,167)
Decrease in deferred assets.............. 642 2,057 456
Increase in accounts payable and other
accruals............................... 3,850 6,883 26,051
---------- ----------- ----------
Net cash provided by operating
activities............................. 3,892 12,003 7,745
Cash flows from investing activities
Product line acquisitions.......................... -- (4,750) (20,862)
Additions to property and equipment................ (465) (826) (887)
Cash from sale of subsidiary....................... -- 1,000 --
(Loans to) payments from stockholder/officer....... (70) 103 (165)
---------- ----------- ----------
Net cash used in investing activities.... (535) (4,473) (21,914)
Cash flows from financing activities
Net payments on notes payable...................... (3,260) (5,990) --
Net (payments) borrowings on long-term debt........ (81) 11,323 7,981
Issuance of common stock........................... 517 300 3,279
Tax benefit from exercise of stock options......... -- -- 4,868
Redemption of common stock......................... -- (12,670) --
---------- ----------- ----------
Net cash provided by (used in) financing
activities............................. (2,824) (7,037) 16,128
---------- ----------- ----------
Net increase in cash..................... 533 493 1,959
Cash at beginning of year............................... 1,602 2,135 2,628
---------- ----------- ----------
Cash at end of year..................................... $ 2,135 $ 2,628 $ 4,587
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 49
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows.
1. REVENUE RECOGNITION
Revenue from the sale of computer hardware, peripheral equipment and
computer networking products, including software, is recognized when the
products are shipped. Manufacturer support services revenue is recognized as
service is provided. Revenue from the manufacture of aerospace telemetry
products and systems is recognized using the percentage-of-completion method
where progress is measured based on costs incurred to date as compared to total
expected costs. Estimated losses on aerospace telemetry contracts, if any, are
recognized when they are identified.
The Company provides terms of net 30 days for most products its sells. On
certain products, these terms may be extended at the discretion of management.
The Company's agreements with distributors allow defective products to be
returned for credit. Distributor terms also permit stock rotation of products, a
standard practice in the electronics industry. The Company from time to time
sells products on a non-cancellation, no-return basis. In such cases, pricing
will reflect the non-cancelable nature of the order. Distributor agreements also
provide distributors with protection against price decreases applicable to
products in distributors' inventories at the time of the decrease. Provision has
been made in the accompanying financial statements for the estimated liability
associated with defective product returns, stock rotations and price decreases.
Generally, the Company must manufacture products in advance of orders from
distributors and must, therefore, estimate demand as accurately as possible.
Distributors provide certain information regarding their levels of sales to
value added resellers and other customers, called Point of Sale ("POS") data,
but such POS information cannot be assured to be either timely or accurate. In
addition, distributors maintain target stocking levels of products, and such
targeted levels may change without notice, which could decrease the Company's
revenue in a given period. Moreover, distributors characteristically sell
products at a small mark-up to the price from which they are obtained from
manufacturers, and terms of sale may influence a distributor's decision to carry
certain products. If, based on inadequate POS and end user information,
unanticipated distributor targeted stocking levels, unanticipated price
competition, or otherwise, the Company is unable to estimate production
requirements of its distributors and future sales levels generally, the
Company's revenue may fluctuate due to production in excess of demand. Moreover,
the inability of the Company to timely market such excess inventory on
economically viable terms could have a material adverse effect on the Company.
Conversely, if the Company's production is insufficient to satisfy demand, the
Company could be adversely affected.
The Company's business activity is geographically diverse, with sales
within the United States as well as in foreign countries. The majority of the
Company's customers are in the communications networking industry. The Company
derived approximately 11%, 7% and 8% of its revenue for the years ended
September 30, 1993, September 30, 1994, and October 1, 1995, respectively, from
product sales to and maintenance contracts with various agencies of or prime
contractors to the U.S. Government. The Company's exposure to credit risk
associated with nonperformance of its customers in fulfilling its contractual
commitment is limited to the contractual amount of the receivable.
Approximately 57%, 47%, and 73% of the Company's revenue in the years ended
September 30, 1993, September 30, 1994, and October 1, 1995, respectively, was
generated pursuant to a number of manufacturing and technology agreements and
licenses with Novell, Inc. In return for royalties, the Company is granted the
F-7
<PAGE> 50
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
non-exclusive, worldwide right to manufacture and distribute various networking
products utilizing the licensed technology. These agreements have different
termination dates and provide for renewal for additional one-year periods with
the consent of both parties. Each party has the right to terminate the agreement
at any time upon 90 or 180 days prior written notice. Under an Original
Equipment Manufacturer ("OEM") agreement with Novell, Microdyne is authorized to
produce and sell NetWare as part of a "bundled solution" together with Microdyne
products, principally adapter cards, to certain Novell-approved distributors.
This OEM agreement has a month-to-month term and is terminable by either party
upon 30 days prior written notice.
The Company's revenue is dependent to a substantial extent on the ability
of Novell to maintain a significant market share of the network operating
systems software market. Novell faces competition from several sources,
including Microsoft Corporation's Windows NT network operating system. The loss
of the right to sell NetWare under OEM license, or a substantial decline in
Novell's share of the network operating system market would have a material
adverse effect on the Company.
The Company is also required to pay royalties to Attachmate (formerly DCA)
pursuant to that product line acquisition in July 1994 (see Note B).
Total royalty expense was $4,810,000, $4,560,000 and $6,374,000 for the
years ended September 30, 1993, September 30, 1994, and October 1, 1995
respectively. In addition, included in cost of goods sold are product purchases
from Novell of $3,067,000, $25,758,000 and $43,455,000 for the years ended
September 30, 1993, September 30, 1994 and October 1, 1995, respectively.
2. INVENTORIES
Inventories are stated at the lower of cost or market. Inventories are
standard-cost based, with such standards reviewed periodically against purchase
prices and adjusted as appropriate.
3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated or amortized
using the straightline method over the following estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment 3-10 years
Buildings 20 years
Furniture and fixtures 3-5 years
Rental equipment 5 years
Automobiles 3-5 years
Leasehold improvements Shorter of term of lease or life of asset
</TABLE>
4. CAPITALIZED SOFTWARE COSTS
Included in other assets as of October 1, 1995 is $671,000 in net
capitalized software costs. The Company's policy is to expense the costs
incurred prior to establishment of technological feasibility. The establishment
of technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs require judgment by management with
respect to certain external factors, including anticipated future gross revenue,
estimated economic life and changes in technologies. Development costs beyond
the point of technological feasibility are capitalized. Amortization, which
begins when the product is available for general release, occurs over the
estimated economic life which is typically between one and two
F-8
<PAGE> 51
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
years. Amortization expense associated with capitalized software costs for the
years ended September 30, 1993, September 30, 1994 and October 1, 1995 was
$196,000, $473,000 and $494,000, respectively.
5. EARNINGS PER SHARE
Earnings per common and common equivalent share is computed by dividing the
earnings or loss by the weighted average number of common and common equivalent
shares outstanding during the respective years.
The weighted average number of shares outstanding with the number of shares
used in the computation of earnings per share is as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Common shares............................................... 14,022 12,715 12,224
Common equivalent shares from stock options................. 406 373 872
------ ------ ------
14,428 13,088 13,096
====== ====== ======
</TABLE>
6. FISCAL YEAR
During fiscal year 1995, the Company changed its fiscal year from September
30 each year to a 52 or 53 week year ending on the Sunday nearest the last day
of September in each year. Therefore, fiscal year 1995 ended on October 1,
whereas the previous two years were under the fiscal calendar which ended on
September 30 in 1993 and 1994. All references to years relate to fiscal years
rather than calendar years.
NOTE B -- ACQUISITIONS AND DISPOSITIONS
In July 1994, Digital Communications Associates ("DCA") sold to the Company
certain fixed assets, property, rights, and inventory related to DCA's Token
Ring product line. The purchase price was approximately $7.0 million,
representing the net book value of the assets sold and guaranteed minimum
royalties of $3.0 million. This minimum royalty commitment covers five years and
the long-term portion is presented as both a product line acquisition cost and a
long-term obligation in the consolidated balance sheets. Such deferred minimum
royalties will be amortized over five years as payments are made.
Selected unaudited proforma information (in thousands, except earnings per
share) which reflects the impact the Token Ring acquisition would have had on
the Company's statements of operations had it occurred at the beginning of each
of the years presented is as follows:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Revenue......................................................... $103,572 $121,959
Net earnings.................................................... 3,515 6,142
Earnings per share.............................................. $ 0.24 $ 0.47
</TABLE>
The Company also acquired certain product lines, inventory, fixed assets
and intellectual property from Gateway Communications, Inc. for $2.0 million in
a purchase transaction completed in September 1994. Proforma information for
this acquisition is not presented due to immateriality.
In January 1995, the Company acquired the Eagle Technology ("Eagle")
business from Artisoft, Inc. Eagle provided the Company with a family of
Ethernet adapter cards, file server cards, hubs, and print server cards. The
purchase price was $16.5 million, representing $8.3 million in inventory, $7.5
million in goodwill
F-9
<PAGE> 52
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE B -- ACQUISITIONS AND DISPOSITIONS -- CONTINUED
and other intangibles, and $700,000 in fixed assets. The amortization period for
the intangibles, based on management's estimate of the useful life of the
acquired technology, is seven years.
Selected unaudited proforma information (in thousands, except earnings per
share) which reflects the impact the Eagle acquisition would have had on the
Company's statements of operations had it occurred at the beginning of each of
the years presented is as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Revenue......................................................... $152,358 $179,693
Net earnings.................................................... 7,981 12,491
Earnings per share.............................................. $ 0.61 $ 0.95
</TABLE>
In September 1995, the Company acquired the Ethernet product line of
National Semiconductor ("National"). This acquisition included certain
intangibles of $1.8 million and National's 10Mb and 10/100Mb Ethernet adapter
card inventory of approximately $3.5 million. As of October 1, 1995, the Company
owed National approximately $3.3 million related to this acquisition, which is
included in accrued liabilities. Proforma information for this acquisition is
not presented due to immateriality. The amortization period for the intangibles,
based on management's estimate of the useful life of the acquired technology, is
seven years.
In December 1993, the Company sold the net assets and operations of
Wireless Data Corporation, a subsidiary which manufactured industrial telemetry
products, for $1.0 million in cash and a $300,000 note which was subsequently
paid.
NOTE C -- ACCOUNTS RECEIVABLE
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER OCTOBER
30, 1,
1994 1995
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Commercial
Billed.................................................... $ 24,109 $53,915
Unbilled.................................................. 2,584 2,618
---------- --------
26,693 56,533
U.S. Government
Billed.................................................... 2,249 3,774
Unbilled.................................................. 2,123 1,064
---------- --------
4,372 4,838
Other..................................................... 107 89
---------- --------
31,172 61,460
Allowance for doubtful accounts and other reserves............. (923) (1,779)
---------- --------
$ 30,249 $59,681
========== =======
</TABLE>
Management believes all unbilled accounts receivable will become billable
and collectable in the next year.
F-10
<PAGE> 53
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE C -- ACCOUNTS RECEIVABLE -- CONTINUED
The following is a table depicting the activity in the Company's allowance
for doubtful accounts and other related receivables reserves for the years
ended:
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER
30, 30, OCTOBER 1,
1993 1994 1995
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance................................. $ 351 $ 362 $ 923
Provision charged to operations................... 318 954 1,271
Amounts written off............................... (307) (393) (415)
---------- ---------- --------
Ending balance.................................... $ 362 $ 923 $1,779
========== ========== ========
</TABLE>
NOTE D -- INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, OCTOBER 1,
1994 1995
------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials................................................ $ 6,270 $ 6,122
Work-in-process.............................................. 696 1,145
Finished goods............................................... 6,764 20,449
---------- ---------
13,730 27,716
Less reserve for obsolescence................................ (2,005) (1,799)
---------- ---------
$11,725 $ 25,917
========== ========
</TABLE>
The inventory values above are net of restructuring reserves of $1,438,000
and $74,000 as of September 30, 1994 and October 1, 1995, respectively. See note
O.
The following is a table depicting the activity in the Company's reserve
for obsolescence for the years ended:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,
1993 1994 1995
------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance................................ $ 830 $ 796 $ 2,005
Increases in reserves
Provision charged to operations............. 301 321 463
Established upon acquisitions............... -- 1,185 1,090
Amounts written off to reserve................... (336) (297) (1,759)
---------- ---------- ---------
Ending balance.............................. $ 796 $ 2,005 $ 1,799
========== ========== ========
</TABLE>
F-11
<PAGE> 54
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE E -- PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, OCTOBER 1,
1994 1995
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment...................................... $ 5,851 $ 7,619
Buildings and land........................................... 1,859 1,859
Furniture and fixtures....................................... 1,131 1,411
Automobiles.................................................. 190 91
Leasehold improvements....................................... 79 147
---------- ---------
9,110 11,127
Accumulated depreciation and amortization.................... (5,024) (6,378)
---------- ---------
$ 4,086 $ 4,749
========== =========
</TABLE>
NOTE F -- SHORT-TERM BORROWINGS
The Company had a $5.0 million Revolving Line of Credit which was payable
upon demand. In January 1995, when the Company restructured its bank debt
pursuant to the Eagle Acquisition, this demand line of credit was converted to a
$17.5 million Revolving Note (against which $12.0 million was borrowed) due in
January 1998.
Following is a summary of short-term borrowings:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,
1993 1994 1995
------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Average outstanding borrowings for the period
(1)........................................... $ 5,745 $ 333 $ 2,571
Maximum borrowing for the period................ 7,600 4,000 2,571
Amounts outstanding at end of year.............. 5,990 -- --
Weighted average interest rate for the period
(2)........................................... 5.61% 5.79% 6.875%
Weighted average interest rate.................. 6.00% 5.75% 6.875%
</TABLE>
- ---------------
(1) Average borrowings for 1995 are computed for the one month of the fiscal
year when the line of credit existed.
(2) Interest charges divided by average outstanding balance.
F-12
<PAGE> 55
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE G -- ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, OCTOBER 1,
1994 1995
------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Inventory purchases, including $2,500 due National Semiconductor..... $ 6,441 $ 16,259
Commissions and royalties............................................ 1,188 798
Payroll and payroll taxes............................................ 1,117 928
Vacation............................................................. 383 584
Amounts due Artisoft................................................. -- 1,416
Amounts due National Semiconductor (non-inventory)................... -- 839
Other................................................................ 479 779
----------- ---------
$ 9,608 $ 21,603
=========== ========
</TABLE>
NOTE H -- LONG-TERM OBLIGATIONS
Pursuant to financing the Eagle acquisition, the Company restructured its
bank debt in January 1995 (See Note F). The Company's Term Note and Revolving
Note Agreements call for the Company to maintain compliance with various
financial covenants associated with the Company's working capital and leverage.
As of October 1, 1995, the Company was in compliance with the various covenants.
The Revolving Note limit was increased by $5.0 million to $22.5 million on
October 26, 1995.
F-13
<PAGE> 56
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE H -- LONG-TERM OBLIGATIONS -- CONTINUED
Long-term obligations consists of the following as of:
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 1,
1994 1995
------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Amounts outstanding on a $22,500,000 Revolving Note. This
note is collateralized by a security interest in the
Company's receivables, equipment, and inventories, and
is payable in January 1998. Interest is payable monthly
and is at prime or the London Interbank Offer Rate
(LIBOR) plus a premium that ranges from 1.4% to 1.8%,
depending on the Company's leverage ratio. On October 1,
1995, the LIBOR was 5.875%.............................. -- $ 12,000
Amounts outstanding on a $12,000,000 Term Note. The principal
balance is payable in installments of $600,000 each on
July 1, 1994, October 1, 1994, January 1, 1995 and April
1, 1995, an additional $500,000 payment in January 1995,
22 equal consecutive monthly installments of $400,000
each (beginning on July 1, 1995) and a final installment
of $300,000 due on May 1, 1997. This note is
collateralized by a security interest in the Company's
receivables, equipment, and inventories. Interest is
payable monthly at either: 1) the prime rate (which was
8.75% on October 1, 1995); or 2) LIBOR plus a premium
that ranges from 1.5% to 1.9%, depending on the
Company's leverage ratio................................ $11,400 7,900
Commitment for minimum royalties due under product line
acquisition agreement (see note B); payable over five
years, expiring in fiscal year 1999..................... 2,657 2,219
Industrial revenue bond payable monthly at $4,167 plus
interest at 85.5% of prime, (prime at October 1, 1995
was 8.75%) due in 2001, collateralized by land.......... 353 304
Liability under consulting and non-compete agreements with
and stock option appreciation guarantees to a former
employee................................................ 460 59
---------- ---------
Less current portion......................................... 14,870 22,482
(3,195) (5,483)
---------- ---------
$11,675 $ 16,999
========== ========
</TABLE>
Long-term debt is due as follows:
<TABLE>
<CAPTION>
YEAR ENDING
----------------
<S> <C>
September 29, 1996......................................................... $ 5,483
September 28, 1997......................................................... 3,776
September 27, 1998......................................................... 12,650
October 3, 1999............................................................ 469
October 1, 2000............................................................ 50
Thereafter................................................................. 54
-------
$22,482
=======
</TABLE>
F-14
<PAGE> 57
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE I -- INCOME TAXES
The Company provides for income taxes using the liability method. Deferred
income taxes are classified as current or noncurrent, based on the
classification of the related assets and liabilities giving rise to the
temporary difference.
Following are the components of the deferred taxes recognized on the
accompanying balance sheet:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, OCTOBER 1,
1994 1995
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current
Inventory............................................... $ 1,336 $ 799
Accounts receivable..................................... 349 435
Financial statement income not taxable until following
year.................................................. 13 9
------------- -----------
$ 1,698 $ 1,243
------------- -----------
Non-current
Capitalized software costs.............................. (185) (263)
Intangibles amortization................................ -- 154
State income taxes...................................... 127 92
Depreciation............................................ (302) (266)
Capital loss carryforward............................... -- 78
Other................................................... -- (95)
------------- -----------
(360) (300)
------------- -----------
Net deferred income tax assets.......................... $ 1,338 $ 943
------------- -----------
</TABLE>
A valuation allowance against deferred tax assets has not been established
as management believes that any net deductible temporary differences will be
utilized with the generation of future earnings.
Following is a reconciliation of the statutory federal income tax rate to
the effective rates reflected in the statement of earnings:
<TABLE>
<CAPTION>
1993 1994 1995
------------------ ------------------ --------------------
PERCENT PERCENT PERCENT
OF OF OF
PRETAX PRETAX PRETAX
AMOUNT LOSS AMOUNT EARNINGS AMOUNT EARNINGS
------ -------- ------ -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Federal tax (benefit) at statutory
rate................................. $(165) (34.0)% $2,482 34.0% $6,936 34.0%
State income taxes, net of federal
benefit.............................. 9 1.7 572 7.9 931 4.6
Benefit from foreign sales
corporation.......................... -- -- -- -- (380) (1.9)
Benefits from research and development
credits.............................. (106) (21.8) (90) (1.2) -- --
Other items, net....................... 10 2.1 (263) (3.7) 319 1.6
------ -------- ------ -------- ------ -----
Income tax expense (benefit)........... $(252) (52.0)% $2,701 37.0% $7,806 38.3%
====== ======= ====== ======= ====== =======
</TABLE>
F-15
<PAGE> 58
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE J -- COMMITMENTS AND CONTINGENCIES
1. Operating Lease Commitments
The Company is committed under noncancelable operating leases which expire
over the next five years and include purchase and renewal options, primarily for
office space. Rent expense under such leases was $1,698,000, $1,244,000 and
$1,000,000 for the years ended September 30, 1993, September 30, 1994 and
October 1, 1995, respectively.
Future minimum lease payments under such operating leases as of October 1,
1995 (in thousands) are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
----------------------------------------------------------------------------
<S> <C>
September 29, 1996.......................................................... $1,085
September 28, 1997.......................................................... 955
September 27, 1998.......................................................... 575
October 3, 1999............................................................. 326
October 1, 2000............................................................. 8
------
$2,949
======
</TABLE>
2. Litigation
In the first quarter of fiscal 1995, the Company settled (and reflected as
an $875,000 charge to Other Expense) a shareholder class action lawsuit.
This lawsuit had been filed in the U.S. District Court for the Eastern
District of Virginia in October 1992 against the Company and certain executive
officers of the Company. The suit was dismissed by directed verdict with
prejudice in May 1993. In June 1994, the United States Court of Appeals affirmed
dismissal of certain securities law claims against the Company, but determined
that the balance of the claims raised fact issues which were to have been
determined by a jury in a new trial in late 1994.
In fiscal 1995, the Company had a judgment entered against it relating to
another litigation incident to the operation of its business. The estimated
liability associated with this judgment was recorded as a $185,000 charge to
Other Expense in the fourth quarter of fiscal 1995.
The Company is involved in other litigation incident to the operation of
its business. Management believes the liability, if any, associated with these
matters will not have a material impact on the financial condition or results of
operations of the Company.
3. Employment and Noncompetition Agreements
The Company is committed under long-term employment and noncompetition
agreements with an officer. Approximate future minimum annual payments required
under the agreements are $475,000 and expire in fiscal 1999.
NOTE K -- STOCK OPTION, STOCK PURCHASE, AND EMPLOYEE BENEFIT PLANS
1. Stock Option Plans
Under the terms of the Company's stock option plans, options to purchase
shares of the Company's common stock have been granted at exercise prices equal
to the market price of the stock at the date of grants.
F-16
<PAGE> 59
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE K -- STOCK OPTION, STOCK PURCHASE, AND EMPLOYEE BENEFIT PLANS -- CONTINUED
One individual stock option was granted in June 1993. Vesting periods vary but
are typically over three years. Following is a summary of transactions:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
-----------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Outstanding, beginning of year...................... 991,675 1,043,300 1,343,050
Granted during the year............................. 158,000 382,250 322,700
Canceled during the year............................ (2,000) (35,000) (39,917)
Exercised during the year (at prices ranging from
$2.72 to $6.875 per share)........................ (104,375) (47,500) (965,121)
--------- --------- ---------
Outstanding, end of year............................ 1,043,300 1,343,050 660,712
======== ======== ========
Eligible, end of year for exercise currently (at
prices ranging from $2.72 to $6.875 per share).... 895,800 902,800 253,349
======== ======== ========
</TABLE>
2. Stock Purchase Plan
The Company has an Employee Stock Purchase Plan whereby eligible employees
may authorize payroll deductions up to 15% of their regular base salary to
purchase shares at 85% of fair market value at time of purchase. As of October
1, 1995, 36,325 shares had been purchased by employees.
3. Employee Benefit Plan
The Company has a 401(k) plan in effect as of October 1, 1995. This plan
covers all employees over the age of 18 who have completed six consecutive
months of service. The Company's contributions to the plan are based on a
certain percentage of each dollar contributed by the employee. The Company
contributed approximately $40,000, $50,000 and $58,000 in each of the years
ended September 30, 1993, September 30, 1994 and October 1, 1995, respectively.
NOTE L -- RELATED PARTY TRANSACTIONS
The following summarizes transactions with related parties:
The Company periodically advances amounts to certain of its officers
including the majority stockholder. Amounts outstanding as of October 1,
1995 are repayable in fiscal 1996. These advances bear interest at 8%.
Activity for the receivables from officers, including the majority
stockholder, is as follows (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF AS OF
SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,
1993 1994 1995
------------- ------------- ----------
<S> <C> <C> <C>
Beginning balance................................ $ 61 $ 131 $ 28
Additions........................................ 99 60 224
Amounts collected................................ (29) (163) (59)
------ ---------- --------
Ending balance................................... $ 131 $ 28 $193
========== ========== ========
</TABLE>
F-17
<PAGE> 60
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE L -- RELATED PARTY TRANSACTIONS -- CONTINUED
In September 1995, the Company appointed a partner of a law firm as
one of the Company's outside directors. The Company incurred $271,000 in
expense associated with the services of this law firm in fiscal 1995.
NOTE M -- INDUSTRY SEGMENTS AND EXPORT REVENUE
The Company operates in one business segment, data communications. Within
data communications, the Company's dominant activity is the manufacture, sale
and distribution of networking products to commercial customers. Export revenue
accounted for approximately 35%, 29% and 25% of total sales in fiscal years
1993, 1994 and 1995, respectively.
Following is detail of revenue by geographic region as a percentage of
total export revenue:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Europe............................................................. 87% 70% 60%
Pacific Rim........................................................ 12 13 24
South America and other............................................ 1 17 16
</TABLE>
NOTE N -- SUPPLEMENTAL CASH FLOW AND INCOME STATEMENT INFORMATION
The Company paid the following amounts for interest and income taxes as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, OCTOBER 1,
1993 1994 1995
------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest........................................ $ 524 $ 513 $1,524
==== ==== ======
Income taxes.................................... $ 19 $ 256 $4,235
==== ==== ======
</TABLE>
During fiscal years 1993 and 1995, the Company realized tax benefits of
$127,000 and $4,868,000, respectively, from the exercise of stock options
resulting in a reduction (increase) in income taxes payable (receivable) and an
increase in additional paid-in capital.
NOTE O -- RESTRUCTURING CHARGES
In the fourth quarter of the fiscal year ended September 30, 1993,
management re-evaluated the performance of certain lines of business against
corporate objectives and strategies. The purpose of this review was to identify
those businesses and products which met the Company revenue, profitability, and
market position goals.
As a result of this re-evaluation, the Company recognized approximately
$3,462,000 in restructuring charges in the fourth quarter of fiscal 1993,
representing adjustments to certain networking products and contract maintenance
inventories, expenses associated with the restructuring of those operations, and
cost associated with a planned fiscal 1994 facilities consolidation. The
after-tax effect of these charges was to reduce net income for the year ended
September 30, 1993 by approximately $2,137,000.
F-18
<PAGE> 61
MICRODYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1993, SEPTEMBER 30, 1994 AND OCTOBER 1, 1995
NOTE P -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
information for each of the Company's last eight quarters.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, OCT. 1,
1993 1994 1994 1994 1994 1995 1995 1995
-------- -------- -------- --------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue....................... $21,835 $23,568 $24,261 $31,630 $31,819 $40,577 $47,663 $50,019
Cost of goods sold............ 15,601 17,448 17,792 22,417 22,029 27,922 32,827 34,530
-------- -------- -------- --------- -------- -------- -------- -------
Gross profit.................. 6,234 6,120.. 6,469 9,213 9,790 12,655 14,836 15,489
Operating expenses:
Selling, general and
administrative.......... 3,854 3,719 3,950 5,127 4,735 5,819 6,687 7,128
Research and
development............. 952 796 717 1,121 1,162 1,344 1,426 1,265
-------- -------- -------- --------- -------- -------- -------- -------
Total operating
expenses............ 4,806 4,515 4,667 6,248 5,897 7,163 8,113 8,393
-------- -------- -------- --------- -------- -------- -------- -------
Earnings (loss) from
operations.................. 1,428 1,605 1,802 2,965 3,893 5,492 6,723 7,096
Other income (expense)........ (27) (118) (158) (198) (1,055) (555) (537) (657)
-------- -------- -------- --------- -------- -------- -------- -------
Earnings before income
taxes....................... 1,401 1,487 1,644 2,767 2,838 4,937 6,186 6,439
Provision (benefit) for income
taxes....................... 546 580 641 933 1,107 1,925 2,413 2,361
-------- -------- -------- --------- -------- -------- -------- -------
Net earnings (loss)........... $ 855 $ 907 $ 1,003 $ 1,834 $ 1,731 $ 3,012 $ 3,773 $ 4,078
======== ======== ======== ======== ======== ======== ======== =======
Net earnings (loss) per
share....................... $ 0.06 $ 0.07 $ 0.08 $ 0.15 $ 0.14 $ 0.24 $ 0.29 $ 0.31
======== ======== ======== ======== ======== ======== ======== =======
Shares used in computing net
earnings (loss) per share... 14,413 13,497 12,231 12,210 12,431 12,669 13,149 13,281
======== ======== ======== ======== ======== ======== ======== =======
</TABLE>
F-19
<PAGE> 62
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 63
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
THE SELLING STOCKHOLDERS, OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 5
The Company.......................... 9
Use of Proceeds...................... 9
Dividend Policy...................... 9
Price Range of Common Stock.......... 10
Capitalization....................... 10
Selected Consolidated Financial
Data............................... 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 12
Business............................. 18
Management........................... 31
Principal and Selling Stockholders... 35
Description of Capital Stock......... 35
Underwriting......................... 36
Legal Matters........................ 38
Experts.............................. 38
Trademarks........................... 38
Additional Information............... 38
Incorporation by Reference........... 39
Consolidated Financial Statements.... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,500,000 SHARES
[MICRODYNE LOGO]
COMMON STOCK
-------------------------------
P R O S P E C T U S
-------------------------------
OPPENHEIMER & CO., INC.
SCHRODER WERTHEIM & CO.
TUCKER ANTHONY
INCORPORATED
, 1995
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the shares of Common Stock registered hereby,
all of which will be borne by the Company.
<TABLE>
<S> <C>
SEC Registration fee........................................... $ 34,004.31
NASD Filing Fee................................................ 10,361.25
Blue Sky Fees and Expenses..................................... 15,000.00
Legal fees and expenses........................................ 50,000.00
Accounting fees and expenses................................... 25,000.00
Printing....................................................... 60,000.00
Miscellaneous.................................................. 105,634.44
-----------
Total..................................................... $300,000.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 2-418 of the Maryland General Corporation Law empowers a
corporation to indemnify its directors and officers or former directors or
officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers. Such law provides further
that the indemnification permitted thereunder shall not be deemed exclusive of
any other rights to which the directors and officers may be entitled under a
corporation's certificate of incorporation, bylaws, any agreement or otherwise.
The Company's Articles of Amendment and Restatement limits the liability of
directors and officers to the fullest extent permissible by Maryland law, as
amended from time to time. The Company's Bylaws provide that the Company shall
indemnify its officers, directors and employees against liabilities and expenses
resulting from their service as such.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
------- ---------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement.
2 Merger Agreement between Federal Technology Corporation and Registrant, dated
March 7, 1991 (Incorporated by reference to Exhibit 2.1 to the Registrant's 1991
Form S-4 Registration Statement).
5.1 Opinion of McGuire, Woods, Battle & Boothe L.L.P.
10.1 Noncompetition Agreement dated as of June 21, 1995 between Microdyne Corporation
and Philip T. Cunningham.
10.2 Executive Employment Agreement dated as of October 24, 1995 between Microdyne
Corporation and Philip T. Cunningham.
10.3 WNIM Purchase Agreement dated June 14, 1994 between Microdyne Peyton Street
Corporation, a wholly owned subsidiary of the Registrant, and Gateway
Communications, Inc.
10.4 Asset Purchase Agreement dated June 14, 1994 between Microdyne Peyton Street
Corporation and Gateway Communications, Inc.
10.5 Token Ring Purchase Agreement dated as of July 28, 1994 between Microdyne
Corporation and Digital Communications Associates, Inc. (Incorporated by
reference to Exhibit 1 to Registrant's Current Report on Form 8-K dated July 29,
1994).
10.6 Asset Purchase Agreement dated January 6, 1995 between Microdyne Corporation and
Artisoft, Inc. (Incorporated by reference to Exhibit 1 to the Registrant's
Current Report on Form 8-K dated January 6, 1995).
</TABLE>
II-1
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
------- ---------------------------------------------------------------------------------
<S> <C>
10.7 Asset Purchase Agreement dated as of September 12, 1995 between Microdyne
Corporation and National Semiconductor Corporation.
23.1 Consent of McGuire, Woods, Battle & Boothe L.L.P. (included in Exhibit 5.1
above).
23.2 Consent of Grant Thornton LLP.
23.3 Consent of KPMG Peat Marwick L.L.P.
23.4 Consent of Price Waterhouse LLP.
24 Power of attorney (previously filed).
27 Financial Data Schedule.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement, shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Alexandria, Commonwealth of
Virginia, on this 9th day of November 1995.
MICRODYNE CORPORATION
By: /s/ PHILIP T. CUNNINGHAM
---------------------------
PHILIP T. CUNNINGHAM
PRESIDENT AND
CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ PHILIP T. CUNNINGHAM President, Chief Executive November 9, 1995
- --------------------------------------------- Officer and Director
PHILIP T. CUNNINGHAM (Principal Executive Officer)
/s/ CHRISTOPHER M. MAGINNISS Executive Vice President, November 9, 1995
- --------------------------------------------- Treasurer and Director
CHRISTOPHER M. MAGINNISS (Principal Financial Officer)
/s/ WILLIAM MARSHALL ELLISON, II Assistant Treasurer and November 9, 1995
- --------------------------------------------- Controller
WILLIAM MARSHALL ELLISON, II (Principal Accounting Officer)
/s/ CURTIS M. COWARD Director November 9, 1995
- ---------------------------------------------
CURTIS M. COWARD
/s/ GREGORY W. FAZAKERLEY* Director November 9, 1995
- ---------------------------------------------
GREGORY W. FAZAKERLEY
/s/ H. BRIAN THOMPSON Director November 9, 1995
- ---------------------------------------------
H. BRIAN THOMPSON
</TABLE>
* By Power of Attorney
II-3
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION OF EXHIBIT PAGE
------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
1 Form of Underwriting Agreement.
2 Merger Agreement between Federal Technology Corporation and
Registrant, dated March 7, 1991 (Incorporated by reference to Exhibit
2.1 to the Registrant's 1991 Form S-4 Registration Statement).
5.1 Opinion of McGuire, Woods, Battle & Boothe L.L.P.
10.1 Noncompetition Agreement dated as of June 21, 1995 between Microdyne
Corporation and Philip T. Cunningham.
10.2 Executive Employment Agreement dated as of October 24, 1995 between
Microdyne Corporation and Philip T. Cunningham.
10.3 WNIM Purchase Agreement dated June 14, 1994 between Microdyne Peyton
Street Corporation, a wholly owned subsidiary of the Registrant, and
Gateway Communications, Inc.
10.4 Asset Purchase Agreement dated June 14, 1994 between Microdyne Peyton
Street Corporation and Gateway Communications, Inc.
10.5 Token Ring Purchase Agreement dated as of July 28, 1994 between
Microdyne Corporation and Digital Communications Associates, Inc.
(Incorporated by reference to Exhibit 1 to Registrant's Current Report
on Form 8-K dated July 29, 1994).
10.6 Asset Purchase Agreement dated January 6, 1995 between Microdyne
Corporation and Artisoft, Inc. (Incorporated by reference to Exhibit 1
to the Registrant's Current Report on Form 8-K dated January 6, 1995).
10.7 Asset Purchase Agreement dated as of September 12, 1995 between
Microdyne Corporation and National Semiconductor Corporation.
23.1 Consent of McGuire, Woods, Battle & Boothe L.L.P. (included in Exhibit
5.1 above).
23.2 Consent of Grant Thornton LLP.
23.3 Consent of KPMG Peat Marwick L.L.P.
23.4 Consent of Price Waterhouse LLP.
24 Power of attorney (previously filed).
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
3,500,000 Shares
Microdyne Corporation
Common Stock
UNDERWRITING AGREEMENT
November , 1995
Oppenheimer & Co., Inc.
Schroder Wertheim & Co., Incorporated
Tucker Anthony Incorporated
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named in
Schedule I attached hereto.
Gentlemen:
Microdyne Corporation, a Maryland corporation (the "Company"),
and the Selling Stockholders listed in Schedule II to this Agreement (the
"Selling Stockholders") propose to sell to you and the other underwriters named
in Schedule I to this Agreement (the "Underwriters"), for whom you are acting
as Representatives (the "Representatives"), an aggregate of 3,500,000 shares
(the "Firm Shares") of the Company's common stock, $0.10 par value (the "Common
Stock") of which 2,000,000 shares are to be issued and sold by the Company and
1,500,000 shares are to be sold by the Selling Stockholders. In addition, one
of the Selling Stockholders proposes to grant to the Underwriters an option to
purchase up to an additional 525,000 shares of Common Stock (the "Option
Shares") for the purpose of covering over-allotments in connection with the
sale of the Firm Shares. The Firm Shares and the Option Shares are together
called the "Shares."
1. Sale and Purchase of the Shares. On the basis of the
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company and the Selling Stockholders agree,
severally and not jointly, to sell to each of the Underwriters, and
each of the Underwriters agrees, severally and not jointly, to
purchase from the Company and the Selling Stockholders, at $ per
share (the "Initial Price"), the number of Firm Shares (adjusted by
the Representatives to eliminate fractions) which bears the same
proportion to the total number of Firm Shares to be sold by the
Company or by the Selling Stockholders, as the case may be, as the
number of Firm Shares set forth opposite the name of such Underwriter
in Schedule I to this Agreement bears to the total number of Firm
Shares to be sold by the Company and the Selling Stockholders.
<PAGE> 2
(b) The Selling Stockholder identified in Schedule II to
this Agreement as offering Option Shares (the "Option Selling
Stockholder") hereby grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option
Shares at the Initial Price. The number of Option Shares to be
purchased by each Underwriter shall be the same percentage (adjusted
by the Representatives to eliminate fractions) of the total number of
Option Shares to be purchased by the Underwriters as such Underwriter
is purchasing of the Firm Shares. Such option may be exercised only
to cover over-allotments in the sales of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time
between the date of this Agreement and 30 days after the date of this
Agreement, in each case upon written or telegraphic notice, or verbal
or telephonic notice confirmed by written or telegraphic notice, by
the Representatives to the Company no later than 12:00 noon, New York
City time, on the business day before the Firm Shares Closing Date or
at least two business days before the Option Shares Closing Date (as
defined below), as the case may be, setting forth the number of Option
Shares to be purchased and the time and date (if other than the Firm
Shares Closing Date) of such purchase which shall be not more than
three business days following the date of the exercise of the option.
2. Delivery and Payment. Delivery by the Company and by
each of the Selling Stockholders of the Firm Shares to the Representatives for
the respective accounts of the Underwriters, and payment of the purchase price
by certified or official bank check or checks payable in New York Clearing
House (next day) funds to the Company and to each Selling Stockholder, shall
take place at the offices of Oppenheimer & Co., Inc., at Oppenheimer Tower,
World Financial Center, New York, New York 10281, at 10:00 a.m., New York City
time, on the third business day following the date of this Agreement, provided,
however, that if the Shares sold hereunder are priced after 4:30 p.m., New York
time, on any business day, payment and delivery in respect of the Firm Shares
shall take place on the fourth business day following the date of this
Agreement; if it is determined that settlement within the foregoing time frame
is not feasible, then payment and delivery in respect of the Firm Shares shall
occur at such time on such other date, not later than 10 business days after
the date of this Agreement, as shall be agreed upon by the Company and the
Representatives (such time and date of delivery and payment are called the
"Firm Shares Closing Date").
In the event the option with respect to the Option Shares is
exercised, delivery by the Option Selling Stockholder's Option Shares to the
Representatives for the respective accounts of the Underwriters and payment of
the purchase price by certified or official bank check or checks payable in New
York Clearing House (next day) funds to the Option Selling Stockholder shall
take place at the offices of Oppenheimer & Co., Inc. specified above at the
time and on the date (which may be the same date as, but in no event shall be
earlier than, the Firm Shares Closing Date) specified in the notice referred to
in Section 1(b) (such time and date of delivery and payment are called the
"Option Shares Closing Date"). The Firm Shares Closing Date and the Option
Shares Closing Date are called, individually, a "Closing Date" and, together,
the "Closing Dates."
Certificates evidencing the Shares shall be registered in such
names and shall be in such denominations as the Representatives shall request
at least two full business days before the Firm Shares Closing Date or, in the
case of Option Shares, on the day of notice of exercise of the option as
described in Section 1(b) and shall be made available to the Representatives
for checking and packaging, at such place as is designated by the
Representatives, at least one full business day before the Firm Shares Closing
Date (or the Option Shares Closing Date in the case of the Option Shares).
3. Registration Statement and Prospectus; Public
Offering. The Company has prepared in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the published
rules and regulations thereunder (the "Rules") adopted by the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(No. 33-63737), including a preliminary prospectus relating to the Shares, and
has filed with the Commission such amendments to such registration statement as
may have been required to the date of this Agreement. Copies of such
registration statement (including all
- 2 -
<PAGE> 3
amendments thereto) and of the related preliminary prospectus have heretofore
been delivered by the Company to you. The term "Registration Statement" means
the Company's registration statement on Form S-3 (File No. 33-63737), including
all financial schedules and exhibits, as amended at the time and on the date it
became or becomes effective under the Securities Act (the "Effective Date"),
including all information, if any, deemed to be part of the Registration
Statement pursuant to Rule 424(b) and Rule 430A of the Rules and as thereafter
amended by post-effective amendment, and any registration statement and
amendment thereto filed pursuant to Rule 462(b) under the Securities Act
relating to the offering covered by the initial registration statement (File
No. 33-63737) (the "Rule 462(b) Registration Statement"). The term
"preliminary prospectus" means any preliminary prospectus (as described in Rule
430 of the Rules) included at any time as a part of the Company's registration
statement on Form S-3 (File No. 33-63737) or filed pursuant to Rule 424(a) of
the Rules. The term "Prospectus" means the prospectus in the form first used
to confirm sales of the Shares (whether such prospectus was included in the
Registration Statement or was subsequently filed with the Commission pursuant
to Rule 424(b) of the Rules), as from time to time amended or supplemented if
the Company furnishes amendments or supplements thereto to the Underwriters, or
the preliminary prospectus forming part of the Registration Statement at the
time it was declared effective together with the term sheet permitted under
Rule 434(b) and filed with the Commission pursuant to Rule 424(b), as
applicable.
The Company and each Selling Stockholder understands that the
Underwriters propose to make a public offering of the Shares, as set forth in
and pursuant to the Prospectus, on or as soon after the Effective Date and the
date of this Agreement as the Representatives deem advisable. The Company and
each Selling Stockholder hereby confirms that the Underwriters and dealers have
been authorized to distribute or cause to be distributed each preliminary
prospectus and are authorized to distribute the Prospectus.
4. Representations and Warranties of the Company and the
Selling Stockholders. (A) The Company hereby represents and warrants to each
Underwriter as follows:
(a) The Registration Statement, on the Effective Date,
complied, the Prospectus, as of the date thereof, complied, any
post-effective amendment to the Registration Statement, as of the date
such post-effective shall become effective, will comply and any
supplement or amendment to the Prospectus, as of the date filed with
the Commission, will comply with the applicable provisions of the
Securities Act and the Rules and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the published rules and
regulations of the Commission under the Exchange Act. On each Closing
Date, the Registration Statement, the Prospectus, any post-effective
amendment to the Registration Statement and any supplement or
amendment to the Prospectus will comply with the applicable provisions
of the Securities Act, the Rules, the Exchange Act and the published
rules and regulations of the Commission under the Exchange Act. The
Registration Statement, as of the Effective Date, did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; and on the other dates referred to
above, none of the Registration Statement, the Prospectus, any
post-effective amendment or any amendment or supplement to the
Prospectus will contain any untrue statement of a material fact or
will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
When any preliminary prospectus was first filed with the Commission
(whether filed as part of a registration statement or pursuant to Rule
424(a) of the Rules) and when any amendment thereof or supplement
thereto was first filed with the Commission, such preliminary
prospectus as amended or supplemented complied in all material
respects with the applicable provisions of the Securities Act and the
Rules and did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The
Company makes no representation or warranty as to the paragraph with
respect to stabilization on the inside front cover page of the
Prospectus and the third and seventh paragraphs contained under the
caption "Underwriting" in the Prospectus, and the Company and each
Selling Stockholder acknowledges that such statements constitute the
only information furnished in
- 3 -
<PAGE> 4
writing by the Representatives on behalf of the several Underwriters
specifically for inclusion in the Registration Statement, any
preliminary prospectus, the Prospectus, any post-effective amendment
to the Registration Statement and any amendment or supplement to the
Prospectus or any preliminary prospectus.
(b) All contracts and other documents required to be
filed as exhibits to the Registration Statement have been filed with
the Commission as exhibits to the Registration Statement; all such
agreements and documents constitute legal, valid and binding
agreements enforceable against the Company, or its subsidiaries, in
accordance with their respective terms; and all of such agreements and
documents are accurately described and fairly presented as required by
the Securities Act and the Rules. There are no other agreements or
documents, whether written or oral, that are required by the
Securities Act or the Rules to be described in the Registration
Statement or filed as an exhibit thereto that are not described or
filed as required.
(c) The financial statements of the Company (including
all notes and schedules thereto) included in the Registration
Statement, the Prospectus and any preliminary prospectus fairly
present the financial position, the results of operations and cash
flows and the stockholders' equity and the other information purported
to be shown therein of the Company at the respective dates and for the
respective periods to which they apply; such financial statements have
been prepared in conformity with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of the
results for such periods have been made; and segment information and
data, other than the revenue by business operation presented in such
financial statements, are not required to be included in the
Registration Statement, the Prospectus or any preliminary prospectus
under GAAP or Financial Accounting Standard 14.
(d) Grant Thornton LLP, whose reports are filed with the
Commission as a part of the Registration Statement, the Prospectus and
each preliminary prospectus, are, and during the periods covered by
their reports were, independent public accountants as required by the
Securities Act and the Rules. The Company has not had any
"disagreement" with Grant Thornton LLP and has not experienced any
"reportable event" (as such terms are used in Item 304 of Regulation
SK).
(e) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Maryland. The Company has no subsidiary or subsidiaries and does
not control, directly or indirectly, any corporation, partnership,
joint venture, association or other business organization other than
Wireless Data Corporation, Microdyne Ltd. and Microdyne U.K., Inc.
The Company is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of
its assets or properties (owned, leased or licensed) or the nature of
its business makes such qualification necessary, except for such
jurisdictions where the failure to so qualify would not have a
material adverse effect on the condition (financial or other), assets
or properties, business, prospects, net worth or results of operations
of the Company and its subsidiaries taken as a whole (a "Material
Adverse Effect"). Except as disclosed in the Registration Statement
and the Prospectus, the Company does not own, lease or license any
asset or property or conduct any business outside the United States of
America. The Company has all requisite corporate power and authority,
and all necessary authorizations, approvals, consents, orders,
licenses, certificates and permits ("Permits") from all governmental
or regulatory bodies or any other person or entity, to own, lease and
license its assets and properties and conduct its businesses as now
being conducted and as described in the Registration Statement and the
Prospectus; no such Permit contains a materially burdensome
restriction other than as disclosed in the Registration Statement and
the Prospectus; and the Company has all such corporate power and
authority, and such Permits to enter into, deliver and perform this
Agreement and to issue and sell the Shares (except as may be required
under the Securities Act and state and foreign Blue Sky laws).
- 4 -
<PAGE> 5
(f) The Company owns or possesses adequate and
enforceable rights to use each of its trademarks and trade names (the
"Trademarks") and owns or possesses adequate licenses and enforceable
rights to use all other patents, patent applications, trademarks,
trademark applications, service marks, copyrights, copyright
applications, inventions, trade secrets, proprietary techniques
(including software source codes), processes, substances, technology,
know-how and other similar rights (collectively with the Trademarks,
"Intangibles") necessary for the conduct of its businesses as now
being conducted and as described in the Registration Statement and the
Prospectus. The Company has not infringed, is not infringing, and has
not received any notice of infringement of any Intangible of any other
person that will have a Material Adverse Effect and the Company does
not know of any basis therefor. None of the products or processes of
the Company or any of its subsidiaries referred to in the Prospectus
and relating to the business of the Company or any of its subsidiaries
now operated or proposed to be operated by any of them as described in
such Prospectus infringes or conflicts with any right or patent, or
with any discovery invention, product or process which is the subject
of any patent application known to the Company, in a manner which
would result in a Material Adverse Effect;
(g) The Company has good and marketable title in fee
simple to each of the items of real property and good title to each of
the items of personal property which are referred to in the
Registration Statement and the Prospectus as being owned by it and
valid and enforceable leasehold interests in each of the items of real
and personal property which are referred to in the Registration
Statement and the Prospectus as being leased by it, in each case free
and clear of all liens, encumbrances, claims, security interests and
defects, other than those described in the Registration Statement and
the Prospectus and those which do not and will not have a Material
Adverse Effect.
(h) There is no litigation or governmental or other
proceeding or investigation before any court or before or by any
public body or board pending or, to the Company's best knowledge,
threatened (and the Company does not know of any basis therefor)
against or involving the assets, properties or businesses of, the
Company which if determined adversely to the Company would materially
adversely affect the value or the operation of any such assets or
properties or the business, results of operations or financial
condition of the Company.
(i) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
except as described therein, there has not been any material adverse
change in the assets or properties, business, prospects, results of
operations or financial condition of the Company, whether or not
arising from transactions in the ordinary course of business; the
Company has not sustained any material loss or interference with its
assets, businesses or properties from fire, explosion, earthquake,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or any court or legislative or other governmental
action, order or decree; and since the date of the latest balance
sheet included in the Registration Statement and the Prospectus,
except as reflected therein, the Company has not undertaken any
liability or obligation, direct or contingent, except for liabilities
or obligations undertaken in the ordinary course of business.
(j) Each agreement listed in the Exhibits to the
Registration Statement is in full force and effect and is valid and
enforceable by the Company in accordance with its terms, assuming the
due authorization thereof by each of the other parties thereto.
Neither the Company, nor to the best of the Company's knowledge, any
other party is in default in the observance or performance of any term
or obligation to be performed by it under any such agreement, and no
event has occurred which with notice or lapse of time or both would
constitute such a default, which default or event would have a
Material Adverse Effect. No default exists, and no event has occurred
which with notice or lapse of time or both would constitute a default,
in the due performance and observance of any term, covenant or
condition, by the Company of any other indenture, mortgage, deed of
trust, note or any other agreement or
- 5 -
<PAGE> 6
instrument to which the Company is a party or by which it or its
properties or businesses may be bound or affected, which default or
event would have a Material Adverse Effect.
(k) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
any Underwriter for any brokerage commission, finder's fee or other
fee or other like payment.
(l) The Company is not in violation of any term or
provision of its articles of incorporation or by-laws or of any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation, where the consequences of such violation would have a
Material Adverse Effect.
(m) Neither the execution, delivery and performance of
this Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation, the
issuance and sale by the Company of the Shares to be sold by the
Company) will give rise to a right to terminate or accelerate the due
date of any payment due under, or conflict with or result in the
breach of any term or provision of, or constitute a default (or an
event which with notice or lapse of time or both would constitute a
default) under, or require any consent or waiver under, or result in
the execution or imposition of any lien, charge or encumbrance upon
any properties or assets of the Company pursuant to the terms of, any
indenture, mortgage, deed of trust or other agreement or instrument to
which the Company is a party or by which it or any of its properties
or businesses is bound, or any franchise, license, permit, judgment,
decree, order, statute, rule or regulation applicable to the Company
or violate any provision of the articles of incorporation or by-laws
of the Company, except for such consents or waivers which have already
been obtained and are in full force and effect.
(n) The Company has an authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the
Prospectus. All of the outstanding shares of Common Stock have been
duly and validly issued and are fully paid and nonassessable and none
of the outstanding shares of Common Stock was issued in violation of
any preemptive or other similar right or any federal or state
securities law. The Shares, when issued (in the case of Shares to be
sold by the Company) and sold pursuant to this Agreement, will be duly
and validly issued, fully paid and nonassessable and none of such
Shares will be issued in violation of any preemptive or other similar
right. Except as disclosed in the Registration Statement and the
Prospectus, there is no outstanding option, warrant or other right
calling for the issuance of, and no commitment, plan or arrangement to
issue, any share of stock of the Company or any security convertible
into, or exercisable or exchangeable for, such stock. The Common
Stock and the Shares conform in all material respects to all
statements in relation thereto contained in the Registration Statement
and the Prospectus. All of the outstanding shares of the capital
stock of the Company's subsidiaries have been duly and validly issued
and are fully paid and non-assessable and none of such outstanding
capital stock was issued in violation of any preemptive or other
similar right or any federal or state securities law. The Shares
offered by the Company and to be sold pursuant to this Agreement have
been duly authorized and at the Closing Date, after payment therefor
in accordance herewith, will be validly issued, fully paid and
nonassessable not subject to any "adverse claim," as such term is used
in Section 8-302 of the Maryland Uniform Commercial Code, with no
personal liability attaching to the holder solely as a result of the
ownership thereof. Upon the issuance and delivery pursuant to this
Agreement the Shares to be sold by the Company, assuming that the
Underwriter is a "bona fide purchaser," as defined in Section 8-302 of
the Maryland Uniform Commercial Code, the Underwriter will acquire
good and marketable title to the Shares free and clear of any liens,
charges, claims, preemptive rights, encumbrances, pledges, security
interests, defects or other like restrictions or like material equity
of any kind whatsoever.
- 6 -
<PAGE> 7
(o) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
except as described or referred to therein, neither the Company nor
any subsidiary has (i) issued any securities or incurred any liability
or obligation, direct or contingent, for borrowed money, (ii) entered
into any transaction not in the ordinary course of business or (iii)
declared or paid any dividend or made any distribution on any shares
of its stock or redeemed, purchased or otherwise acquired or agreed to
redeem, purchase or otherwise acquire any shares of its stock.
(p) No holder of any security of the Company has any
right to have any security owned by such holder included in the
Registration Statement or any right to demand registration of any
security owned by such holder. The Company has obtained from certain
executive officers of the Company who together will hold 4,970,517
shares of Common Stock after the offering of the Shares pursuant to
this Agreement (including 40,368 shares issuable pursuant to options
that are currently exercisable or exercisable within 60 days after
October 1, 1995) their enforceable written agreement that for a period
of at least 180 days from the date of this Agreement they will not,
without the prior written consent of Oppenheimer & Co., Inc. offer,
sell or dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or
convertible into Common Stock. The Company has obtained from certain
executive officers of the Company who together will hold 105,592
shares of Common Stock after the offering of the Shares pursuant to
this Agreement (consisting of 105,592 shares issuable pursuant to
options that are currently exercisable or exercisable within 60 days
after October 1, 1995) their enforceable written agreement that for a
period of at least 90 days from the date of this Agreement they will
not, without the prior written consent of Oppenheimer & Co., Inc.
offer, sell or dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable
for or convertible into Common Stock.
(q) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Shares.
This Agreement has been duly and validly executed and delivered by the
Company and constitutes and will constitute the legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except (i) as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles and (ii) with respect to
this Agreement, to the extent that rights to indemnity or contribution
under this Agreement may be limited by federal and state securities
laws or the public policy underlying such laws.
(r) The Company and each of its subsidiaries have
satisfactory employer-employee relationships with their respective
employees. The Company is not involved in any labor dispute nor, to
the knowledge of the Company, is any such dispute threatened, which
dispute would have a Material Adverse Effect. Except as disclosed in
the Registration Statement or the Prospectus, neither the Company nor
any of its subsidiaries maintains, sponsors or contributes to any
program or arrangement that is an "employee pension benefit plan," any
"employee welfare benefit plans" requiring an expenditure by the
Company or any of its subsidiaries of in excess of $500,000 in the
aggregate in any year, or a "multiemployer plan," as such terms are
defined in Sections 3(2), 3(1), and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended. Except
as disclosed in the Registration Statement or the Prospectus, neither
the Company nor any of its subsidiaries maintains or contributes to,
or has maintained or contributed to, a "defined benefit plan," as
defined in Section 3(35) of ERISA. Neither the Company nor any of its
subsidiaries or predecessors has ever completely or partially
withdrawn from a "multiemployer plan."
(s) The Company is conducting its business in compliance
with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business, including, without limitation, all
applicable local, state and federal employment, truth-in-advertising,
franchising, immigration and
- 7 -
<PAGE> 8
environmental laws and regulations, except where the failure to be so
in compliance would not have a Material Adverse Effect.
(t) No transaction has occurred between or among the
Company and any of its officers or directors or any affiliate or
affiliates of any such officer or director that is required to be
described in and is not described in (or incorporated by reference in)
the Registration Statement and the Prospectus.
(u) Neither the Company nor any of its officers,
directors or affiliates has taken or will take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Common Stock to facilitate the sale
or resale of any of the Shares.
(v) The Company has filed all federal, state, local and
foreign tax returns which are required to be filed through the date
hereof, or has received extensions thereof, and has paid all taxes
shown on such returns and all assessments received by it to the extent
that the same are material and have become due.
(w) All of the Company's outstanding Common Stock is
listed on the National Association of Securities Dealers Automated
Quotation ("Nasdaq") National Market and the Shares to be sold
hereunder have been approved for listing on the Nasdaq National
Market, subject to official notice of issuance.
(x) The minute books of the Company and each of its
subsidiaries made available to Morgan, Lewis & Bockius LLP as counsel
to the Underwriter, (A) contain minutes and consents from all meetings
and actions of the Company's and each such subsidiary's stockholders,
board of directors, and the committees of such board since the
respective dates of organization of the Company and each of its
subsidiaries and (B) reflect all transactions referred to in such
minutes accurately in all material respects. The Company has duly and
validly authorized, and entered into valid and binding agreements
concerning, (i) all stock options granted by the Company, (ii) all
acquisitions described or referred to under the Prospectus caption
"Business-Acquisitions" and (iii) all material agreements referred to
or described in the Prospectus captions "Risk Factors--Dependence on
Novell," "Business--Distribution" and "Business--Manufacturer Support
Services."
(y) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriter in connection with the
issuance by the Company, or the purchase by the Underwriter, of the
Shares or any resales of such Shares by the Underwriter;
(z) The Company has complied with all of the requirements
and filed the required forms as specified in Florida Statutes Section
517.075.
(B) Each Selling Stockholder, severally and not jointly, represents
and warrants as to such Selling Stockholder to each Underwriter that:
(a) This Agreement and such Selling Stockholders' Custody
Agreement and Power of Attorney (the "Custody Agreement and Power of
Attorney") among such Selling Stockholder and Curtis M. Coward and
Neal H. Sanders, as attorneys-in- fact, and ,
as custodian, have been duly and validly executed and delivered by
each such Selling Stockholder and constitute the legal, valid and
binding obligation of such Selling Stockholder, enforceable against
such Selling Stockholder in accordance with their respective terms,
except (i) as the enforceability hereof and thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles and (ii) to the extent that rights to indemnity or
- 8 -
<PAGE> 9
contribution under this Agreement may be limited by federal and state
securities laws or the public policy underlying such laws.
(b) Such Selling Stockholder has good, valid and
marketable title to the Shares to be sold by it pursuant to this
Agreement, free and clear of all liens, encumbrances, security
interests, restrictions or claims whatsoever, with the legal right and
full power to enter into this Agreement and to sell, transfer and
deliver such Shares hereunder and, upon the delivery of and payment
for such Shares as contemplated hereby, such Selling Stockholder will
convey to the Underwriters good, valid and marketable title to the
Shares being sold by such Selling Stockholder, free and clear of all
liens, encumbrances, security interests, restrictions or claims
whatsoever, except for those created or imposed by the Underwriters.
The Shares offered by the Selling Stockholders and to be sold pursuant
to this Agreement have been duly authorized and at the Closing Date,
after payment therefor in accordance herewith (as the case may be),
will be validly issued, fully paid and nonassessable not subject to
any "adverse claim," as such term is used in Section 8-302 of the
Maryland Uniform Commercial code, with no personal liability attaching
to the holder solely as a result of the ownership thereof. Upon the
issuance and delivery pursuant to this Agreement the Shares to be sold
by the Selling Stockholders, assuming that the Underwriter is a "bona
fide purchaser," as defined in Section 8-302 of the Maryland Uniform
Commercial Code, the Underwriter will acquire good and marketable
title to the Shares free and clear of any liens, charges, claims,
preemptive rights, encumbrances, pledges, security interests, defects
or other like restrictions or like material equity of any kind
whatsoever.
(c) All information with respect to such Selling
Stockholder contained in the Registration Statement and Prospectus is
true and correct in all material respects and does not omit to state
any material fact necessary to make such information not misleading.
(d) No transaction has occurred between such Selling
Stockholder and the Company that is required to be described in and is
not described in (or incorporated by reference in) the Registration
Statement and the Prospectus.
(e) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in, or which has constituted
or which will reasonably be expected to constitute, stabilization or
manipulation of the price of the Common Stock to facilitate the sale
or resale of any of the Shares.
(f) Such Selling Stockholder hereby repeats and confirms
as if set forth in full herein each of the representations, warranties
and agreements made by such Selling Stockholder in the Custody
Agreement and Power of Attorney and agrees that such representations,
warranties and agreements are made hereby for the benefit of, and may
be relied upon by, (i) the Representatives, the Underwriters and
Morgan, Lewis & Bockius LLP, counsel to the Underwriters, (ii) the
Company and McGuire, Woods, Battle & Boothe, L.L.P., counsel to the
Company, and (iii) each other Selling Stockholder.
(C) The Option Selling Stockholder represents and warrants to each
Underwriter that the representations and warranties of the Company set forth in
Section 4(A) of this Agreement are true and correct and reports and confirms
such representations and warranties as though set forth in full herein in this
Paragraph (C).
5. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters under this Agreement are several and not joint.
The respective obligations of the Underwriters to purchase the Shares are
subject to each of the following terms and conditions:
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<PAGE> 10
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(A)(a) of this Agreement.
(b) No order preventing or suspending the use of any
preliminary prospectus or the Prospectus shall have been or shall be
in effect and no order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before or threatened by the Commission, and
any requests for additional information on the part of the Commission
(to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Representatives.
(c) The representations and warranties of the Company and
the Selling Stockholders contained in this Agreement and in the
certificates delivered pursuant to Section 5(d) and 5(e) of this
Agreement shall be true and correct when made and on and as of each
Closing Date as if made on such date, and the Company and the Selling
Stockholders shall have performed all covenants and agreements and
satisfied all the conditions contained in this Agreement required to
be performed or satisfied by it or them at or before such Closing
Date.
(d) The Representatives shall have received on each
Closing Date a certificate, addressed to the Representatives and dated
such Closing Date, of the chief executive or chief operating officer
and the chief financial officer or chief accounting officer of the
Company, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectus and this
Agreement and that the representations and warranties of the Company
in this Agreement are true and correct on and as of such Closing Date
with the same effect as if made on such Closing Date and the Company
has performed all covenants and agreements and satisfied all
conditions contained in this Agreement required to be performed or
satisfied by it at or prior to such Closing Date.
(e) The Representatives shall have received on such
Closing Date a certificate, addressed to the Representatives and dated
such Closing Date, of each Selling Stockholder (or a representative
thereof) to the effect that such Selling Stockholder has carefully
examined the Registration Statement, the Prospectus and this Agreement
and that the representations and warranties of such Selling
Stockholder in this Agreement are true and correct on and as of such
Closing Date with the same effect as if made on such Closing Date and
such Selling Stockholder has performed all covenants and agreements
and satisfied all conditions contained in this Agreement required to
be performed or satisfied by such Selling Stockholder at or prior to
such Closing Date.
(f) The Representatives shall have received at the time this
Agreement is executed and on each Closing Date a letter or letters
signed by Grant Thornton LLP, addressed to the Representatives and
dated, respectively, the date of this Agreement and each such Closing
Date, in form and substance satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of
the Securities Act and the Rules, that the response to Item 10 of the
Registration Statement is correct insofar as it relates to them and
stating in effect that:
(i) in their opinion the audited financial
statements and financial statement schedules included in the
Registration Statement and the Prospectus and reported on by
them comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and
the Rules;
(ii) on the basis of a reading of the amounts
included in the Registration Statement and the Prospectus
under the headings "Summary Consolidated Financial Data,"
"Selected Consolidated Financial Data" and "Quarterly Results
of Operations" carrying out certain procedures (but not an
examination in accordance with generally accepted auditing
standards)
- 10 -
<PAGE> 11
which would not necessarily reveal matters of significance with
respect to the comments set forth in such letter, a reading of the
minutes of the meetings of the stockholders and directors of the
Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company as
to transactions and events subsequent to the date of the latest
audited financial statements, nothing came to their attention which
caused them to believe that:
(A) the amounts in "Summary Consolidated
Financial Data," "Selected Consolidated Financial
Data" and "Quarterly Results of Operations" included
in the Registration Statement and the Prospectus do
not agree with the corresponding amounts in the
audited and unaudited financial statements from which
such amounts were derived; or
(B) (i) with respect to the Company there
were, at a specified date not more than five business
days prior to the date of the letter, any increases
in the short-term and long-term liabilities of the
Company or capital stock of the Company or decreases
in working capital or the stockholders' equity of the
Company, as compared with the amounts shown on the
Company's audited October 1, 1995 balance sheet
included in the Registration Statement, or (ii) for
the period from October 1, 1995 to such specified
date not more than five business days prior to the
date of the letter, there were any decreases in net
sales or operating income, in which case the Company
shall deliver to the Representatives a letter
containing an explanation by the Company as to the
significance thereof unless said explanation is not
deemed necessary by the Representatives; and
(iii) they have performed certain other procedures
as a result of which they determined that certain information
of an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information
derived from the general accounting records of the Company)
set forth in the Registration Statement and the Prospectus and
reasonably specified by the Representatives agrees with the
accounting records of the Company.
References to the Registration Statement and the Prospectus in this
paragraph (f) are to such documents as amended and supplemented at the
date of the letter.
(g) The Representatives shall have received on each
Closing Date from McGuire, Woods, Battle & Boothe, L.L.P., counsel for
the Company, an opinion, addressed to the Representatives and dated
such Closing Date, and stating in effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the
laws of the State of Maryland. Each of the subsidiaries of
the Company is validly existing as a corporation in good
standing in the jurisdiction of its incorporation. Each of
the Company and its subsidiaries is duly qualified and in good
standing in all other jurisdictions in which the nature of the
business transacted or property owned or leased by it makes
such qualification necessary, except where the failure so to
qualify or be in good standing would not have a Material
Adverse Effect.
(ii) Each of the Company and its subsidiaries has
all requisite corporate power and authority to own, lease and
license its assets and properties and conduct its business as
described in the Registration Statement and the Prospectus;
and the Company has all requisite corporate power and
authority and all necessary governmental, and all other
necessary authorizations, approvals, consents, orders,
licenses, certificates and permits, authorizations,
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<PAGE> 12
approvals, consents, orders, licenses, certificates and
permits to enter into, deliver and perform this Agreement and
to issue and sell the Shares, other than those required under
the Securities Act, which have been received and are in full
force and effect, and state and foreign Blue Sky laws.
(iii) The Company has authorized and issued capital
stock as set forth under the caption "Capitalization" in the
Prospectus; the certificates evidencing the Shares are in due
and proper legal form and have been duly authorized for
issuance by the Company; all of the outstanding shares of
Common Stock have been duly and validly authorized and have
been duly and validly issued; all of the outstanding shares of
Common Stock are fully paid and non-assessable and none of the
outstanding shares of Common Stock was issued in violation of
any statutory preemptive or other similar right or any federal
or state securities law. The Shares to be sold by the Company
pursuant to this Agreement have been duly authorized and, when
issued and sold pursuant to this Agreement, will be validly
issued, fully paid and nonassessable and none of such Shares
will have been issued in violation of any preemptive or other
similar right. To the best knowledge of such counsel after
reasonable inquiry, the Shares to be sold by the Company will
be issued and sold free of any rights that entitle or will
entitle any person to acquire any Shares upon the issuance
thereof by the Company, and, other than as described in the
Prospectus, free of any restriction on voting or transfer
(other than certain administrative procedures with respect to
the transfer of shares) pursuant to the Company's articles of
incorporation, by-laws or other governing documents or any
agreement or other instrument to which the Company or any of
its subsidiaries is a party or by which it may be bound.
Except as disclosed in the Registration Statement and the
Prospectus, there is no outstanding option, warrant or other
right calling for the issuance of, and no commitment or
agreement to issue, any share of stock of the Company or any
security convertible into, exercisable for, or exchangeable
for stock of the Company. The Common Stock and the Shares
conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.
All of the outstanding shares of the capital stock of the
Company's subsidiaries have been duly and validly issued and
are fully paid and non-assessable and none of such outstanding
capital stock was issued in violation of any preemptive or
other similar right or any federal or state securities law.
(iv) All necessary corporate action has been duly
and validly taken by the Company to authorize the execution,
delivery and performance of this Agreement. This Agreement
has been duly and validly executed and delivered by the
Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms except (A) as such enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general
equitable principles and (B) with respect to this Agreement,
to the extent that rights to indemnity or contribution under
this Agreement may be limited by federal or state securities
laws or the public policy underlying such laws.
(v) Neither the execution, delivery and performance
of this Agreement by the Company nor the consummation of any
of the transactions contemplated hereby (including the
issuance and sale by the Company of the Shares) will give rise
to a right to terminate or accelerate the due date of any
payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or any
event which with notice or lapse of time, or both, would
constitute a default) under, or require consent or waiver
under, or result in the execution or imposition of any lien,
charge or encumbrance upon any properties or assets of the
Company pursuant to the terms of, any indenture, mortgage,
deed of trust, note or other agreement or instrument of which
such counsel is aware and to which the Company is a party
- 12 -
<PAGE> 13
or by which it or any of its properties or businesses is
bound, or any franchise, license, permit, judgment, decree,
order, statute, rule or regulation of which such counsel is
aware or violate any provision of the articles of
incorporation or by-laws of the Company.
(vi) The Company is not in violation of any term or
provision of its articles of incorporation. To the best of
such counsel's knowledge after reasonable inquiry, no default
exists, and no event has occurred which with notice or lapse
of time, or both, would constitute a default, in the due
performance and observance by the Company of any term,
covenant or condition, of any agreement, instrument or other
documents to which the Company is a party or by which its
assets or properties or businesses are bound, except as may be
disclosed in the Prospectus.
(vii) None of the Company's subsidiaries is (A) in
violation of its articles or certificate of incorporation or
by-laws, or other organizational documents or (B) to the best
knowledge of such counsel after reasonable inquiry, in default
in any material respect in the performance of any material
obligation, agreement or condition contained in any agreement,
bond, debenture, note or other evidence of indebtedness.
(viii) To the best knowledge of such counsel after
reasonable inquiry, (A) neither the Company nor any of its
subsidiaries is in material violation of any law, ordinance,
administrative or governmental rule or regulation, applicable
to the Company or any of its subsidiaries or of any decree of
any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries, subject to such
qualifications as may be set forth in the Prospectus and (B)
the Company and each of its subsidiaries has such material
Permits as are necessary to own its respective properties and
to conduct its business in the manner described in the
Prospectus, subject to such qualification, as may be set forth
in the Prospectus.
(ix) No consent, approval, authorization or order of
any federal or Maryland court or governmental agency or body
is required for the performance of this Agreement by the
Company or the consummation of the transactions contemplated
hereby, except such as have been obtained under the Securities
Act, such as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of
the Shares by the several Underwriters (as to which such
counsel need express no opinion) and such as may be required
under the rules of the National Association of Securities
Dealers, Inc. with respect to the underwriting arrangements
reflected in this Agreement (as to which such counsel need
express no opinion).
(x) Except as described in the Registration
Statement and the Prospectus, to the best of such counsel's
knowledge, there is no litigation or governmental or other
proceeding or investigation before any court or before or by
any public body or board pending or threatened against, or
involving the assets, properties or businesses of, the Company
which is reasonably likely to have a Material Adverse Effect.
(xi) The statements in the Prospectus insofar as
such statements constitute a summary of agreements or
documents referred to therein, statements of law or legal
conclusions are fair summaries of the material provisions
thereof, accurately present the information required with
respect to such documents and matters and are accurate in all
material respects. All contracts and other documents required
to be filed as exhibits to, or described in, the Registration
Statement have been so filed with the Commission or are
described as required in the Registration Statement, as the
case may be.
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<PAGE> 14
(xii) The Registration Statement and the Prospectus
and each amendment or supplement thereto (except for the
financial statements and notes and 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 the Rules.
(xiii) Such counsel has been advised by the
Commission that the Registration Statement has become
effective under the Securities Act, and, to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or
are threatened or pending.
To the extent deemed advisable by such counsel, they may rely
as to matters of fact on certificates of responsible officers of the Company
and public officials. Copies of such certificates shall be furnished to the
Representatives and counsel for the Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the Representatives and representatives of the
independent certified public accountants of the Company, at which conferences
the contents of the Registration Statement and the 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 the Prospectus (except
as specified in the foregoing opinion), on the basis of the foregoing no facts
have come to the attention of such counsel which have caused such counsel to
believe that the Registration Statement at the time it became effective and at
each Closing Date contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus as of its date and at
each Closing Date contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading (it
being understood that such counsel need not express any belief with respect to
the financial statements and schedules and other financial data included in the
Registration Statement or the Prospectus).
(h) The Representatives shall have received on each
Closing Date from counsel for each of the Selling Stockholders, an
opinion, addressed to the Representatives and dated such Closing Date,
and stating in effect that:
(i) Such Selling Stockholder has all requisite power
and all necessary authorizations, approvals, consents, orders,
licenses, certificates and permits to enter into, deliver and
perform this Agreement and the Custody Agreement and Power of
Attorney and to sell the Shares to be sold by it hereunder,
other than those required under the Securities Act and state
and foreign Blue Sky laws. This Agreement and the Custody
Agreement and Power of Attorney have each been duly executed
and delivered by such Selling Stockholder and constitute the
legal and valid obligation of such Selling Stockholder.
(ii) No consent, approval, authorization or order of
any federal or Maryland court or governmental agency or body
is required for the performance of this Agreement and the
Custody Agreement and Power of Attorney by such Selling
Stockholder or the sale by such Selling Stockholder of the
Shares to be sold by it hereunder, except such as have been
obtained under the Securities Act and such as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of such Shares by the several
Underwriters (as to which such counsel need express no
opinion) and such as may be required under the rules of the
National Association of Securities Dealers, Inc. with respect
to the underwriting arrangements reflected in this Agreement
(as to which such counsel need express no opinion).
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<PAGE> 15
(iii) To the best of such counsel's knowledge, there
is no litigation or governmental or other proceeding or
investigation before any court or before or by any public body
or board pending or threatened against, or involving the
assets, properties or business of, such Selling Stockholder,
which might have a Material Adverse Effect.
(iv) Each of the Underwriters has received good and
valid title to the Shares being sold by such Selling
Stockholder hereunder, free and clear of any liens,
encumbrances, security interests and claims whatsoever, except
for those created or imposed by the Underwriters.
To the extent deemed advisable by such counsel, they may rely
as to matters of fact on certificates of responsible officers of the Company,
the Selling Stockholders and public officials and with respect to the opinion
that this Agreement constitutes the legal and valid obligation of each of the
Selling Stockholders, counsel not admitted to practice in the State of New York
may assume without any inquiry that the law of the jurisdiction where such
counsel is admitted to practice is identical to the law of State of New York
without regard to conflicts of laws. Copies of such certificates shall be
furnished to the Representatives and counsel for the Underwriters.
(i) All proceedings taken in connection with the sale of
the Firm Shares and the Option Shares as herein contemplated shall be
reasonably satisfactory in form and substance to the Representatives
and their counsel and the Underwriters shall have received from
Morgan, Lewis & Bockius LLP a favorable opinion, addressed to the
Representatives and dated such Closing Date, with respect to the
Shares, the Registration Statement and the Prospectus and such other
related matters as the Representatives may reasonably request, and the
Company and the Selling Stockholders shall have furnished to Morgan,
Lewis & Bockius LLP such documents as they may reasonably request for
the purpose of enabling them to pass upon such matters.
(j) The Representatives shall have received on each
Closing Date a certificate, including exhibits thereto, addressed to
the Representatives and dated such Closing Date, of the Secretary or
an Assistant Secretary of the Company, signed in such officer's
capacity as such officer, as to the (i) certificate of incorporation
and bylaws of the Company, (ii) resolutions authorizing the execution
and delivery of the Registration Statement, this Agreement and the
performance of the transactions contemplated by this Agreement, the
Registration Statement, the Prospectus and the offering of the Shares
and (iii) incumbency of the person or persons authorized to execute
and deliver the Registration Statement, this Agreement and any other
documents contemplated by the offering of the Shares.
(k) The Representatives shall have received on each
Closing Date certificates of the Secretaries of States (or comparable
officials) where the Company is incorporated and doing business as to
the good standing of the Company, listing all charter documents on
file, qualification of the Company to do business as a foreign
corporation, payment of taxes and filing of annual reports. In
addition, the Representatives shall have received copies of all
charter documents of the Company certified by the Secretary of State
of the State of Maryland.
(l) The Representatives shall have received on each
Closing Date a certificate, addressed to the Representatives, and
dated such Closing Date, of an executive officer of the Company to the
effect that the signer of such certificate has reviewed and
understands the provisions of Section 517.075 of the Florida Statutes,
and represents that the Company has complied, and at all times will
comply, with all provisions of Section 517.075 and further, that as of
such Closing Date, neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba.
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<PAGE> 16
6. Covenants of the Company and the Selling
Stockholders. (A) The Company, and where specifically stated to be a covenant
of the Selling Stockholders, each of the Selling Stockholders, covenants and
agrees as follows:
(a) The Company shall prepare the Prospectus in a form
approved by the Representatives and file such Prospectus (or a term
sheet as permitted by Rule 434(b) under the Securities Act) pursuant
to Rule 424(b) under the Securities Act not later than the
Commission's close of business on the second business day following
the execution and delivery of this Agreement, or, if such second
business day would be more than fifteen business days after the
Effective Date of the Registration Statement or any post-effective
amendment thereto, such earlier date as would permit such Prospectus
to be filed without filing a post-effective amendment as set forth in
Rule 430A(a)(3) under the Securities Act, and shall promptly advise
the Representatives (i) when the Registration Statement shall have
become effective, (ii) when any amendment thereof shall have become
effective, (iii) of any request by the Commission for any amendment of
the Registration Statement or the Prospectus or for any additional
information, (iv) of the prevention or suspension of the use of any
preliminary prospectus or the Prospectus or of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any
proceeding for that purpose and (v) of the receipt by the Company of
any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company shall not
file any amendment of the Registration Statement or amendment or
supplement to the Prospectus unless the Company has furnished the
Representatives a copy for its review prior to filing and shall not
file any such proposed amendment or supplement to which the
Representatives reasonably object. The Company shall use its best
efforts to prevent the issuance of any such stop order and, if issued,
to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the
Shares is required to be delivered under the Securities Act and the
Rules, any event occurs as a result of which the Prospectus as then
amended or supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they
were made not misleading, or if it shall be necessary to amend or
supplement the Prospectus to comply with the Securities Act or the
Rules, the Company promptly shall prepare and file with the
Commission, subject to the second sentence of paragraph (a) of this
Section 6(A), an amendment or supplement which shall correct such
statement or omission or an amendment which shall effect such
compliance.
(c) The Company shall make generally available to its
security holders and to the Representatives 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 Effective Date occurs (or 90 days if such 12-month period
coincides with the Company's fiscal year), an earnings statement
(which need not be audited) of the Company, covering such 12-month
period, which shall satisfy the provisions of Section 11(a) of the
Securities Act or Rule 158 of the Rules.
(d) The Company shall furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including all exhibits thereto and amendments
thereof) and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto) and all amendments thereof and,
so long as delivery of a prospectus by an Underwriter or dealer may be
required by the Securities Act or the Rules, as many copies of any
preliminary prospectus and the Prospectus and any amendments thereof
and supplements thereto as the Representatives may reasonably request.
(e) The Company and the Selling Stockholders shall
cooperate with the Representatives and their counsel in endeavoring to
qualify the Shares for offer and sale under the laws of such
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<PAGE> 17
jurisdictions as the Representatives may designate and shall maintain
such qualifications in effect so long as required for the distribution
of the Shares; provided, however, that neither the Company nor any
Selling Stockholder shall be required in connection therewith, as a
condition thereof, to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction or subject
itself to taxation as doing business in any jurisdiction.
(f) For a period of five years after the date of this
Agreement, the Company shall supply to the Representatives, and to
each other Underwriter who may so request in writing, copies of such
financial statements and other periodic and special reports as the
Company may from time to time distribute generally to the holders of
any class of its capital stock and furnish to the Representatives a
copy of each annual or other report it shall be required to file with
the Commission.
(g) Without the prior written consent of Oppenheimer &
Co., Inc., for a period of 180 days after the date of this
Agreement, the Company shall not issue, sell or register with the
Commission, or otherwise encumber or dispose of, directly or
indirectly, any equity securities of the Company (or any securities
convertible into or exercisable or exchangeable for equity securities
of the Company), except for (i) the issuance of the Shares pursuant to
the Registration Statement and (ii) the issuance of shares pursuant to
the exercise of outstanding options or the grant or issuance of
options under the Company's existing stock option plans.
(h) On or before completion of this offering, the Company
shall make all filings required under applicable securities laws and
by the Nasdaq National Market (including any required registration
under the Exchange Act).
(B) The Company agrees to pay, or reimburse if paid by
the Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses of the
Company and the Selling Stockholders (other than costs and expenses of the
Selling Stockholders set forth in Section 6(C)) incident to the public offering
of the Shares and the performance of the obligations of the Company under this
Agreement including those relating to (i) the preparation, printing, filing and
distribution of the Registration Statement including all exhibits thereto, each
preliminary prospectus, the Prospectus, all amendments and supplements to the
Registration Statement and the Prospectus, and the printing, filing and
distribution of this Agreement; (ii) the preparation and delivery of
certificates for the Shares to the Underwriters; (iii) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the various jurisdictions referred to in Section 6(A)(e), including the
fees and disbursements of counsel for the Underwriters in connection with such
registration and qualification and the preparation, printing, distribution and
shipment of preliminary and supplementary Blue Sky memoranda; (iv) the
furnishing (including costs of shipping and mailing) to the Representatives and
to the Underwriters of copies of each preliminary prospectus, the Prospectus
and all amendments or supplements to the Prospectus, and of the several
documents required by this Section to be so furnished, as may be reasonably
requested for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold; (v) the filing fees of
the National Association of Securities Dealers, Inc. in connection with its
review of the terms of the public offering; (vi) the furnishing (including
costs of shipping and mailing) to the Representatives and to the Underwriters
of copies of all reports and information required by Section 6(A)(f); and (vii)
inclusion of the Shares for quotation on the Nasdaq National Market.
(C) Each Selling Stockholder agrees that it will pay (i)
all fees and expenses of such Selling Stockholder's counsel and (ii) all stock
transfer taxes, stamp duties and other similar taxes, if any, payable (A) upon
the sale or delivery of the Shares to be sold by such Selling Stockholder to
the Underwriters, (B) upon the purchase by the Underwriters of the Shares to be
sold by such Selling Stockholder, (C) upon resales of the Shares in connection
with the distribution contemplated hereby or (D) in connection with the
consummation by such Selling Stockholder of any of its obligations under this
Agreement
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<PAGE> 18
7. Indemnification.
(a) The Company and the Selling Stockholders jointly and
severally agree to indemnify and hold harmless 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 against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state law or
regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or
the Prospectus or any amendment thereof or supplement thereto, or
arise out of or are based upon any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that such indemnity shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) on account of
any losses, claims, damages or liabilities arising from the sale of
the Shares to any person by such Underwriter if such untrue statement
or omission or alleged untrue statement or omission was made in such
preliminary prospectus, the Registration Statement or the Prospectus,
or such amendment or supplement, in reliance upon and in conformity
with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter specifically for use
therein. The Company and the Selling Stockholders may agree,
as among themselves and without limiting the rights of the
Underwriters under this Agreement, as to their respective amounts of
such liability for which they each shall be responsible. This
indemnity agreement will be in addition to any liability which the
Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, the Selling Stockholders,
each person, if any, who controls the Company or the Selling
Stockholders within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, each director of the Company, and each
officer of the Company who signs the Registration Statement, to the
same extent as the foregoing indemnity from the Company and the
Selling Stockholders to each Underwriter, but only insofar as such
losses, claims, damages or liabilities arise out of or are based upon
any untrue statement or omission or alleged untrue statement or
omission which was made in any preliminary prospectus, the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, contained in the paragraphs relating to
stabilization on the inside front cover page of the Prospectus and the
third and seventh paragraphs under the caption "Underwriting" in the
Prospectus; provided, however, that the obligation of each Underwriter
to indemnify the Company or a Selling Stockholder (including any
controlling person, director or officer thereof) shall be limited to
the net proceeds received by the Company or such Selling Stockholder
from such Underwriter, or, with respect to a Selling Stockholder, an
amount not exceeding 60% of the product of (x) the Initial Price of
the Shares and (y) the number of shares being sold by such Selling
Stockholder.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party
in respect of which a claim is to be made against an indemnifying
party or parties under this Section, notify each such indemnifying
party of the commencement of such action, suit or proceeding,
enclosing
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<PAGE> 19
a copy of all papers served. No indemnification provided for in
Section 7(a) or 7(b) shall be available to any party who shall fail to
give notice as provided in this Section 7(c) if the party to whom
notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give
such notice but the omission so to notify such indemnifying party of
any such action, suit or proceeding shall not relieve it from any
liability that it may have to any indemnified party for contribution
or otherwise than under this Section. In case any such action, suit
or proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election
so to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses, except as
provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the
defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i)
the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in
which case the indemnifying parties shall not have the right to direct
the defense of such action on behalf of the indemnified party) or
(iii) the indemnifying parties shall not have employed counsel to
assume the defense of such action within a reasonable time after
notice of the commencement thereof, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnifying party shall not be liable for any settlement
of any action, suit, proceeding or claim effected without its written
consent.
8. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnification provided
for in Section 7 is due in accordance with its terms but for any reason is held
to be unavailable from the Company, the Selling Stockholders or the
Underwriters, the Company, the Selling Stockholders and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting any contribution received by the
Company from persons other than the Underwriters, such as the Selling
Stockholders, persons who control the Company within the meaning of the
Securities Act, officers of the Company who signed the Registration Statement
and directors of the Company, who may also be liable for contribution) to which
the Company, the Selling Stockholders and one or more of the Underwriters may
be subject in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other from the offering of the Shares or, if such
allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company and the Selling Stockholders on the one hand and the Underwriters
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, the Selling Stockholders and the Underwriters shall be deemed to be in
the same proportion as (x) the total proceeds from the offering (net of
underwriting discount but before deducting expenses) received by the Company or
the Selling Stockholders, as set forth in the table on the cover page of the
Prospectus, bear to (y) the underwriting discount received by the Underwriters,
as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company, the Selling Stockholders and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact related to information supplied by the
Company, the Selling Stockholders or the Underwriters and
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<PAGE> 20
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company, the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this Section 8, in no case shall any Underwriter (except as may be
provided in the Agreement Among Underwriters) be liable or responsible for any
amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder. Notwithstanding the provisions of
this Section 8, no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any, who controls the Company or a
Selling Stockholder within the meaning of the Section 15 of the Securities Act
or Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company or such Selling
Stockholder, as the case may be, subject in each case to clauses (i) and (ii)
in the second preceding sentence and to the immediately preceding sentence of
this Section 8. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against
such party in respect of which a claim for contribution may be made against
another party or parties under this Section, notify such party or parties from
whom contribution may be sought, but the omission so to notify such party or
parties from whom contribution may be sought shall not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have hereunder or otherwise than under this Section. No party shall be
liable for contribution with respect to any action, suit, proceeding or claim
settled without its written consent. The Underwriter's obligations to
contribute pursuant to this Section 8 are several in proportion to their
respective underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with
respect to the Shares to be purchased on a Closing Date by the Representatives
by notifying the Company at any time
(a) in the absolute discretion of the Representatives at
or before any Closing Date: (i) if on or prior to such date, any
domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Representatives will in the future
materially disrupt, the securities markets; (ii) if there has occurred
any new outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the
United States is such as to make it, in the judgment of the
Representatives, inadvisable to proceed with the offering; (iii) if
there shall be such a material adverse change in general financial,
political or economic conditions or the effect of international
conditions on the financial markets in the United States is such as to
make it, in the judgment of the Representatives, inadvisable or
impracticable to market the Shares; (iv) if trading in the Shares has
been suspended by the Commission or trading generally on the New York
Stock Exchange, Inc. or on the American Stock Exchange, Inc. has been
suspended or limited, or minimum or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for prices for
securities have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc., or
any other governmental or regulatory authority; or (v) if a banking
moratorium has been declared by any state or federal authority, or
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<PAGE> 21
(b) at or before any Closing Date, that any of the
conditions specified in Section 5 shall not have been fulfilled when
and as required by this Agreement.
If this Agreement is terminated pursuant to any of its
provisions, neither the Company nor the Selling Stockholders shall be under any
liability to any Underwriter, and no Underwriter shall be under any liability
to the Company or the Selling Stockholders, except that (y) if this Agreement
is terminated by the Representatives or the Underwriters because of any
failure, refusal or inability on the part of the Company or a Selling
Stockholder to comply with the terms or to fulfill any of the conditions of
this Agreement, the Company will reimburse the Underwriters for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
incurred by them in connection with the proposed purchase and sale of the
Shares or in contemplation of performing their obligations hereunder and (z) no
Underwriter who shall have failed or refused to purchase the Shares agreed to
be purchased by it under this Agreement, without some reason sufficient
hereunder to justify cancellation or termination of its obligations under this
Agreement, shall be relieved of liability to the Company, the Selling
Stockholders or to the other Underwriters for damages occasioned by its failure
or refusal.
10. Substitution of Underwriters. If one or more of the
Underwriters shall fail (other than for a reason sufficient to justify the
cancellation or termination of this Agreement under Section 9) to purchase on
any Closing Date the Shares agreed to be purchased on such Closing Date by such
Underwriter or Underwriters, the Representatives may find one or more
substitute underwriters to purchase such Shares or make such other arrangements
as the Representatives may deem advisable or one or more of the remaining
Underwriters may agree to purchase such Shares in such proportions as may be
approved by the Representatives, in each case upon the terms set forth in this
Agreement. If no such arrangements have been made by the close of business on
the business day following such Closing Date,
(a) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date shall not exceed 10% of
the Shares that all the Underwriters are obligated to purchase on such
Closing Date, then each of the nondefaulting Underwriters shall be
obligated to purchase such Shares on the terms herein set forth in
proportion to their respective obligations hereunder; provided, that
in no event shall the maximum number of Shares that any Underwriter
has agreed to purchase pursuant to Section 1 be increased pursuant to
this Section 10 by more than one-ninth of such number of Shares
without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date shall exceed 10% of the
Shares that all the Underwriters are obligated to purchase on such
Closing Date, then the Company shall be entitled to an additional
business day within which it may, but is not obligated to, find one or
more substitute underwriters reasonably satisfactory to the
Representatives to purchase such Shares upon the terms set forth in
this Agreement.
In any such case, either the Representatives or the Company
shall have the right to postpone the applicable Closing Date for a period of
not more than five business days in order that necessary changes and
arrangements (including any necessary amendments or supplements to the
Registration Statement or Prospectus) may be effected by the Representatives
and the Company. If the number of Shares to be purchased on such Closing Date
by such defaulting Underwriter or Underwriters shall exceed 10% of the Shares
that all the Underwriters are obligated to purchase on such Closing Date, and
none of the nondefaulting Underwriters or the Company shall make arrangements
pursuant to this Section within the period stated for the purchase of the
Shares that the defaulting Underwriters agreed to purchase, this Agreement
shall terminate with respect to the Shares to be purchased on such Closing Date
without liability on the part of any nondefaulting Underwriter to the Company
or the Selling Stockholders and without liability on the part of the Company
and the Selling Stockholders, except in both cases as provided in Sections
6(B), 7, 8 and 9. The provisions of this Section shall not in any way affect
the liability of any defaulting Underwriter to the Company, the Selling
Stockholders or the
- 21 -
<PAGE> 22
non defaulting Underwriters arising out of such default. A substitute
underwriter hereunder shall become an Underwriter for all purposes of this
Agreement.
11. Miscellaneous. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers, of the Selling Stockholders and of the Underwriters set forth in
or made pursuant to this Agreement shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter any
Selling Stockholder or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 6(B), 7, 8
and 9 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
successors and assigns, and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters, the Company or the Selling
Stockholders, and directors and officers of the Company, the Selling
Stockholders, if any, and their respective successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement.
The term "successors and assigns" shall not include any purchaser of Shares
from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing
and mailed or delivered or by telephone or telegraph if subsequently confirmed
in writing, (a) if to the Representatives, c/o Oppenheimer & Co., Inc.,
Oppenheimer Tower, World Financial Center, New York, New York 10281 Attention:
Richard D. White, (b) if to the Company, to its agent for service as such
agent's address appears on the cover page of the Registration Statement and (c)
if to the Selling Stockholders, to the address set forth in the Custody
Agreement and Power of Attorney.
- 22 -
<PAGE> 23
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
MICRODYNE CORPORATION
By
-----------------------------------------
Title: President and Chief Executive Officer
THE SELLING STOCKHOLDERS NAMED
ON SCHEDULE II HERETO
By
-----------------------------------------
Attorney-in-Fact
Confirmed:
OPPENHEIMER & CO., INC.
Acting severally on behalf
of itself and as representative
of the several Underwriters
named in Schedule I annexed hereto.
By Oppenheimer & Co., Inc.
By
-----------------------------------
Title: Managing Director
- 23 -
<PAGE> 24
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES TO
NAME BE PURCHASED
---- ------------
<S> <C>
Oppenheimer & Co. Inc. . . . . . . . . . . . .
Schroder Wertheim & Co., Incorporated . . . . .
Tucker Anthony Incorporated . . . . . . . . . .
TOTAL 3,500,000
=========
</TABLE>
- 24 -
<PAGE> 25
SCHEDULE II
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER OF FIRM NUMBER OF OPTION
SHARES TO BE OFFERED SHARES TO BE OFFERED
NAME BY SELLING STOCKHOLDERS BY SELLING STOCKHOLDERS
---- ----------------------- -----------------------
<S> <C> <C>
Philip T. Cunningham . . . . . . . . 1,369,797 525,000
Christopher M. Maginniss . . . . . . 100,000 --
R. Dale D'Alessio . . . . . . . . . . 30,203 --
--------- -------
TOTAL 1,500,000 525,000
========= =======
</TABLE>
- 25 -
<PAGE> 1
McGuire Woods
Battle & Boothe LLP
8280 Greensboro Drive
Suite 900, Tysons Corner
McLean, Virginia 22101-3892
Telephone/TTD (703) 712-5000 Fax (703) 712-5050
November 9, 1995
Microdyne Corporation
3601 Eisenhower Avenue
Alexandria, Virginia 22304
Microdyne Corporation
Form S-3 Registration Statement
Gentlemen:
We have examined the Registration Statement on Form S-3 filed by
Microdyne Corporation, a Maryland corporation (the "Company") on
October 27, 1995 with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended, and Amendment No. 1 thereto to be
filed with the Commission on November 9, 1995 (the "Registration Statement"),
regarding 3,500,000 shares of the Company's common stock, $0.10 par value per
share (the "Shares"), 2,000,000 of which are to be issued and sold by the
Company (the "Company Shares"), 1,369,797 of which are outstanding and are to
be sold by a selling stockholder (the "Outstanding Shares"), and 130,203 of
which are to be issued by the Company, pursuant to the exercise of currently
exercisable options granted under the Company's 1991 Key Employee Stock Option
Plan, as amended (the "Option Plan"), and are to be sold by certain selling
stockholders (the "Option Shares").
Based upon our review of the Company's Articles of Incorporation, Bylaws,
and such other documents, records and matters of law as we have deemed
necessary, it is our opinion that i) the Company Shares when issued in
accordance with the Registration Statement will be legally issued, fully paid
and nonassessable, ii) the Outstanding Shares are legally issued, fully paid
and nonassessable, and iii) the Option Shares, when issued in accordance with
the terms of the Option Plan and in accordance with the Registration Statement,
will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
\s\ McGuire Woods Battle & Boothe LLP
<PAGE> 1
NONCOMPETITION AGREEMENT
THIS AGREEMENT, made as of this 21st day of June, 1995, by and between
PHILIP T. CUNNINGHAM ("Executive"), and MICRODYNE CORPORATION, a Maryland
corporation (the "Company"), recites and provides:
RECITALS
A. The Company is primarily engaged in the business of
developing, manufacturing, marketing, selling, distributing and servicing
computer network systems and electronic systems, including telemetry and
related electronic equipment and components, on a domestic and international
basis; and
B. Because the industries in which the Company operates are
highly competitive, Microdyne requires the utmost in concentration, focus and
discretion from its Senior Executive. The non-competition agreement entered
into by the Company and its Chairman, President and Chief Executive Officer on
June 21, 1991 has provided the climate for this extra focus to the point that
revenues have grown fourfold in as many years, profits have increased
dramatically and shareholder value has increased by over 300%. In order to
foster a climate that will lead to the continuation of superior business
performance, Microdyne and the above executive resolve to continue their
non-competition agreement on the following terms.
1. Term. The term of this Agreement shall be four (4) years
commencing June 21, 1995.
2. Noncompete payment.
(a) In consideration of the matters set forth in Section
3, the Company shall pay Executive $200,000 per year (the "Noncompete
Payment"), less deductions authorized by law, payable on the same periodic
basis with respect to payment of executive salaries, commencing upon the date
of this Agreement and continuing for four years from the date of this
Agreement. Notwithstanding the foregoing, if Executive, at any time during the
term of this Agreement, fails to comply with any of the covenants set forth in
Section 3 hereinafter, the Company shall be relieved of its obligation to make
Noncompete Payments.
3. Restrictive Covenants and Confidentiality of Customer Lists
and Trade Secrets.
(a) (i) For the purpose of this Agreement, the term
"business of the Company" shall include all business activities of Microdyne
Corporation. Provided, however, that if Executive terminates his employment
with the Company, the "business of the Company" shall include only those
business activities in which the Company had been engaged, and those in which
the Company had specific plans to engage, on or prior to the date of
termination of Executive's employment. As used in this Section 3, the term
"Company" shall include Microdyne Corporation and its subsidiaries.
<PAGE> 2
(ii) As Chairman of the Board, President and Chief
Executive Officer, Executive has confidential information and knowledge about
business policies, products, customers, procedures and methods. It is
acknowledged by the parties that the Company has established a valuable and
extensive trade in its products and services and has developed unique. and
creative corporate organization, customer lists, management procedures,
financial procedures and technologies. Executive acknowledges that in his
position with the Company, he is responsible for all areas of management of the
Company's affairs, and that to adequately protect the Company, it is necessary
to place a broad proscription on his activities which might compete with the
business of the Company.
(iii) By virtue of Executive's position with the
Company, Executive will become familiar with and possess information concerning
the manner, methods, secrets, and confidential information pertaining to the
business of the Company, and with names and lists of its customers, suppliers,
financial institutions and clientele. It is acknowledged by the parties that
the same has substantial value to the Company. Further, disclosure of the same
would cause the Company to suffer substantial harm.
(iv) In consideration of Executive's possession of
the knowledge and information above described, payment of the Noncompete
Payment and other good and valuable consideration, receipt and sufficiency of
which are hereby acknowledged, the Company requires and Executive makes the
covenants hereinafter set forth. Further, Executive understands and
acknowledges that such covenants are required for the fair and reasonable
protection of the business and goodwill of the Company and that without the
restrictions on his activities imposed by the covenants the business and
goodwill of the Company would suffer substantial damage.
(v) Executive acknowledges that the customers
serviced by the Company are located throughout the world, that it is the
Company's intention to open new business locations and that substantial efforts
have been and are likely to continue to be made to that effect.
(b) During the term or this Agreement, executive shall
not, directly or indirectly, own, manage, operate, join or control or be a
director, partner or employee of, or a consultant to any business, firm,
partnership, venture, corporation or entity which is conducting any business
which competes with the business of the Company. The parties hereto recognize
that the business of the Company is highly competitive and the activity of the
Executive described in the foregoing sentence would enable the Executive to
exploit the confidential information gained from the Company in such a way that
the Company would suffer in transacting the kind of business where Executive
would compete. Notwithstanding the covenants in this Section 3(b), Executive
may acquire, solely as an investment, shares of capital stock or other equity
securities of any company which are traded on any national securities exchange
or are regularly quoted in the over-the-counter market, so long as Executive
does not control, acquire a controlling interest in or become a member of a
group which exercises direct or indirect control of, more than seven (7)
percent of any class of
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<PAGE> 3
capital stock of such corporation.
(c) Executive agrees that during the term of this
Agreement, he will not, directly or indirectly on behalf of himself or on
behalf of any other person, firm, partnership, venture, corporation or entity,
call on any of the customers or suppliers of the Company, its affiliates,
subsidiaries or successors for the purpose of soliciting and/or providing to
any of said customers or suppliers the products and/or services which are
similar to the products and-or services of the Company, its affiliates,
subsidiaries or successors, nor will Executive in any way, directly or
indirectly, for himself, or on behalf of any other person, firm, partnership,
venture, or corporation, solicIt, divert or take away any customers or
suppliers of the Company, its affiliates or subsidiaries, or urge such
customers or suppliers to discontinue in whole or in part business with the
Company.
(d) Executive further covenants and agrees that during
the term or this Agreement, he will not disclose to any person, firm,
association, partnership, entity or corporation, other than in discharge of his
duties hereunder or in compliance with law, any information concerning: (1) the
business operations or internal structure of the Company; (2) the customers or
suppliers of the Company; (3) the financial condition of the Company; and (4)
other confidential information including but not limited to trade secrets,
technical data, sales figures and forecasts, marketing analyses and studies,
customer and price lists, including any and all of the foregoing confidential
information of any affiliates or subsidiaries of the Company.
(e) Executive further covenants and agrees that all
inventions, improvements, processes, manufacturing methods or techniques,
developments and/or discoveries (whether or not of a patentable nature) that
are related to the product lines or products manufactured or distributed by the
Company, its subsidiaries or affiliates, which he may conceive or make during
his employment, whether solely or jointly with another or others, or during or
out of the usual hours of work or at the request and upon suggestion of the
Company or otherwise, shall be the sole and exclusive property of the Company,
or its successors, assigns or nominees.
(f) Executive further acknowledges that the services to
be rendered to the Company are of the unique, special and extraordinary
character which would be difficult or impossible for the Company to replace;
and by reason thereof, Executive hereby agrees that for violation of any of
the. provisions of this section, the Company shall, in addition to any other
rights and remedies available hereunder, at law or otherwise, be entitled to an
injunction to be issued by any court of competent jurisdiction restraining
Executive from committing any violation of this Section.
4. Disability; Termination of An Employment Agreement. If
Executive becomes disabled as provided under Section 5 of the Employment
Agreement, or if an Employment Agreement is terminated for any reason
whatsoever, Executive shall continue to receive Noncompete Payments pursuant to
this Agreement, provided that Executive shall continue to
-3-
<PAGE> 4
be subject to and comply with the terms of Section 3 hereinabove.
5. Death Benefits. In the event of Executive's death during the
term of this Agreement, any remaining Noncompete Payments which the deceased
Executive would otherwise have been entitled to during the remaining term of
this Agreement absent his death shall be paid in a lump sum to the
beneficiaries whom the Executive has designated in writing, or in the absence
of such designation, to the Executive's spouse, or if none, to his estate. If
the amount of such payment would exceed $300,000, the Company may, at its
option, make such payment in two installments, with the first to be made within
thirty (30) days following Executive's death, and the second to be made on the
first anniversary of Executive's death.
6. Miscellaneous.
(a) This Agreement shall inure to the benefit of and be
binding upon any corporate or other successors of the Company and shall
otherwise be binding upon the parties hereto, and their respective heirs,
executors, administrators, successors or assigns.
(b) This Agreement shall be interpreted, construed, and
governed according to the laws of Virginia.
(c) The provisions of this Agreement are severable, and
if any one or more provisions may be determined to be illegal, invalid or
otherwise unenforceable, in whole or in part, the remaining provisions, and any
partially unenforceable to the extent enforceable, shall nevertheless, be
applicable law. In the event that any of the provisions of Section 3 should
ever be deemed to exceed the time, geographic area, or activity limitations
permitted by applicable laws, Executive and the Company agree that such
provisions should be and are reformed to the maximum time, geographic area and
activity limitations permitted by the applicable laws, and expressly authorize
a court having jurisdiction to reform Section 3 to the maximum time, geographic
area and activity limitations permitted by applicable law.
WITNESS the following signatures.
MICRODYNE CORPORATION EXECUTIVE:
By: /S/ Christopher M. Maginniss /S/ Phillip T. Cunningham
------------------------------ ---------------------------
Christopher M. Maginniss Philip T. Cunningham
Executive Vice President
-4-
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 24th day of October, 1995 by and between
PHILIP T. CUNNINGHAM ("Executive"), and MICRODYNE CORPORATION, a Maryland
corporation (the "Company"), recites and provides:
RECITALS
A. The Company is primarily engaged in the business of
developing, manufacturing, marketing, selling, distributing computer network
hardware and software, electronic systems, including telemetry and related
electronic equipment and components, on a domestic and international basis; and
B. The Executive has provided outstanding leadership as Chairman,
President and Chief Executive Officer of the Company since June, 1991, and the
Company wishes to insure the Executive's continued service in these capacities
for an additional period of four (4) years; and
C. The Executive is willing to continue to serve in his present
capacities, and as an inducement to the Company to enter into this Employment
Agreement, Executive is entering into a Noncompetition Agreement dated as of
the date hereof.
NOW, THEREFORE, the parties agree as follows:
1. Employment of Executive/Duties
(a) The Company employs the Executive and the Executive
agrees to be employed by the Company in an executive capacity with the title of
Chairman of the Board, President and Chief Executive Officer during the term
hereof.
(b) The Executive shall diligently, loyally and to the
best of his ability perform the duties and exercise the powers of the office
for which he is designated in his capacity as an executive of the Company.
(c) During his employment hereunder and except for
illness, reasonable vacation periods and authorized leaves of absence,
Executive shall devote his full working time, attention, and energies in
furthering the business of the Company and shall not, during the term of his
employment hereunder, be engaged in any other active business activities
without the prior approval of the Board of Directors, except as described on
Exhibit A.
2. Term of Agreement. The term of this Agreement shall be four
(4) years commencing October 24, 1995.
<PAGE> 2
3. Compensation.
(a) Executive shall be paid an initial base salary at the
annual rate of $275,000.00 ("Annual Base Salary"), less deductions authorized
by law, payable at the Company's periodic basis for payment of executive
salaries. The Annual Base Salary may be adjusted upward periodically by the
Board of Directors.
(b) Executive will participate in discretionary bonuses
authorized and declared by the Board of Directors of the Company to its
employees based upon consideration of the services rendered by Executive to the
Company and in accordance with the Company's bonus policy.
(c) Executive shall participate in the Company's Group
Health and Accident Insurance Program and Disability Insurance Program and in
any other fringe benefit program which the Company may establish and modify
from time to time for the benefit of all its executive and management
employees, including, but not limited to, qualified stock option plans,
non-qualified retirement plans, medical reimbursement plans, life insurance
plans, and executive incentive compensation plans.
4. Executive Expenses. The Company will reimburse Executive for
all reasonable expenses incurred for the purpose of promoting the business of
the Company, including automobile expenses and expenses for entertainment,
travel, and similar items.
5. Termination.
(a) This Agreement shall be terminated upon the
occurrence of either of the following:
(i) Upon the death of Executive during the term
of employment; or
(ii) Upon notice given in accordance with
Subsection b(ii) below in the event of disability of Executive as such term is
defined below.
(b) (i) If the Executive should become disabled so as to
be unable to perform his duties, he shall be entitled to a leave of absence for
the duration of any such disability for up to 180 calendar days in any 12-month
period. Executive's compensation and status as an officer of the Company shall
continue during any disability leave or absence.
(ii) Executive shall be deemed to be permanently
disabled if and when any leave of absence for disability shall continue beyond
the period specified above and thereafter upon medical certification by the
Company's physician that the disability will substantially impair his ability
to perform his duties. If Executive becomes permanently disabled, the Company
may upon 90 days' written notice to Executive, terminate his status as an
officer and employee of the Company. Following such termination, the Company
shall
-2-
<PAGE> 3
compensate Executive in an annual amount equal to the Annual Base Salary being
received by the Executive immediately prior to his permanent disability, less
the annual proceeds of any disability insurance maintained by the Company on
his behalf ("Disability Pay"), until the expiration of the term of this
Agreement. Such amount shall be paid by the Company to Executive in weekly
installments unless the Company sets another basis for periodic payment of
salaries.
6. Death Benefits. In the event of Executive's death the Company
shall pay to the beneficiaries whom the Executive has designated in writing, or
in the absence of such designation, to the Executive's surviving spouse, or if
none, to his estate, the Annual Base Salary which would otherwise have been
payable to Executive for the period of time actually worked prior to date of
death but which salary remains unpaid at such time, plus any earned and accrued
unpaid bonus. In the event of Executive's death while receiving Disability Pay
above, any remaining Disability Pay which the deceased Executive would
otherwise have been entitled to absent his death shall be paid in a lump sum to
the beneficiaries whom the Executive has designated in writing, or in the
absence of such designation, to the Executive's spouse, or if none, to his
estate.
7. Miscellaneous.
(a) This Employment Agreement shall inure to the benefit
of and be binding upon any corporate or other successors of the Company and
shall otherwise be binding upon the parties hereto, and their respective heirs,
executors, administrators, successors or assigns.
(b) This Agreement shall be interpreted, construed, and
governed according to the laws of the Commonwealth of Virginia.
WITNESS the following signatures.
MICRODYNE CORPORATION: EXECUTIVE:
By: /S/ Christopher M. Maginniss /S/ Phillip T. Cunningham
------------------------------ ------------------------------
Christopher M. Maginniss Philip T. Cunningham
Executive Vice President
-3-
<PAGE> 1
WNIM(R) PURCHASE AGREEMENT
THIS WNIM(R) PURCHASE AGREEMENT (the "Agreement") is made June 14,
1994 by and between Microdyne Peyton Street Corporation, a Virginia corporation
("Buyer") and a wholly owned subsidiary of Microdyne Corporation, a Maryland
corporation, and Gateway Communications, Inc., a California corporation
("Seller").
RECITAL
Buyer desires to purchase, and Seller desires to sell, the WNIM(R)
product line and certain other assets of Seller on the terms and conditions and
for the consideration hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, Buyer and Seller agree as follows:
ARTICLE I
PURCHASE AND SALE OF WNIM(R) AND OTHER ASSETS
1.1 Purchased Assets. Seller hereby sells to Buyer and Buyer
hereby purchases from Seller, for the consideration set forth in Section 1.2,
all right, title and interest of Seller in and to the following assets,
properties and rights (the "Purchased Assets"):
(a) from the list of the raw materials, work-in-process and
finished goods, supplies and stores and spare parts attached hereto as Schedule
1.1, together with any Seller merchandise returned after May 13, 1994
(collectively, the "Inventory"), such items of Inventory as Buyer may select
until the date of the Closing (as defined below), in the sole discretion of
Buyer, having a total net book value of $400,000 (the "Selected Inventory");
(b) all trade names, trademarks and service marks, patents
and patent rights (if any), copyrights, whether domestic or foreign (as well as
any applications, registrations or certificates for any of the foregoing),
inventions, trade secrets, proprietary processes, schematic drawings,
engineering diagrams, designs, board layouts, technologies, methods,
formulations, know-how and other industrial and intellectual property rights
which comprise, are necessary for or are used in connection with the WNIM(R)
product line, and all enhancements and improvements, whether existing or under
development (the "Intellectual Property");
(c) all software, and software modules and components in both
object and source code, which include all interim, experimental or
developmental codes used in the development of source code, and any
enhancements, modifications, program interfaces, current and archival versions
of patches and bug fixes,
<PAGE> 2
flow charts, input/output formats, drawings, specifications, user's manuals and
technical and other documentation, instructions, designs, data and algorithms,
whether in electronic, optical, magnetic, microfiche, hard copy or other form
(including, without limitation, encrypted on microchips), and all object code,
microcode and source code contained in or whose use is necessary in connection
with the products which comprise the WNIM(R) product line, other than "MS DOS"
and "Cosessions" (collectively, the "Software");
(d) all books and records (or true and complete copies
thereof), including computerized records and any associated software and
documentation, relating to the WNIM(R) product line (including, without
limitation, the Intellectual Property) or such of the Selected Inventory as
relates to the WNIM(R) product line including, without limitation, books and
records relating to or containing production data, manufacturing and quality
control information, engineering changes, sales or marketing information,
customer lists and information, and, if permitted by Law (as defined below),
personnel records for certain employees of Seller as may be requested by Buyer;
(e) all other tangible and intangible assets which comprise
or are necessary for or are used in connection with the WNIM(R) product line;
and
(f) all shipping materials, catalogues, brochures, art work,
photographs and advertising materials held by Seller relating to the items
listed above.
For the purposes of this Agreement, the term "WNIM(R) product line"
shall include, without limitation, the products designated as "WNIM(R)+" and
"WNIM(R)II."
1.2 Purchase Price. The consideration to be paid for the
Purchased Assets (the "Purchase Price") shall be paid as follows:
(a) upon the execution of this Agreement, Buyer shall pay to
Seller the sum of $200,000; and
(b) (i) on August 15, 1994, if the shareholders of Gateway
have not approved the transactions contemplated by that certain Asset Purchase
Agreement dated as of June 14, 1994 (the "Asset Purchase Agreement") on or
before such date, or (ii) if the Gateway shareholders have approved such
transactions on or before August 15, 1994, upon the Closing as defined in the
Asset Purchase Agreement (the "Closing"), Buyer shall pay to Seller the sum of
$200,000.
In addition to the foregoing, in the event either (A) Buyer fails to
consummate the Closing without good cause, (B) Seller
-2-
WNIM(R) Purchase Agreement
<PAGE> 3
terminates the Agreement pursuant to 9.1(c), or (C) either Buyer or Seller
terminate the Agreement pursuant to 9.1(d), then the Purchase Price shall be
increased by, and Buyer shall promptly pay to Seller the sum of $400,000.
"Good cause" shall mean any termination of the Asset Purchase Agreement by
Buyer either (X) pursuant to Sections 9.1(b) or (h) so long as such termination
is based upon the gross negligence, recklessness, intentional misrepresentation
or fraud of Seller, or (Y) pursuant to Sections 9.1(f) or (g) thereof without
qualification.
All payments required by this Section 1.2 shall be made by wire
transfer to an account designated in writing by Seller.
1.3 Additional Purchases. In the event Buyer desires from time to
time between the date hereof and Closing to purchase Inventory in addition to
the Selected Inventory, Buyer shall forward to Seller a written request setting
forth the specific items of Inventory it desires to purchase. Seller's
approval of such request shall not be unreasonably conditioned, withheld or
delayed. The price for all such additional purchases shall be no greater than
net book value of the item of Inventory purchased.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Disclosure Schedule previously delivered by
Seller to Buyer (the "Disclosure Schedule"), which Disclosure Schedule
contains, with respect to each matter disclosed therein, a specific reference
to the Section of this Agreement to which such matter relates, Seller
represents and warrants to Buyer that:
2.1 Organization; Qualification. Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
California and has corporate power and authority to own all of its properties
and assets.
2.2 Authority Relative to this Agreement. Seller has corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery by
Seller of this Agreement, and the consummation by it of the transactions
contemplated by this Agreement, have been duly authorized by all necessary
corporate action on the part of Seller and no other corporate proceedings on
the part of Seller will be necessary with respect hereto. Assuming that Buyer
has duly authorized the execution and delivery of this Agreement, this
Agreement constitutes the valid and binding obligation of Seller, enforceable
in accordance with its terms except as the same may be limited by (a) any
applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws
affecting
-3-
WNIM(R) Purchase Agreement
<PAGE> 4
creditors' rights generally or (b) general principles of equity, whether
considered in a proceeding in equity or at law.
2.3 Consents and Approvals. There is no requirement applicable to
Seller to make any filing with, or to obtain any permit, authorization,
consent, waiver or approval of any Federal, state, local or foreign government,
authority, agency, department, bureau, commission, court or other body,
officer, instrumentality or entity, and any arbitrator with authority to bind a
party at law (a "Governmental Entity") as a condition to the execution and
delivery by Seller of this Agreement or the lawful consummation of the
transactions contemplated by this Agreement. There is no requirement that any
party to any agreement filed or required to be filed by Seller as an exhibit to
Seller's Annual Report on Form 10-KSB for its fiscal year ended December 31,
1993 or any subsequent report required to be filed by Seller under the
Securities Exchange Act of 1934 (a "Seller Agreement") consent to the execution
and delivery of, or the consummation of the transactions contemplated by, this
Agreement.
2.4 Non-Contravention. The execution and delivery by Seller of
this Agreement does not, and the consummation of the transactions contemplated
by this Agreement does not violate, conflict with, result in a breach of,
result in or constitute a default (or an event which, with the giving of notice
or lapse of time or both, would constitute a default) under, or result in the
cancellation or unilateral modification or amendment of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any mortgage, lien, pledge, charge, claim,
security interest or encumbrance of any kind (a "Lien") upon any of the
Purchased Assets under any of the terms, conditions or provisions of (a) the
Articles of Incorporation or Bylaws of Seller, (b) any note, bond, mortgage,
indenture, deed of trust, license, agreement, lease or other instrument,
obligation or arrangement to which Seller is a party or to which Seller or any
of the Purchased Assets may be subject, or (c) any order, writ, judgment,
injunction, decree, citation, award, ruling, law, statute, rule or regulation
(individually a "Law" and collectively, "Laws") applicable to Seller or any of
the Purchased Assets. The execution, delivery and performance of this
Agreement by Seller or Buyer, or both, do not give rise to any rights on the
part of any shareholder of Seller pursuant to Seller's shareholder rights plan.
2.5 Compliance with Laws. To Seller's knowledge, Seller has
operated in compliance in all material respects with all applicable Laws
including, without limitation, those related to antitrust and trade matters,
civil rights, public health and safety, worker health and safety and labor and
nondiscrimination. Seller has not received any written notice alleging
non-compliance with any Law, which noncompliance could have a material adverse
effect on the
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Purchased Assets or the ability of Seller to consummate the transactions
contemplated hereby.
2.6 Litigation.
(a) Seller has not received written notice of the filing or
commencement of (including, without limitation, service of process with respect
to) any actions, suits, claims, investigations or proceedings (legal,
administrative or arbitrative) pending or, to Seller's knowledge, threatened
against or affecting Seller or which relate to or may affect the Purchased
Assets, whether at law or in equity and whether civil or criminal in nature,
before any Governmental Entity, nor are there any valid and binding judgments,
decrees or orders of any Governmental Entity outstanding against or affecting
Seller or which relate to or may affect the Purchased Assets, or which seek
specifically to prevent, restrict or delay consummation of the transactions
contemplated by this Agreement. There are no unsatisfied valid and binding
judgments of record relating to or affecting the Purchased Assets.
(b) Seller has not admitted in writing its inability to pay
its debts generally as they become due, filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, made an assignment for the benefit of creditors, consented to
the appointment of a receiver for itself or for the whole or any substantial
part of its property, or had a petition in bankruptcy filed against it, been
adjudicated a bankrupt, or filed a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other similar Law of any
jurisdiction.
2.7 Title to and Condition of Properties. Seller has, and hereby
transfers to Buyer good and marketable title to all of the Purchased Assets, as
well as to any Inventory purchased by Buyer other than the Selected Inventory
(the "Additional Inventory"), free and clear of any Liens. To Seller's
knowledge, Seller has physical custody of the tangible personal property
included in the Purchased Assets. To Seller's knowledge, the tangible personal
property which is a part of the Purchased Assets or Additional Inventory is in
all material respects good condition and repair, except with respect to
ordinary wear and tear and has been properly maintained in all material
respects in the ordinary course of business with routinely scheduled
maintenance and, to Seller's knowledge, is suitable for the uses for which
intended.
2.8 Inventory. The Disclosure Schedule sets forth a list of the
Inventory as of May 13, 1994, which list is complete as of such date except for
deviations having an aggregate book value not exceeding $50,000, and a list of
locations of Inventory not located at Seller's office listed in Section 6.1.
Except for Inventory having an aggregate book value not exceeding $750,000, the
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Inventory (a) is usable or saleable in the ordinary course of Seller's business
as conducted in 1993. To Seller's knowledge, the Inventory is carried on the
books of Seller at a valuation not in excess of the lower of cost or market
determined in accordance with GAAP. Each product which comprises the WNIM(R)
product line performs in all material respects in accordance with the
documentation and other written material used in connection therewith and is
free of known defects in programming and operation.
2.9 Intellectual Property. Seller owns all of the Intellectual
Property free and clear of any Liens. No Person has the right to sell, license
or otherwise disclose the Intellectual Property other than Intellectual
Property which is unique to products described in Seller's Annual Report on
Form 10-KSB for its fiscal year ended December 31, 1993 as scheduled to be made
available in 1994 (the "Existing Products Intellectual Property") to any Person
except pursuant to an agreement listed in the Disclosure Schedule and except
pursuant to single use licenses (express or implied) granted by Seller to its
customers. To Seller's knowledge, no third party is infringing upon the rights
of Seller in the Existing Products Intellectual Property, except that Seller
has granted single use licenses (express or implied) to its customers. To
Seller's knowledge, all registrations and certificates issued by any
governmental agency relating to the Existing Products Intellectual Property are
valid and subsisting in all material respects and have been properly maintained
in all material respects.
2.10 Software.
(a) [Reserved.]
(b) To Seller's knowledge, the released Software other than
Software unique to products described in Seller's Annual Report on Form 10-KSB
for its fiscal year ended December 31, 1993 as scheduled to be made available
in 1994 (the "Existing Products Software") performs in all material respects in
accordance with the documentation and other written material used in connection
with such Software and is free of defects in programming and operation in all
material respects, is in machine-readable form, contains all current revisions
of such Software and includes all computer programs, materials, tapes,
know-how, object and source codes, other written materials, know-how and
processes related to such Software.
(c) To Seller's knowledge, no employee of Seller is in
material default under any term of any employment contract, agreement or
arrangement relating to the Existing Products Software or noncompetition
arrangement, or any other agreement or any restrictive covenant relating to the
Existing Products Software or its development or exploitation.
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(d) All right, title and interest in and to the Software is
owned by Seller, free and clear of all Liens, and no Person other than Seller
has any interest in the Software including, without limitation, any security
interest, license, contingent interest or otherwise, except pursuant to single
use licenses granted by Seller to its customers. To Seller's knowledge, no
event has occurred which would require the material release or disclosure of
source code relating to any Existing Products Software pursuant to the terms of
any escrow agreement. To Seller's knowledge, Seller's development, use, sale
or exploitation of the Existing Products Software does not violate any material
rights of any other Person. To Seller's knowledge, Seller does not have any
obligation to compensate any Person for the development, use, sale or
exploitation of the Existing Products Software nor has Seller granted to any
Person other than the Persons listed in the Disclosure Schedule any license,
option or other rights to develop, use, sell or exploit in any manner the
Existing Products Software, whether requiring the payment of royalties or not,
except that Seller has granted single use licenses to its customers.
(e) To Seller's knowledge, Seller has kept secret and has not
made any material disclosure of the source code for the Existing Products
Software to any Person other than certain employees and subcontractors of
Seller who are subject to the terms of a binding confidentiality agreement with
respect thereto.
2.11 Finders. No broker, finder or investment banker, other than
Houlihan, Lokey, Howard & Zukin Capital is entitled to any fee or commission
from Seller for services rendered on behalf of Seller in connection with the
transactions contemplated by this Agreement. Seller shall be solely
responsible for any fees or commission payable to Houlihan, Lokey, Howard &
Zukin Capital.
2.12 Full Disclosure. None of the representations and warranties
of Seller made in this Agreement, the Disclosure Schedule, any exhibit or
schedule attached to this Agreement, or any certificate delivered by or on
behalf of Seller to Buyer pursuant to this Agreement, contains any untrue
statement of a material fact or, to Seller's knowledge, omits to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.1 Organization; Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the Laws of the
Commonwealth of Virginia and has corporate power and authority
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to own all of its properties and assets and carry on its business as it is
presently being conducted.
3.2 Authority Relative to this Agreement. Buyer has all requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated to be
consummated by it. The execution and delivery of this Agreement by Buyer and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no other corporate proceedings
on the part of Buyer (including, without limitation, proceedings of the Board
of Directors or shareholders of Buyer) are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Buyer and, assuming the due
authorization, execution and delivery hereof by Seller, constitutes the legal,
valid and binding obligation of Buyer enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting the enforceability of
creditors' rights generally and by equitable principles of general
applicability.
3.3 Consents and Approvals. There is no requirement that any
party to any contract, agreement or other commitment, whether written or oral,
into which Buyer has entered or by which it is bound or to which any of its
assets is subject, consent to the execution and delivery of, or the
consummation of the transactions contemplated by this Agreement.
3.4 Non-Contravention. The execution and delivery of this
Agreement by Buyer does not, and the performance of this Agreement by Buyer
will not (a) conflict with or violate the Articles of Incorporation or Bylaws,
in each case as amended or restated, of Buyer, (b) conflict with or violate any
federal, state, foreign or local Law applicable to Buyer, or by which any of
Buyer's properties is bound or to which any of its properties is subject, or
(c) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
or require payment under, or result in the creation of a Lien on any of the
properties or assets of Buyer pursuant to any contract, agreement or other
commitment, whether written or oral, into which Buyer has entered or by which
it is bound or to which any of its assets is subject.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Facilities. Seller grants to Buyer, at Seller's expense,
unrestricted access to and a license to use its facilities located
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at 2941 Alton Avenue, Irvine, California and such other real property normally
used by Seller in conducting its business from the date hereof until 30 days
after the earlier to occur of (a) the date of Closing or (b) the termination of
the Asset Purchase Agreement but, in any event, such right shall not terminate
before August 26, 1994 (the "License Termination Date"). Seller shall obtain,
at its sole expense, any landlord consents necessary to effectuate the
foregoing. Seller shall bear the cost of utilities for such real property;
provided, however, that the cost of utilities shall be within normal and
customary amounts and that Buyer shall bear the cost of telephone calls made
after the date hereof by employees or agents of Buyer in connection with
Buyer's efforts to sell the Inventory. Seller acknowledges and agrees that
Buyer is not assuming any liabilities or obligations under any lease or other
agreement affecting or relating to any such real property. Seller represents
and warrants to Buyer that Buyer shall have the right to possession and quiet
enjoyment of the facilities described in this Section 4.1 through the License
Termination Date.
4.2 Certain Licenses. Seller hereby grants to Buyer a
royalty-free, perpetual and unlimited license to use:
(a) the name "Gateway" and any other trademarks, trade names,
service marks, insignias or logos associated with the Selected Inventory and
the Additional Inventory. Seller grants to Buyer a royalty-free, perpetual and
unlimited license to reproduce and distribute any user manuals, product
brochures, product applications and any and all other documentation relating to
the Selected Inventory and the Additional Inventory (the "Documentation") and
the right to make derivative versions of any Documentation; provided, however,
that Buyer shall not have the right to use the "Gateway" name with respect to
stationery, checks, contracts, purchase orders, product labels, service
identifications, customer agreements and other business forms which could
result in a legal commitment of Seller or any of its affiliates, unless Buyer
sticks Buyer's name over the "Gateway" designation or uses another comparable
method it may select to negate the suggestion of affiliation between Buyer and
Seller or eliminate the possibility of confusion of source;
(b) all software, and software modules and components in both
object and source code, which include all interim, experimental or
developmental codes used in the development of source code, and any
enhancements, modifications, program interfaces, current and archival versions
of patches and bug fixes, flow charts, input/output formats, drawings,
specifications, user's manuals and technical and other documentation,
instructions, designs, data and algorithms, whether in electronic, optical,
magnetic, microfiche, hard copy or other form (including, without limitation,
encrypted on microchips), and all object code, microcode and source code
contained in or whose use is necessary in
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connection with the Selected Inventory and the Additional Inventory; and
(c) all of the intellectual property of Seller useful in
connection with servicing, repairing, refurbishing and remanufacturing each
item of Additional Inventory and each component thereof.
4.3 Public Announcements. The parties will consult with one
another before issuing any press releases or otherwise making any public
statements with respect to this Agreement and the transactions contemplated
hereby and will not issue any such press release or make any such public
statement without the written consent of the other; provided, however, that
Buyer or Seller may make such disclosure as it determines, in its sole
discretion, is required by Law or by the National Association of Securities
Dealers, Inc.
4.4 Further Assurances. Seller will use its reasonable best
efforts to implement the provisions of this Agreement, and for such purpose, at
the request of Buyer will, at or after the date hereof, without further
consideration and at Buyer's expense, promptly execute and deliver such
additional documents as Buyer may reasonably deem necessary or desirable in
order to consummate more effectively the transactions contemplated hereby and
to vest in Buyer title to the Purchased Assets free and clear of any Liens.
4.5 Noncompetition and Nonsolicitation Covenants.
(a) For a period of three years after the date hereof, Seller
shall not, directly or indirectly, own, manage, operate or control or
participate in the ownership, management, operation or control of any business,
regardless of legal form, engaged in a business regarding the design,
manufacture or sale of products that compete, directly or indirectly, with the
WNIM(R) product line.
(b) From and after the date hereof, Seller shall not sell,
license or otherwise disclose the customer list for the WNIM(R) product line to
any Person.
(c) For a period of three years after the date hereof,
neither Seller nor any of its affiliates will, directly or indirectly, employ
or solicit or offer employment to any employee or independent contractor of
Buyer who has terminated his or her employment or contract without the consent
of Buyer within 180 days of such solicitation or offer.
(d) Seller acknowledges and agrees that the remedy at law for
any breach of this Section will be inadequate and that Buyer, in addition to
any other relief available to it, shall be entitled to temporary and permanent
injunctive relief without the
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necessity of proving actual damage. In the event the provisions of this
Section are deemed to exceed the limitation provided by applicable Law, the
parties agree that such provisions shall be reformed to set forth the maximum
limitations permitted. In the event Seller breaches any provision of this
Section or acts or fails to act in any manner which causes Buyer to seek
judicial relief or a judicial remedy and Buyer is the prevailing party (in
whole or in part), Buyer shall be entitled to the payment upon demand of all
costs, including reasonable legal fees and expenses, from Seller.
4.6 Taxes and Recording Fees. All sales taxes incurred in
connection with this Agreement and the transactions contemplated by this
Agreement will be borne by Buyer. All other transfer taxes and fees, if any,
incurred in connection with this Agreement and the transactions contemplated by
this Agreement will be borne by the party obligated by law to pay such expense,
or if there is no law obligating a party to pay such, by Seller and Buyer
equally. Buyer will file all necessary tax returns and other documents
required to be filed with respect to all such taxes and filing fees. Seller
will cooperate with Buyer to the extent necessary to enable it to make such
filings and join in the execution of any tax returns or other documents as may
be necessary to enable Buyer to comply with the provisions of this Section.
4.7 Proration of Payments. Any personal property taxes and other
similar payment obligations shall be prorated between the parties hereto on the
basis of the actual number of days of applicable use.
4.8 Allocation of Purchase Price. Seller and Buyer agree that in
reporting the transactions contemplated by this Agreement to the Internal
Revenue Service, as is required by Section 1060 of the Internal Revenue Code,
they will cooperate with each other in meeting the requirements of the Internal
Revenue Code and the regulations promulgated thereunder.
4.9 Materials Received After Closing. Following the date hereof
Seller promptly shall deliver to Buyer all mail, telegrams and other
communications it receives relating to the Purchased Assets.
4.10 Confidentiality. In the event the Closing does not occur,
Buyer agrees to keep confidential all information (including, but not limited
to, all technical data and business reports) concerning the Purchased Assets
(as defined in the Asset Purchase Agreement), and all documents and materials
which contain or reflect such information (herein collectively referred to as
the "Evaluation Material"). The term "Evaluation Material" shall not include
information which (i) was or becomes generally available to the public other
than as a result of a disclosure by the Buyer, or
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by Buyer's employees, agents or advisors (collectively, "Related Persons") or
(ii) was or becomes available to Buyer on a non-confidential basis from a
source other than Seller or its Related Persons, provided that such source
lawfully possessed such information and was under no confidentiality obligation
to Seller.
4.11 Certain Returns. In the event the fulfillment of a warranty
obligation of Seller necessitates its purchase of a product from Buyer, Buyer
shall sell such product to Seller at a price equal to (i) the net book value
thereof if such product is part of the Inventory, or (ii) Buyer's actual cost
of such product if not part of the Inventory.
ARTICLE V
INDEMNIFICATION
5.1 Indemnification. Seller hereby indemnifies and holds Buyer,
its affiliates, directors and officers, and the respective heirs,
administrators, successors and assigns of each of the foregoing, harmless from
any damage, loss, liability, judgment, fine, penalty, assessment, settlement,
cost or expense including, without limitation, reasonable expenses of
investigation, reasonable attorneys' fees and other reasonable legal costs and
expenses incident to any of the foregoing or to the enforcement of this
Section, whether or not suit is brought or, if brought, whether or not such
suit is successful, in whole or in part arising out of or relating to:
(a) any misrepresentation or breach of a representation or
warranty made by Seller in this Agreement, the Disclosure Schedule, any exhibit
or schedule attached to this Agreement, or any certificate delivered by or on
behalf of Seller to Buyer pursuant to this Agreement;
(b) the breach of any covenant or agreement of Seller
contained in this Agreement;
(c) any liability of Seller;
(d) the conduct of the business of Seller prior to the date
hereof;
(e) any and all claims made relating to provisions of the
"bulk sales laws" of any state or other jurisdiction which may be applicable to
the transactions contemplated hereby;
(f) any claim for injury to person or property, regardless of
when made or asserted, which arises out of or is based upon any express or
implied representation, warranty, agreement or guarantee made by Seller, or
alleged to have been made
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WNIM(R) Purchase Agreement
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by Seller, or which is imposed or asserted to be imposed by operation of Law in
connection with any prior sales of goods or services by Seller;
(g) any claim for implied warranty arising out of the sale of
any Purchased Assets by Buyer; and
(h) any Legal Action by a shareholder of Seller (either
brought derivatively, on behalf of Seller or on behalf of said shareholder) for
relief based upon the entry by Seller into this Agreement or the WNIM Agreement
or otherwise affecting the Purchased Assets or the transactions contemplated by
this Agreement.
5.2 Limitations on Liabilities.
(a) Except as provided in this Article V, Buyer shall not be
entitled to any monetary recovery or remedy under any law or principle of law
with respect to any breach of any representation or warranty of Seller
contained in this Agreement, the Disclosure Schedule, and exhibit or schedule
attached to this Agreement. Notwithstanding the provisions of Section 5.1,
Buyer shall not be entitled to be indemnified thereunder:
(i) until such time as the sum of the amounts to
which Buyer is entitled under Section 5.1 hereof and under Article VIII of the
Asset Purchase Agreement exceeds $25,000;
(ii) with respect to each provision of this
Agreement other than the first sentence of Section 2.10(b), in an amount in
excess of the aggregate amount paid by Buyer under Sections 1.2 and 1.3 hereof;
and
(iii) with respect to the first sentence of Section
2.10(b), in an amount in excess of $150,000.
Notwithstanding any other provision of this Agreement to the contrary, the
total indemnification to which Buyer shall be entitled pursuant to Section 5.1
shall not exceed the total amount paid to Seller pursuant to Section 1.2 of
this Agreement.
5.3 Third Party Claims. The obligations and liabilities of Seller
to a party seeking indemnification (an "Indemnified Party") under this Article
V with respect to claims resulting from the assertion of liability by third
parties shall be subject to the following conditions:
(a) The Indemnified Party shall give prompt written notice to
Seller of the nature of the assertion of liability by a third party and the
amount thereof to the extent known; provided, however, that the failure of the
Indemnified Party to give notice
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as provided herein shall not relieve Seller of such party's obligations under
this Article V.
(b) Except as provided in Section 5.3(c), if any action, suit
or proceeding (a "Legal Action") is brought by a third party against an
Indemnified Party, and if Seller has acknowledged in writing its obligation to
indemnify the Indemnified Party hereunder and given notice, within 30 days
after receipt of a notice given pursuant to Section 5.3(a) of its intention to
assume such defense, Seller shall be entitled to defend such Legal Action by
counsel reasonably acceptable to the Indemnified Party, and such defense shall
include all appeals or reviews which counsel for Seller shall deem appropriate.
Until Seller shall have assumed the defense of any such Legal Action, all legal
or other expenses reasonably incurred by the Indemnified Party shall be borne
by Seller. If there exists or is reasonably likely to exist a conflict of
interest that would make it inappropriate in the reasonable judgement of the
Indemnified Party for the same counsel to represent both the Indemnified Party
and Seller, then the Indemnified Party shall be entitled to retain its own
counsel, in each jurisdiction for which the Indemnified Party determines
counsel is required, at the expense of Seller.
(c) In addition to the Indemnified Party's right to
assume the defense of a Legal Action under Section 5.3(b), where Seller is
obligated to assume the defense of a Legal Action and has not breached such
obligation, the Indemnified Party may nonetheless at any time elect, by written
notice, to assume the defense of such Legal Action by counsel reasonably
acceptable to Seller. In such event, the Indemnified Party shall bear all
expenses thereafter incurred by it in defending such Legal Action but Seller
shall bear the cost of any damage, loss, liability, judgment, fine, penalty,
assessment or settlement arising out of such Legal Action.
(d) In any Legal Action initiated by a third party and
defended by Seller (i) the Indemnified Party shall have the right to be
represented by advisory counsel and accountants, at its own expense, (ii)
Seller shall keep the Indemnified Party fully informed as to the status of such
Legal Action at all stages thereof, whether or not the Indemnified Party is
represented by its own counsel, (iii) the Indemnified Party shall make
available to Seller, and its attorneys and accountants, all books and records
of the Indemnified Party relating to such Legal Action, (iv) the parties shall
render to each other such assistance as may be reasonably required in order to
ensure the proper and adequate defense of such Legal Action, and (v) Seller
shall not make any settlement of any claim without the written consent of the
Indemnified Party. Without limiting the generality of the foregoing, it shall
not be deemed unreasonable to withhold consent to a settlement involving
injunctive or other equitable relief against the Indemnified Party or its
assets, employees or business.
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(e) In any Legal Action initiated by a third party and
defended by the Indemnified Party pursuant to Section 5.3(b) or (c), (i) Seller
shall have the right to be represented by advisory counsel and accountants, at
its own expense, (ii) the Indemnified Party shall keep Seller fully informed as
to the status of such Legal Action at all stages thereof, whether or not Seller
is represented by its own counsel, (iii) Seller shall make available to the
Indemnified Party, and its attorneys and accountants, all books and records of
Seller relating to such Legal Action, (iv) the parties shall render to each
other such assistance as may be reasonably required in order to ensure the
proper and adequate defense of such Legal Action, and (v) the Indemnified Party
shall not make any settlement of any claim without the written consent of
Seller, which shall not be unreasonably withheld. Without limiting the
generality of the foregoing, it shall not be deemed unreasonable to withhold
consent to a settlement involving injunctive or other equitable relief against
Seller or its assets, employees or business.
5.3 Survival; Investigations. The representations, warranties,
covenants and agreements of Seller contained in this Agreement, the Disclosure
Schedule, any exhibit or schedule attached to this Agreement, or any
certificate delivered by or on behalf of Seller to Buyer pursuant to this
Agreement shall survive the consummation of the transactions contemplated
hereby (i) with respect to the first sentence of Section 2.7, the first
sentence of Section 2.9 and the first sentence of Section 2.10(d), until the
second anniversary of the Closing (or, if the Closing does not occur, the
second anniversary of the date hereof), and (ii) with respect to all other
representations, warranties, covenants and agreements, until the date which is
six months after the Closing (or, if the Closing does not occur, the date which
is six months after the date hereof) (each such date referred to in clauses (i)
and (ii), a "Survival Date"), at which time they shall lapse; provided,
however, that Buyer shall be entitled to indemnification with respect to a
claim only if a Legal Action with respect to such claim is commenced on or
before the applicable Survival Date; and, provided, further, that the rights
and obligations of the parties set forth in Sections 1.2, 1.3, 4.1 through
4.11, inclusive shall survive the consummation of the transactions contemplated
hereby. Except as provided in the "however" clause of the previous sentence,
the representations and warranties of Buyer hereunder shall terminate on the
date of Buyer's payment pursuant to Section 1.2(b). No investigation by Buyer,
heretofore or hereafter made, shall affect the survival of any representation
and warranty of Seller contained herein.
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ARTICLE VI
GENERAL PROVISIONS
6.1 Notices. All notices and other communications required or
permitted to be given by this Agreement shall be in writing and shall be deemed
duly given (a) one day after delivery, if delivered personally, (b) seven days
after posting, if mailed by registered or certified first class air mail
(return receipt requested) or (c) one day after dispatch, if sent by telex or
telefax (with an answer back from the receiving party and a confirmatory
mailing as provided in (b) by the sender) to the parties at the following
addresses (or at such other address for the party as shall be specified by like
notice):
(i) If to Buyer:
Microdyne Peyton Street Corporation
207 South Peyton Street
Alexandria, Virginia 22314
Facsimile: (703) 739-0558
Attention: Philip T. Cunningham
President
(ii) If to Seller:
Gateway Communications, Inc.
2941 Alton Avenue
Irvine, California 92714
Facsimile: (714) 553-1616
Attention: Patrick F. Cadigan, Ph.D.
Chairman of the Board,
Chief Executive Officer
and President
with a copy to:
Steel Partners II, L.P.
750 Lexington Avenue
New York, N.Y. 10022
Attention: Mr. Warren G. Lichtenstein
Rejection or other refusal to accept, or the inability to deliver
because of a changed address of which no notice was given, shall not affect the
date of such notice sent in accordance with the foregoing provisions.
6.2 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement. Unless the context otherwise requires as used herein, words
in the singular shall include words
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<PAGE> 17
in the plural and vice versa, words in one gender shall include words in the
other gender and the word "Person" shall include individuals, trusts, estates,
partnerships, corporations and other business entities. Time is of the essence
of this Agreement.
6.3 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
6.4 Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, and their respective successors and
permitted assigns, and the provisions of Article V shall inure to the benefit
of the indemnified parties referred to therein; provided, however, that neither
this Agreement nor any of the rights, interests or obligations hereunder may be
assigned by any of the parties hereto without the prior written consent of the
other parties.
6.5 Entire Agreement. This Agreement (including all exhibits and
schedules hereto and the Disclosure Schedule) constitutes the entire agreement
and supersede all other prior agreements and understandings, both written and
oral, between the parties with respect to the transactions contemplated by this
Agreement. There are no restrictions, agreements, promises, warranties,
covenants or undertakings with respect to the transactions contemplated by this
Agreement other than those expressly set forth therein.
6.6 Governing Law. This Agreement and the relationship between the
parties shall be governed in all respects by the Laws of the Commonwealth of
Virginia without regard to its Laws or regulations relating to conflicts of
Laws.
6.7 Benefits. Except as provided in Article V, this Agreement is not
intended to and shall not confer upon any other Person, other than the parties
hereto, any rights or remedies with respect to the subject matter hereof.
6.8 Severability. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable Law, each party
waives any provision of Law which renders any provision of this Agreement
invalid, illegal or unenforceable.
6.9 Relationship of the Parties. Nothing in this Agreement shall be
deemed to constitute a partnership, joint venture or other form of entity.
6.10 Knowledge. Whenever a representation or warranty is made herein
to Seller's knowledge, it means all facts and
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WNIM(R) Purchase Agreement
<PAGE> 18
conditions referred to in such representation or warranty which are known by
the following individuals: Patrick F. Cadigan, Al M. Cosentino, Warren G.
Lichtenstein, Ronald W. Hayes, Jack Howard and each other present director,
officer or employee of Seller.
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WNIM(R) Purchase Agreement
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers.
GATEWAY COMMUNICATIONS, INC.
By: /S/ Patrick F. Cadigan
---------------------------------
Patrick F. Cadigan, Ph.D.
Chairman of the Board,
Chief Executive Officer
and President
MICRODYNE PEYTON STREET CORPORATION
By: /S/ Phillip T. Cunningham
---------------------------------
Philip T. Cunningham
President
<PAGE> 1
ASSET PURCHASE AGREEMENT
BETWEEN
MICRODYNE PEYTON STREET CORPORATION
AND
GATEWAY COMMUNICATIONS, INC.
Dated June 14, 1994
<PAGE> 2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made June 14, 1994
by and between Microdyne Peyton Street Corporation, a Virginia corporation
("Buyer") and a wholly owned subsidiary of Microdyne Corporation, a Maryland
corporation, and Gateway Communications, Inc., a California corporation
("Seller").
RECITALS
Buyer desires to purchase, and Seller desires to sell, certain assets
of Seller on the terms and conditions and for the consideration hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, a Person that directly,
or indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Richmond, Virginia are authorized or required by Law
to close. Whenever this Agreement refers to a number of days, such number
shall refer to calendar days unless Business Days are specified.
"Closing" means the consummation of the transactions contemplated by
this Agreement. The time and place of the Closing are set forth in Section
7.1.
"Current Products" means all of the products described under the
heading "Business -- Company Products" (other than the products described as
"OEM" products under the heading "Business -- Company Products -- Other
Products") in Item 1, Part I of Seller's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993.
"GAAP" means generally accepted accounting principles in the United
States, consistently applied.
"Governmental Entity" means any Federal, state, local or foreign
government, authority, agency, department, bureau,
<PAGE> 3
commission, court or other body, officer, instrumentality or entity, and any
arbitrator with authority to bind a party at law.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, claim, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Agreement, the Seller shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement or security interest relating to such
asset.
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including without limitation a Governmental Entity.
"Tax" means any and all taxes, charges, fees, levies or assessments
payable to any Governmental Entity including, without limitation, (a) income,
franchise, profits, gross receipts, minimum, alternative minimum, estimated, ad
valorem, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, disability, employment, social security,
workers compensation, unemployment compensation, utility, severance, excise,
stamp, windfall profits, transfer and gains taxes, (b) customs duties, imposts,
charges, levies or other similar assessments of any kind and (c) interest,
penalties and additions to tax imposed with respect thereto.
In addition, each of the following terms shall have the meaning set
forth in the Section indicated below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Buyer Preamble
Competing Transaction Section 5.2
Disclosure Schedule Article III Preamble
Equipment Section 2.1
ERISA Section 8.2
Excluded Assets Section 2.1
Existing Products Intellectual
Property Section 3.12
Existing Products Software Section 3.13
Expenses Section 9.5
Indemnified Party Section 8.2
Intellectual Property Section 2.1
Inventory Section 2.1
Laws Section 3.4
Legal Action Section 8.2
</TABLE>
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Asset Purchase Agreement
<PAGE> 4
<TABLE>
<S> <C>
Proxy Statement Section 5.14
Purchase Price Section 2.3
Purchased Assets Section 2.1
Returns Section 3.7
Seller Preamble
Seller Agreements Section 3.3
Software Section 2.1
Steel Partners Section 5.17
Survival Date Section 8.3
Unaudited Financial Statements Section 3.6
WNIM Agreement Section 2.3
</TABLE>
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 PURCHASED ASSETS. At the Closing Seller agrees to sell to
Buyer and Buyer agrees to purchase from Seller, for the consideration set forth
in Section 2.3, all right, title and interest of Seller in and to the following
assets, properties and rights (the "Purchased Assets"):
(a) except for those items designated in the Disclosure
Schedule as "Excluded Assets" (the "Excluded Assets"), all of Seller's
machinery, equipment, furniture, tools, supplies and other tangible personal
property (other than Inventory and the property described in Sections 2.1(e)
and 2.1(f)) wherever located (the "Equipment");
(b) all of Seller's raw materials, work-in-process and
finished goods inventories (including, without limitation, all Seller
merchandise sold either by Seller or pursuant to the WNIM Agreement and
returned after May 13, 1994 (including, without limitation, such merchandise
returned after the Closing) which is not sold pursuant to the WNIM Agreement),
supplies, stores and spare parts, wherever located (the "Inventory") as of the
Closing;
(c) all of Seller's trade names, trademarks and service
marks, patents and patent rights (if any), copyrights, whether domestic or
foreign (as well as any applications, registrations or certificates for any of
the foregoing), inventions, trade secrets, proprietary processes, schematic
drawings, designs, technologies, methods, formulations, know-how and other
industrial and intellectual property rights, and all enhancements and
improvements, whether existing or under development including, without
limitation, all such intellectual property contained in or whose use is
necessary in connection with the Current Products (the "Intellectual
Property");
(d) all of Seller's software, software modules and
components, enhancements, modifications, program interfaces,
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Asset Purchase Agreement
<PAGE> 5
current and archival versions of patches and bug fixes, flow charts,
input/output formats, drawings, specifications, user's manuals and technical
and other documentation, instructions, designs, data and algorithms, whether in
electronic, optical, magnetic, microfiche, hard copy or other form (including,
without limitation, encrypted on microchips), and all object code, microcode
and source code used, licensed (as licensor) or sold by Seller, other than "MS
DOS" and "Cosessions" (the "Software");
(e) all books and records (or true and complete copies
thereof), including computerized records and any associated software and
documentation, relating to the Purchased Assets including, without limitation,
books and records relating to or containing production data, manufacturing and
quality control information, engineering changes, sales or marketing
information, and customer lists and information, but excluding Seller's
corporate minute books and stock records; and
(f) all of Seller's shipping materials, catalogues,
brochures, art work, photographs and advertising materials.
Except for the Purchased Assets, Buyer shall not purchase and Seller
shall not sell any other assets, properties or rights of Seller.
2.2 NO ASSUMED LIABILITIES. Buyer does not and shall not assume, be
bound by or be responsible for any liabilities or obligations of Seller of any
kind or nature, whether accrued, absolute, contingent, matured, determinable,
known, unknown or otherwise.
2.3 PURCHASE PRICE. The purchase price is based on $2,050,000 in
inventory (which includes a reserve of $650,000) and a tangible fixed asset net
book value of $450,000. At Closing, Buyer shall pay to Seller the sum of
$2,000,000 (the "Purchase Price"), less all amounts paid by Buyer to Seller
pursuant to that certain WNIM Purchase Agreement dated June 14, 1994 between
Buyer and Seller (the "WNIM Agreement"). All payments shall be made by wire
transfer to an account designated in writing by the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Disclosure Schedule previously delivered to
Buyer by Seller (the "Disclosure Schedule"), which Disclosure Schedule
contains, with respect to each matter disclosed therein, a specific reference
to the Section of this Agreement to which such matter relates, Seller
represents and warrants to Buyer that:
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Asset Purchase Agreement
<PAGE> 6
3.1 ORGANIZATION; QUALIFICATION. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has corporate power and authority to own all of its properties
and assets.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Seller has corporate
power and authority (except to the extent Seller has not obtained approval of
the transactions contemplated hereby by the shareholders of Seller as required
by the California General Corporation Law) to execute and deliver this
Agreement and to consummate the transactions contemplated by this Agreement.
The execution and delivery by Seller of this Agreement, and the consummation by
it of the transactions contemplated by this Agreement, have been duly
authorized by all necessary corporate action on the part of Seller (other than
approval of the transactions contemplated hereby by the shareholders of Seller
as required by the California General Corporation Law) and no other corporate
proceedings on the part of Seller will be necessary with respect hereto.
Assuming that Buyer has duly authorized the execution and delivery of this
Agreement, and upon approval of this Agreement by the shareholders of Seller,
this Agreement constitutes the valid and binding obligation of Seller,
enforceable in accordance with its terms except as the same may be limited by
(a) any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally or (b) general principles of
equity, whether considered in a proceeding in equity or at law.
3.3 CONSENTS AND APPROVALS. There is no requirement applicable to
Seller to make any filing with, or to obtain any permit, authorization,
consent, waiver or approval of any Governmental Entity as a condition to the
execution and delivery by Seller of this Agreement or the lawful consummation
of the transactions contemplated by this Agreement. There is no requirement
that any party to any agreement filed or required to be filed by Seller as an
exhibit to Seller's Annual Report on Form 10-KSB for its fiscal year ended
December 31, 1993 or any subsequent report required to be filed by Seller under
the Securities Exchange Act of 1934 (a "Seller Agreement") consent to the
execution and delivery of, or the consummation of the transactions contemplated
by, this Agreement.
3.4 NON-CONTRAVENTION. The execution and delivery by Seller of
this Agreement does not, and the consummation of the transactions contemplated
by this Agreement will not violate, conflict with, result in a breach of,
result in or constitute a default (or an event which, with the giving of notice
or lapse of time or both, would constitute a default) under, or result in the
cancellation or unilateral modification or amendment of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any
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Asset Purchase Agreement
<PAGE> 7
Lien upon any of the Purchased Assets under any of the terms, conditions or
provisions of (a) the Articles of Incorporation or Bylaws of Seller, (b) any
Seller Agreement or any other note, bond, mortgage, indenture, deed of trust,
license, agreement, lease or other instrument, obligation or arrangement to
which any of the Purchased Assets may be subject, except for such defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been or will be obtained by Seller prior to the
Closing or the obtaining of which has been waived by Buyer, or (c) any order,
writ, judgment, injunction, decree, citation, award, ruling, law, statute, rule
or regulation (individually a "Law" and collectively, "Laws") applicable to
Seller or any of the Purchased Assets. The execution and delivery of this
Agreement, and the execution, delivery and performance of the WNIM Agreement,
by Seller or Buyer, or both, does not give rise to any rights on the part of
any shareholder of Seller pursuant to Seller's shareholder rights plan.
3.5 COMPLIANCE WITH LAWS. To Seller's knowledge, Seller has
operated in compliance in all material respects with all applicable Laws
including, without limitation, those related to antitrust and trade matters,
civil rights, public health and safety, worker health and safety and labor and
nondiscrimination. Seller has not received any written notice alleging
non-compliance with any Law, which noncompliance could have a material adverse
effect on the Purchased Assets or the ability of Seller to consummate the
transactions contemplated hereby.
3.6 FINANCIAL STATEMENTS; BOOKS AND RECORDS. Seller has
previously furnished Buyer with true and complete copies of (a) the audited
consolidated financial statements of Seller for the years ending December 31,
1991, December 31, 1992 and December 31, 1993, including the notes thereto,
together with the report on each such statements of Seller's auditors and (b)
the unaudited financial statements for Seller for the calendar quarter ended
March 31, 1994 and the portion of the fiscal year ended April 30, 1994 (the
"Unaudited Financial Statements"). To Seller's knowledge, such financial
statements are in accordance with and have been derived from the books and
records of Seller, present fairly the financial position of Seller as of such
dates and the results of its operations and cash flows for such periods and
have been prepared in accordance with GAAP.
3.7 TAX MATTERS. Seller has timely filed, or will file when due,
all federal, state, foreign, county and local returns, declarations and reports
and information returns and statements required to be filed or sent by or with
respect to, any material Tax for any period ending on or before Closing
(collectively, the "Returns"). As of the time of filing, the Returns correctly
reflected (and, as to Returns not filed as of the date hereof, will correctly
reflect) in all material respects the facts regarding the
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Asset Purchase Agreement
<PAGE> 8
income, business, assets, operations, activities and status of Seller or any
other information required to be shown thereon and Seller has timely paid, to
the extent due and payable, or made adequate reserve or provision for the
payment of all Taxes that were due pursuant to such Returns or pursuant to
assessments received by them) upon or relating to its properties, its
employees, payroll, income and gross receipts, its ownership or use of any of
its assets and any other aspect of its business, as shown on such Returns. No
audit of any Return is currently pending or, to Seller's knowledge, threatened.
There are no outstanding agreements by Seller for the extension of time for the
filing of returns or assessment of any material Tax. Since December 31, 1993,
Seller has not incurred any material fixed or contingent Tax liabilities other
than in the ordinary course of business.
3.8 LITIGATION.
(a) Seller has not received written notice of the filing or
commencement of (including, without limitation, service of process with respect
to) any actions, suits, claims, investigations or proceedings (legal,
administrative or arbitrative) pending or, to Seller's knowledge, threatened
against or affecting Seller or which relate to or may affect the Purchased
Assets, whether at law or in equity and whether civil or criminal in nature,
before any Governmental Entity, nor are there any valid and binding judgments,
decrees or orders of any Governmental Entity outstanding against or affecting
Seller or which relate to or may affect the Purchased Assets, or which seek
specifically to prevent, restrict or delay consummation of the transactions
contemplated by, or fulfillment of any of the conditions of, this Agreement.
There are no unsatisfied valid and binding judgments of record relating to or
affecting the Purchased Assets.
(b) Seller has not admitted in writing its inability to pay
its debts generally as they become due, filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, made an assignment for the benefit of creditors, consented to
the appointment of a receiver for itself or for the whole or any substantial
part of its property, or had a petition in bankruptcy filed against it, been
adjudicated a bankrupt, or filed a petition or answer seeking reorganization or
arrangement under the federal bankruptcy laws or any other similar law of any
jurisdiction.
3.9 TITLE TO AND CONDITION OF PROPERTIES.
(a) Seller has, and will transfer to Buyer at Closing, good
and marketable title to the Purchased Assets free and clear of any Liens. To
Seller's knowledge, Seller has physical custody of the tangible personal
property included in the Purchased Assets. The Disclosure Schedule contains a
list of all material Equipment
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Asset Purchase Agreement
<PAGE> 9
as of the most recent practicable date.
(b) To Seller's knowledge, the tangible personal property
which is a part of the Purchased Assets (including, without limitation, the
Equipment, but excluding Inventory) is in all material respects in good
condition and repair, except with respect to ordinary wear and tear and has
been properly maintained in all material respects in the ordinary course of
business with routinely scheduled maintenance and is suitable for the uses for
which intended.
3.10 INSURANCE. The Seller has obtained policies of property, theft,
fire, liability, workers' compensation, and other insurance policies
customarily maintained in the business engaged in by Seller, and, to Seller's
knowledge, such policies are in full force and effect and provide adequate
coverage and protection to Seller for any liabilities, losses, costs and
expenses from the date hereof through Closing.
3.11 INVENTORY. The Disclosure Schedule sets forth a list of the
Inventory as of May 13, 1994, which list is complete as of such date except for
deviations having a book value not exceeding $50,000, and a list of locations
of Inventory not located at Seller's office listed in Section 10.2. Except for
Inventory having an aggregate book value not exceeding $750,000, the Inventory
is, to Seller's knowledge, usable or saleable in the ordinary course of
Seller's business as conducted in 1993. To Seller's knowledge, the Inventory
is carried on the books of Seller at a valuation not in excess of the lower of
cost or market determined in accordance with GAAP. As of Closing, the
Inventory shall consist of (a) the Inventory described in the Disclosure
Schedule as of May 13, 1994, plus (b) any returned merchandise received by
Seller after May 13, 1994 and prior to Closing, less (c) any Inventory and
returned Seller merchandise sold by Seller in the ordinary course of business
after May 13, 1994 and prior to the date hereof, which Inventory has an
aggregate net book value of less than $10,000, less (d) any Inventory and
returned Seller merchandise bought by Buyer from Seller pursuant to the WNIM
Agreement.
3.12 INTELLECTUAL PROPERTY. Seller owns all of the Intellectual
Property free and clear of any Liens. No Person has the right to sell, license
or otherwise disclose the Intellectual Property contained in or whose use is
necessary in connection with the Current Products other than Intellectual
Property which is unique to products described in Seller's Annual Report on
Form 10-KSB for its fiscal year ended December 31, 1993 as scheduled to be made
available in 1994 (the "Existing Products Intellectual Property") to any Person
except pursuant to an agreement listed in the Disclosure Schedule and except
pursuant to single use licenses (express or implied) granted by Seller to its
customers. To
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Asset Purchase Agreement
<PAGE> 10
Seller's knowledge, no third party is infringing upon the rights of Seller in
the Existing Products Intellectual Property contained in or whose use is
necessary in connection with the Current Products in any material respect,
except that Seller has granted single use licenses (express or implied) to its
customers. To Seller's knowledge, all registrations and certificates issued by
any governmental agency relating to the Existing Products Intellectual Property
contained in or whose use is necessary in connection with the Current Products
are valid and subsisting in all material respects and have been properly
maintained in all material respects.
3.13 SOFTWARE.
(a) [Reserved.]
(b) To Seller's knowledge, the released Software other than
Software unique to products described in Seller's Annual Report on Form 10-KSB
for its fiscal year ended December 31, 1993 as scheduled to be made available
in 1994 (the "Existing Products Software") contained in or whose use is
necessary in connection with the Current Products performs in all material
respects in accordance with the documentation and other written material used
in connection with such Software and is free of defects in programming and
operation in all material respects, is in machine-readable form, contains all
current revisions of such Software and includes all computer programs,
materials, tapes, know-how, object and source codes, other written materials,
know-how and processes related to such Software.
(c) To Seller's knowledge, no employee of Seller is in
material default under any term of any employment contract, agreement or
arrangement relating to the Existing Products Software contained in or whose
use is necessary in connection with the Current Products or noncompetition
arrangement, or any other agreement or any restrictive covenant relating to
such Software or its development or exploitation.
(d) All right, title and interest in and to the Software is
owned by Seller, free and clear of all Liens, and no Person other than Seller
has any interest in the Software including, without limitation, any security
interest, license, contingent interest or otherwise, except pursuant to single
use licenses granted by Seller to its customers. To Seller's knowledge, no
event has occurred which would require the material release or disclosure of
source code relating to any Existing Products Software contained in or whose
use is necessary in connection with the Current Products pursuant to the terms
of any escrow agreement. To Seller's knowledge, Seller's development, use,
sale or exploitation of the Existing Products Software contained in or whose
use is necessary in connection with the Current Products does
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Asset Purchase Agreement
<PAGE> 11
not violate any material rights of any other Person. To Seller's knowledge,
Seller does not have any obligation to compensate any Person for the
development, use, sale or exploitation of the Existing Products Software
contained in or whose use is necessary in connection with the Current Products
nor has Seller granted to any Person other than the Persons listed in the
Disclosure Schedule any license, option or other rights to develop, use, sell
or exploit in any manner the Existing Products Software contained in or whose
use is necessary in connection with the Current Products, whether requiring the
payment of royalties or not, except that Seller has granted single use licenses
to its customers.
(e) To Seller's knowledge, Seller has kept secret and has not
made any material disclosure of the source code for the Existing Products
Software contained in or whose use is necessary in connection with the Current
Products to any Person other than certain employees and subcontractors of
Seller who are subject to the terms of a binding confidentiality agreement with
respect thereto.
3.14 FINDERS. No broker, finder or investment banker, other than
Houlihan, Lokey, Howard & Zukin Capital is entitled to any fee or commission
from Seller for services rendered on behalf of Seller in connection with the
transactions contemplated by this Agreement. Seller shall be solely
responsible for any fees or commission payable to Houlihan, Lokey, Howard &
Zukin Capital.
3.15 FULL DISCLOSURE. None of the representations and warranties
of Seller made in this Agreement, the Disclosure Schedule, any exhibit or
schedule attached to this Agreement, or any certificate delivered by or on
behalf of Seller to Buyer pursuant to this Agreement, contains any untrue
statement of a material fact or, to Seller's knowledge, omits to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
4.1 ORGANIZATION; QUALIFICATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia and has corporate power and authority to own all of
its properties and assets and carry on its business as proposed to be
conducted.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Buyer has corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement.
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Asset Purchase Agreement
<PAGE> 12
The execution and delivery by Buyer of this Agreement, and the consummation by
it of the transactions contemplated by this Agreement, have been duly
authorized by all necessary corporate action on the part of Buyer and no other
corporate proceedings on the part of Buyer will be necessary with respect
hereto. Assuming that Seller has duly authorized the execution and delivery of
this Agreement, this Agreement constitutes the valid and binding obligation of
Buyer, enforceable in accordance with its terms except as the same may be
limited by (a) any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or (b) general
principles of equity, whether considered in a proceeding in equity or at law.
4.3 CONSENTS AND APPROVALS. There is no requirement applicable to
Buyer to make any filing with, or to obtain any permit, authorization, consent,
waiver or approval of any Governmental Entity as a condition to the execution
and delivery by Buyer of the Agreement or the lawful consummation of the
transactions contemplated by this Agreement. There is no requirement that any
party to any agreement to which Buyer is a party consent to the execution and
delivery of, or the consummation of the transactions contemplated by, this
Agreement.
4.4 NON-CONTRAVENTION. The execution and delivery by Buyer of
this Agreement does not, and the consummation of the transactions contemplated
by this Agreement will not violate, conflict with, result in a breach of,
result in or constitute a default (or an event which, with the giving of notice
or lapse of time or both, would constitute a default) under, or result in the
cancellation or unilateral modification or amendment of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any Lien upon any of the assets of Buyer
under any of the terms, conditions or provisions of (a) the Articles of
Incorporation or Bylaws of Buyer, (b) any note, bond, mortgage, indenture, deed
of trust, license, agreement, lease or other instrument, obligation or
arrangement to which Buyer is a party or to which Buyer or any of its assets
may be subject, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents have
been or will be obtained by Buyer prior to the Closing or the obtaining of
which has been waived by Seller, or (c) any Law applicable to Buyer or any of
its assets.
4.5 FINDERS. No broker, finder or investment banker is entitled
to any fee or commission from Buyer for services rendered on behalf of Buyer in
connection with the transactions contemplated by this Agreement.
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Asset Purchase Agreement
<PAGE> 13
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 AFFIRMATIVE COVENANTS. Seller covenants and agrees that,
except as set forth in the Disclosure Schedule, prior to the Closing, it shall:
(a) comply in all material respects with all Laws applicable
to it or its business;
(b) cause its management to confer with Buyer's management on
a regular and frequent basis on such matters relating to the Purchased Assets
and the transactions contemplated hereby and by the WNIM Agreement as Buyer
reasonably deems appropriate; and
(c) promptly notify Buyer of any event occurring after the
date of execution of this Agreement which causes or is reasonably expected to
cause any representation or warranty contained in this Agreement to be
incorrect or incomplete or adversely affect its ability to perform any of its
covenants and agreements hereunder, and will keep Buyer fully informed of
developments with respect to such events and afford Buyer's representatives
access to all materials in its possession relating thereto; provided, however,
that the delivery of any notice pursuant to this Section 5.1(c) shall not limit
or otherwise affect the remedies available hereunder to the party receiving
such notice.
5.2 NEGATIVE COVENANTS. Seller covenants and agrees that, prior
to the Closing, it shall not do any of the following:
(a) except as contemplated by the WNIM Agreement, sell,
lease, exchange, mortgage, pledge, transfer or otherwise dispose of, or agree
to sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of,
any of its assets (other than Excluded Assets, which Seller may dispose of in
its sole discretion), including the disposition of assets held for resale or
lease in the ordinary course of business, or take any action not prohibited in
this Agreement which is outside of Seller's ordinary course of business;
(b) release any third party from its obligations under any
confidentiality agreement;
(c) change any of its methods of accounting or maintain its
books and records other than in the usual, regular and ordinary manner;
(d) create any Lien on any Purchased Assets;
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(e) modify, change, terminate or waive any material right
under, or breach any material term of, any Seller Agreement, in a manner that
would have any adverse effect on the Purchased Assets or the right or power of
Seller to consummate the transactions contemplated hereby;
(f) sell, license or otherwise disclose the Software to any
Person, other than pursuant to agreements entered into prior to the date of
execution of this Agreement and listed in the Disclosure Schedule;
(g) agree in writing or otherwise to do any of the foregoing;
(h) take any action (other than actions relating to or
arising from the cessation of Seller's operations in May, 1994) that could
reasonably be expected to cause a loss of the goodwill of its customers or
others having business relations with it; or
(i) directly or indirectly, through any officer, director,
agent or otherwise, initiate, solicit or knowingly encourage (including by way
of furnishing non-public information or assistance), or take any other action
to facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into or maintain or continue discussions or negotiate
with any Person in furtherance of such inquiries or to obtain such a Competing
Transaction, or agree to or endorse any such Competing Transaction, or
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it to take any such action. Seller shall notify
Buyer orally (within one Business Day) and in writing (as promptly as
practicable) of all relevant details of all such inquiries and proposals
received by it or by any such officer, director, employee, investment banker,
financial advisor, attorney or accountant relating to any such matters. If
such inquiry or proposal is in writing, the party receiving such inquiry or
proposal shall deliver or cause to be delivered to Buyer a copy of such inquiry
or proposal. For purposes of this Agreement, "Competing Transaction" means (i)
any merger, consolidation, share exchange, business combination or other
similar transaction involving Buyer, (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 15% or more of the assets of Buyer, in
a single transaction or series of transactions or (iii) Buyer entering into any
agreement to engage in any of the foregoing. Nothing contained in this
subsection (i) shall prohibit the Board of Directors of Seller from (x)
furnishing information to, or entering into discussions or negotiations with,
any Person in connection with an unsolicited bona fide proposal in writing by
such Person, which is not subject to any material contingencies as to
financing, to acquire Seller pursuant to a merger,
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consolidation, share exchange, business combination, tender or exchange offer
or other similar transaction or to acquire all or substantially all of the
assets of Seller, if, and only to the extent that (A) the Board of Directors of
Seller, after consultation with and based upon the advice of independent legal
counsel (which may include its regularly engaged independent legal counsel),
determines in good faith that such action is required for the Board of
Directors of Seller to comply with its fiduciary duties to stockholders under
applicable Law and (B) prior to furnishing such information to, or entering
into discussions or negotiations with, such Person Seller (1) provides written
notice to all other parties hereto to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such Person
and (2) receives from such Person an executed confidentiality agreement on
terms no less favorable to the party furnishing information than those
contained in the Confidentiality Agreement between Seller and Buyer, or (y)
complying with Rule 14e-2 promulgated under the Securities Exchange Act of 1934
with regard to a tender or exchange offer or (z) failing to make or withdrawing
or modifying its recommendation referred to in Section 5.14 if there exists a
Competing Transaction involving such party and the Board of Directors of such
party, after consultation with and based upon the advice of independent legal
counsel (who may be such party's regularly engaged independent legal counsel),
determines in good faith that such action is necessary for the Board of
Directors of such party to comply with its fiduciary duties to stockholders
under applicable Law.
5.3 INVESTIGATION OF BUSINESSES AND PROPERTIES. From and after
the date hereof until the Closing, Seller will afford Buyer and its attorneys,
accountants, financial advisors and other representatives complete access at
all reasonable times to its officers, employees, properties, contracts, books,
records and customers. Seller will furnish Buyer with such financial,
operating and additional data as Buyer may reasonably request concerning its
operations, properties and personnel.
5.4 TAXES AND RECORDING FEES. All sales taxes incurred in
connection with this Agreement and the transactions contemplated by this
Agreement will be borne by Buyer. All other transfer taxes and fees, if any,
incurred in connection with this Agreement and the transactions contemplated by
this Agreement will be borne by the party obligated by law to pay such expense,
or in lieu of such obligation, by the Seller and Buyer equally. Buyer will
file all necessary tax returns and other documents required to be filed with
respect to all such taxes and filing fees. Seller will cooperate with Buyer to
the extent necessary to enable it to make such filings and join in the
execution of any tax returns or other documents as may be necessary to enable
Buyer to comply with the provisions of this Section.
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5.5 PRORATION OF PAYMENTS. Any personal property taxes and other
similar payment obligations shall be prorated between the parties hereto on the
basis of the actual number of days applicable to pre-Closing and post-Closing
use.
5.6 ALLOCATION OF PURCHASE PRICE. Seller and Buyer agree that in
reporting the transactions contemplated by this Agreement to the Internal
Revenue Service, as is required by Section 1060 of the Internal Revenue Code,
they will cooperate with each other in meeting the requirements of the Internal
Revenue Code and the regulations promulgated thereunder.
5.7 BULK SALES LAWS. Seller will indemnify and hold harmless
Buyer from and against any and all claims made by creditors of Seller relating
to provisions of the "bulk sales laws" of any state or other jurisdiction which
may be applicable to the transactions contemplated by this Agreement and from
all costs (including reasonable attorney's fees) incurred in the defense of any
claims made under such laws.
5.8 MATERIALS RECEIVED AFTER CLOSING. Following the Closing
Seller promptly shall deliver to Buyer all mail, telegrams and other
communications it receives relating to the Purchased Assets.
5.9 PUBLIC ANNOUNCEMENTS. The parties will consult with one
another before issuing any press releases or otherwise making any public
statements with respect to this Agreement and the transactions contemplated by
this Agreement and will not issue any such press release or make any such
public statement without the written consent of the other; provided, however,
that Buyer or Seller may make such disclosure as it determines, in its sole
discretion, is required by law or by the National Association of Securities
Dealers.
5.10 EFFORTS TO CONSUMMATE. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate, as promptly as
practicable, the transactions contemplated by this Agreement including, without
limitation, the obtaining of all necessary consents, waivers, authorizations,
orders and approvals of third parties, whether private or governmental,
required of it by this Agreement. Each party agrees to cooperate fully with
the other party in assisting it to comply with the provisions of this Section.
5.11 FURTHER ASSURANCES. Seller shall, at the request of Buyer
will, at or after the Closing, without further consideration and at Buyer's
expense, promptly execute and deliver such additional documents as Buyer may
reasonably deem necessary or desirable in order to consummate more effectively
the transactions
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contemplated by this Agreement and to vest in Buyer title to the Purchased
Assets free and clear of any Liens.
5.12 NONCOMPETITION COVENANTS.
(a) For a period of three years after the Closing Seller
shall not, directly or indirectly, own, manage, operate or control or
participate in the ownership, management, operation or control of any business,
regardless of legal form, engaged in the design, manufacture, distribution,
marketing or sale of products substantially similar to the product lines that
are part of the Purchased Assets.
(b) Seller shall not sell, license or otherwise disclose to
any Person the customer lists for the product lines that are part of the
Purchased Assets.
(c) Seller acknowledges and agrees that the remedy at law for
any breach of this Section 5.12 will be inadequate and that Buyer, in addition
to any other relief available to it, shall be entitled to temporary and
permanent injunctive relief without the necessity of proving actual damage. In
the event the provisions of this Section 5.12 are deemed to exceed the
limitation provided by applicable law, the parties agree that such provisions
shall be reformed to set forth the maximum limitations permitted. In the event
Seller breaches any provision of this Section 5.12 or acts or fails to act in
any manner which causes Buyer to seek judicial relief or a judicial remedy and
Buyer is the prevailing party (in whole or in part), Buyer shall be entitled to
the payment upon demand of all costs, including reasonable legal fees and
expenses, from Seller.
5.13 USE OF "GATEWAY" NAME. Seller hereby grants to Buyer,
effective as of Closing, a royalty-free and perpetual license to use the name
"Gateway" in connection with the marketing and sale of products previously
marketed or sold by Seller; provided, however, that Buyer shall not have the
right to use the "Gateway" name with respect to stationery, checks, contracts,
purchase orders, product labels, service identifications, customer agreements
and other business forms which could result in a legal commitment of Seller or
any of its Affiliates, unless Buyer sticks Buyer's name over the "Gateway"
designation or uses another comparable method it may select to negate the
suggestion of affiliation between Buyer and Seller or otherwise eliminate the
possibility of confusion of source.
5.14 SELLER SHAREHOLDER VOTE.
(a) Seller shall call and hold a meeting of its shareholders
(the "Shareholders' Meeting") as promptly as practicable after the date hereof
for the purpose of voting upon
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the approval of the transactions contemplated by this Agreement. Seller shall
recommend that its shareholders vote in favor of, and shall use its best
efforts to solicit from its shareholders proxies in favor of, the approval of
the transactions contemplated by this Agreement, and shall take all action
necessary or advisable to secure the vote or consent of stockholders required
by the California General Corporation Law to obtain such approvals, unless
otherwise necessary under the applicable fiduciary duties of the directors of
Seller, as determined by such directors in good faith after consultation with
and based upon the advice of independent legal counsel (who may be such party's
regularly engaged independent legal counsel).
(b) Buyer acknowledges that it has been informed that Seller
will be preparing for filing with the SEC a proxy statement relating to the
Shareholders' Meeting (such proxy statement, together with any supplements
thereto, in each case in the form or forms mailed to Seller's shareholders, the
"Proxy Statement"). The information included in the Proxy Statement shall not,
at the date the Proxy Statement (or any supplement thereto) is first mailed to
Seller's shareholders, at the time of the Shareholders' Meeting or at the
Closing contain any untrue statement of a material fact or 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 are
made, not misleading.
5.15 RETURNED MERCHANDISE. Seller agrees, from and after the date
hereof, to immediately notify Buyer of any inquiry, request, notification or
other information it receives regarding the return or proposed return of Seller
merchandise, and of the receipt of any returned merchandise. Following receipt
of notice of any such inquiry, request, notice, other information or
merchandise, Buyer shall use its best efforts to determine whether the Person
making such inquiry, request or notice, or having returned such merchandise, is
entitled pursuant to its agreements with Seller to make such return and, if it
determines that such return is permitted may proceed to give notice of
acceptance of such return on behalf of Seller. The determination of Buyer that
a return is permitted and the giving of notice thereof shall be final and
binding, and Buyer shall have no liability with respect to any such
determination other than for Buyer's gross negligence or willful misconduct.
Seller shall immediately deliver to Buyer any returned merchandise.
5.16 SHAREHOLDER RIGHTS PLAN. Seller shall take any and all
actions necessary to assure that the consummation of the transactions
contemplated hereby by Seller or Buyer, or both, does not give rise to any
rights on the part of any shareholder of Seller pursuant to Seller's
shareholder rights plan.
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5.17 SPECIAL COVENANTS OF SELLER.
(a) Upon the signing hereof, Seller is delivering to Buyer
(i) written evidence of the agreement of Steel Partners II, L.P. ("Steel
Partners") to vote in favor of the transactions contemplated by this Agreement
and of Steel Partners' approval of the WNIM Agreement and (ii) an instrument
pursuant to which Steel Partners waives any provision of any agreement between
Seller and Steel Partners including, without limitation, Sections 9(v) and
9(vi), if applicable, of that certain letter agreement dated April 27, 1994,
which gives Steel Partners any rights with respect to or upon the execution,
delivery or performance by Seller, or limits or otherwise affects or relates to
the execution, delivery or performance by Seller of this Agreement or the WNIM
Agreement.
(b) Not later than the Closing, Seller shall secure the
release and termination of all security interests held by Merrill Lynch
Business Financial Services, Inc., or its successor or assignee, with respect
to the Purchased Assets.
5.18 SPECIAL COVENANT OF BUYER. Buyer shall use its best efforts
to cause its employees, and the employees of Microdyne Corporation, not to
encourage any of Seller's distributors to return Seller merchandise to Seller.
5.19 CERTAIN RETURNS. In the event the fulfillment of a warranty
obligation of Seller necessitates its purchase of a product from Buyer, Buyer
shall sell such product to Seller at a price equal to (i) the net book value
thereof if such product is part of the Inventory, or (ii) Buyer's actual cost
of such product if not part of the Inventory.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT.
The respective obligations of each party to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of the following conditions, any or all of which may be waived,
in whole or in part, to the extent permitted by applicable Law:
(a) the transactions contemplated by this Agreement shall
have been approved by the requisite vote of the shareholders of Seller;
(b) no Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which
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has the effect of making, nor shall any such Governmental Entity have
commenced, or threatened to commence, any proceeding which, if adversely
determined, would have the effect of making, the transactions contemplated by
this Agreement illegal or otherwise materially restricting or prohibiting
consummation of such transactions;
(c) there shall not be pending, any action or proceeding by
or before any such court or governmental agency seeking to prohibit or delay or
challenging the validity of any of the transactions contemplated by this
Agreement; and
(d) all authorizations, consents, waivers, orders, notices or
declarations required to be made, by Seller and Buyer prior to the consummation
of the transactions contemplated by this Agreement shall have been obtained
from, and made with, all required Governmental Entities.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BUYER. The
obligations of Buyer to effect the transactions contemplated by this Agreement
are also subject to the following conditions:
(a) each of the representations and warranties of Seller
contained in this Agreement shall be true and correct as of the Closing as
though made on and as of the Closing, except (i) for changes specifically
permitted by this Agreement and (ii) that those representations and warranties
which address matters only as of a particular date shall remain true and
correct as of such date, and Buyer shall have received a certificate of the
Chairman and Chief Executive Officer of Seller to such effect;
(b) Seller shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing, and Buyer shall
have received a certificate of the Chairman and Chief Executive Officer of
Seller to such effect;
(c) since the date of this Agreement, there shall have been
no change, occurrence or circumstance (other than changes, occurrences or
circumstances arising from the cessation of Seller's operations in May 1994)
having a material adverse effect on the Purchased Assets, and Buyer shall have
received a certificate of the Chairman and Chief Executive Officer of Seller to
such effect;
(d) Buyer shall have received the opinion of counsel to
Seller in form and substance reasonably satisfactory to Buyer;
(e) all security interests held by Merrill Lynch Business
Financial Services, Inc., or its successor or assignee, with respect to the
Purchased Assets shall have been terminated; and
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(f) the consummation of the transactions contemplated hereby
will not have a material adverse effect upon or establish with respect to any
Person other than Buyer material rights (except for such effects or rights as
are described in the Disclosure Schedule with specific reference to this
Section) with respect to the Purchased Assets under the terms of any employee
benefit plan, program, arrangement and contract maintained or contributed to by
Seller, or with respect to which it could incur liability under Section 4069,
4212(c) or 4204 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including, without limitation, (i) any "employee benefit
plan," as defined in Section 3(3) of ERISA, (ii) any other fringe benefit,
bonus, stock option, stock purchase, deferred compensation, supplemental
retirement, post-retirement, severance, golden parachute, or insurance program
or arrangement, and (iii) any other plan, program, policy, contract, commitment
or arrangement providing benefits of economic value to any present or former
employee, beneficiary, dependent or assignee other than regular salary, wages
or commissions paid substantially concurrently with the performance of the
services for which paid.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SELLER. The
obligations of Seller to effect the transactions contemplated by this Agreement
are also subject to the following conditions:
(a) each of the representations and warranties of Buyer
contained in this Agreement shall be true and correct as of the Closing as
though made on and as of the Closing, except (i) for changes specifically
permitted by this Agreement and (ii) that those representations and warranties
which address matters only as of a particular date shall remain true and
correct as of such date, and Seller shall have received a certificate of the
President of Seller to such effect; and
(b) Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing, and Seller shall
have received a certificate of the President of Buyer to such effect.
ARTICLE VII
CLOSING
7.1 TIME AND PLACE OF CLOSING. The closing (the "Closing") shall
take place not later than 5:00 p.m. local time on the third Business Day after
Seller's shareholders have approved this Agreement, at the offices of Buyer in
Alexandria, Virginia or at such other earlier time, date and place as the
parties shall agree. If the Closing takes place, the Closing and all of the
transactions contemplated by this Agreement shall be deemed to have occurred
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simultaneously and become effective as of 12:01 a.m. on the date that the
Closing takes place.
7.2 DELIVERIES BY SELLER. At the Closing Seller shall deliver to
Buyer such bills of sale and other documents required herein and such
additional documents as Buyer may reasonably request (in form satisfactory to
Buyer).
7.3 DELIVERIES BY BUYER. At the Closing Buyer shall deliver to
Seller the payment required by Section 2.3 and such additional documents as
Seller may reasonably request (in form satisfactory to Seller).
7.4 RISK OF LOSS. Risk of loss for the Purchased Assets shall
remain with Seller until Closing, at which time it shall pass to Buyer.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION. Seller hereby indemnifies and holds Buyer,
its Affiliates, directors, and officers, and the respective heirs,
administrators, successors and assigns of each of the foregoing, harmless from
any damage, loss, liability, judgment, fine, penalty, assessment, settlement,
cost or expense including, without limitation, reasonable expenses of
investigation, reasonable attorneys' fees and other reasonable legal costs and
expenses incident to any of the foregoing or to the enforcement of this
Section, whether or not suit is brought or, if brought, whether or not such
suit is successful, in whole or in part arising out of or relating to:
(a) any misrepresentation or breach of a representation or
warranty made by Seller in this Agreement, the Disclosure Schedule, any exhibit
or schedule attached to this Agreement, or any certificate delivered by or on
behalf of Seller to Buyer pursuant to this Agreement;
(b) the breach of any covenant or agreement of Seller
contained in this Agreement;
(c) any liability of Seller;
(d) the conduct of the business of Seller prior to the date
hereof;
(e) any claim for injury to person or property, regardless of
when made or asserted, which arises out of or is based upon any express or
implied representation, warranty, agreement or guarantee made by Seller, or
alleged to have been made
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by Seller, or which is imposed or asserted to be imposed by operation of law in
connection with any prior sales of goods or services by Seller;
(f) any claim for implied warranty arising out of the sale of
any Purchased Assets by Buyer; and
(g) any Legal Action by a shareholder of Seller (either
brought derivatively, on behalf of Seller or on behalf of said shareholder) for
relief based upon the entry by Seller into this Agreement or the WNIM Agreement
or otherwise affecting the Purchased Assets or the transactions contemplated by
this Agreement.
8.2 LIMITATIONS ON LIABILITIES. Except as set forth in this
Article VIII, Buyer shall not be entitled to any monetary recovery or remedy
under any law or principle of law with respect to any breach of any
representation or warranty of Seller contained in this Agreement, the
Disclosure Schedule, and exhibit or schedule attached to this Agreement.
Notwithstanding the provisions of Section 8.1, Buyer shall not be entitled to
be indemnified thereunder:
(i) until such time as the sum of the amounts to
which Buyer is entitled under Section 8.1 hereof and under Article V of the
WNIM Agreement exceeds $25,000;
(ii) with respect to each provision of this
Agreement other than the first sentence of Section 3.13(b), in an amount in
excess of the difference between (1) $2,000,000 and (2) the aggregate amount
paid by Seller pursuant to Article V of the WNIM Agreement; and
(iii) with respect to the first sentence of Section
3.13(b), in an amount in excess of the difference between (1) $150,000 and (2)
the aggregate amount paid by Seller pursuant to Article V of the WNIM Agreement
with respect to the breach by Seller of the representations set forth in the
first sentence of Section 2.10(b) of the WNIM Agreement.
Notwithstanding any other provision of this Agreement or the WNIM Agreement to
the contrary, the total indemnification to which Buyer shall be entitled
pursuant to Section 8.1 of this Agreement and Section 5.1 of the WNIM Agreement
combined shall not exceed $2,000,000.
8.3 THIRD PARTY CLAIMS. The obligations and liabilities of Seller
to a party seeking indemnification (an "Indemnified Party") under this Article
VIII with respect to claims resulting from the assertion of liability by third
parties shall be subject to the following conditions:
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(a) The Indemnified Party shall give prompt written notice to
Seller of the nature of the assertion of liability by a third party and the
amount thereof to the extent known; provided, however, that the failure of the
Indemnified Party to give notice as provided herein shall not relieve Seller of
such party's obligations under this Article VIII.
(b) Except as provided in Section 8.3(c), if any action, suit
or proceeding (a "Legal Action") is brought by a third party against an
Indemnified Party, and if Seller has acknowledged in writing its obligation to
indemnify the Indemnified Party hereunder and given notice, within 30 days
after receipt of a notice given pursuant to Section 8.3(a) of its intention to
assume such defense, Seller shall be entitled to defend such Legal Action by
counsel reasonably acceptable to the Indemnified Party, and such defense shall
include all appeals or reviews which counsel for Seller shall deem appropriate.
Until Seller shall have assumed the defense of any such Legal Action, all legal
or other expenses reasonably incurred by the Indemnified Party shall be borne
by Seller. If there exists or is reasonably likely to exist a conflict of
interest that would make it inappropriate in the reasonable judgement of the
Indemnified Party for the same counsel to represent both the Indemnified Party
and Seller, then the Indemnified Party shall be entitled to retain its own
counsel, in each jurisdiction for which the Indemnified Party determines
counsel is required, at the expense of Seller.
(c) In addition to the Indemnified Party's right to assume
the defense of a Legal Action under Section 8.3(b), where Seller is obligated
to assume the defense of a Legal Action and has not breached such obligation,
the Indemnified Party may nonetheless at any time elect, by written notice, to
assume the defense of such Legal Action by counsel reasonably acceptable to
Seller. In such event, the Indemnified Party shall bear all expenses
thereafter incurred by it in defending such Legal Action but Seller shall bear
the cost of any damage, loss, liability, judgment, fine, penalty, assessment or
settlement arising out of such Legal Action.
(d) In any Legal Action initiated by a third party and
defended by Seller (i) the Indemnified Party shall have the right to be
represented by advisory counsel and accountants, at its own expense, (ii)
Seller shall keep the Indemnified Party fully informed as to the status of such
Legal Action at all stages thereof, whether or not the Indemnified Party is
represented by its own counsel, (iii) the Indemnified Party shall make
available to Seller, and its attorneys and accountants, all books and records
of the Indemnified Party relating to such Legal Action, (iv) the parties shall
render to each other such assistance as may be reasonably required in order to
ensure the proper and adequate defense of such Legal Action, and (v) Seller
shall not make any settlement of any claim without the written consent of the
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Indemnified Party. Without limiting the generality of the foregoing, it shall
not be deemed unreasonable to withhold consent to a settlement involving
injunctive or other equitable relief against the Indemnified Party or its
assets, employees or business.
(e) In any Legal Action initiated by a third party and
defended by the Indemnified Party pursuant to Section 8.3(b) or (c), (i) Seller
shall have the right to be represented by advisory counsel and accountants, at
its own expense, (ii) the Indemnified Party shall keep Seller fully informed as
to the status of such Legal Action at all stages thereof, whether or not Seller
is represented by its own counsel, (iii) Seller shall make available to the
Indemnified Party, and its attorneys and accountants, all books and records of
Seller relating to such Legal Action, (iv) the parties shall render to each
other such assistance as may be reasonably required in order to ensure the
proper and adequate defense of such Legal Action, and (v) the Indemnified Party
shall not make any settlement of any claim without the written consent of
Seller, which shall not be unreasonably withheld. Without limiting the
generality of the foregoing, it shall not be deemed unreasonable to withhold
consent to a settlement involving injunctive or other equitable relief against
Seller or its assets, employees or business.
8.4 SURVIVAL; INVESTIGATIONS. The representations, warranties,
covenants and agreements of Seller contained in this Agreement, the Disclosure
Schedule, any exhibit or schedule attached to this Agreement, or any
certificate delivered by or on behalf of Seller to Buyer pursuant to this
Agreement shall survive the Closing (i) with respect to Section 3.7, the first
sentence of Section 3.9(a), the first sentence of Section 3.12, the first
sentence of Section 3.13(d) and any Legal Action by a shareholder of Seller
(either brought derivatively, on behalf of Seller or on behalf of said
shareholder) for relief based upon the entry by Seller into this Agreement or
the WNIM Agreement or otherwise affecting the Purchased Assets or the
transactions contemplated by this Agreement, until the second anniversary of
the Closing, and (ii) with respect to all other representations, warranties,
covenants and agreements, until a date that is six months after the Closing
(each such date referred to in clauses (i) and (ii), a "Survival Date"), at
which time they shall lapse; provided, however, that Buyer shall be entitled to
indemnification with respect to a claim only if a Legal Action with respect to
such claim is commenced on or before the applicable Survival Date; and,
provided, further, that the following covenants shall survive as follows:
Sections 5.4 through 5.6, inclusive, Section 5.8, Section 5.11, Section 5.16,
Section 5.18 and Section 5.19 perpetual; Sections 5.12 and Section 5.13, for
the periods set forth therein; and Sections 5.15, one year. Except as
provided in the "however" clause of the previous sentence, the representations
and warranties of Buyer shall terminate at the Closing. No investigation by
any
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<PAGE> 26
of the parties, heretofore or hereafter made, shall affect the survival of any
representation and warranty contained herein.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual consent of Seller and Buyer;
(b) by Buyer, upon a breach of any representation, warranty,
covenant or agreement on the part of Seller set forth in this Agreement, or if
any representation or warranty of Seller shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would be incapable of being satisfied by Closing; provided that, in any case,
an intentional breach shall be deemed to cause such conditions to be incapable
of being satisfied for purposes of this Section 9.1(b);
(c) by Seller, upon a breach of any representation, warranty,
covenant or agreement on the part of Buyer set forth in this Agreement, or if
any representation or warranty of Buyer shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would be incapable of being satisfied by Closing; provided that, in any case,
an intentional breach shall be deemed to cause such conditions to be incapable
of being satisfied for purposes of this Section 9.1(c);
(d) by either Buyer or Seller, if any Governmental Entity
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which has the
effect of making, or any such Governmental Entity shall have commenced, or
threatened to commence, any proceeding which, if adversely determined, would
have the effect of making, the transactions contemplated by this Agreement
illegal or otherwise materially restricting or prohibiting consummation of the
transactions contemplated by this Agreement;
(e) by Buyer if any change in the business or operations of
Seller has occurred since March 31, 1994, other than any change relating to or
arising from the cessation of Seller's operations in May, 1994, which has or
can reasonably be expected to have a material adverse effect upon the Purchased
Assets;
(f) by Buyer, if (i) the shareholders of Seller do not
approve this Agreement and the transactions contemplated by this Agreement on
or before August 16, 1994; provided, however, that if
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(A) Seller filed its preliminary proxy materials with respect to the
transactions contemplated hereby on or before July 9, 1994 and (B) such
transactions shall not have been consummated solely as a result of Seller's
inability, notwithstanding the use of its best efforts, to receive or respond
to comments of the Securities and Exchange Commission with respect to Seller's
preliminary proxy statement, then by Buyer if the shareholders of Seller do not
approve this Agreement and the transactions contemplated by this Agreement on
or before September 13, 1994, or (ii) the consummation of the transactions
contemplated hereby would create on behalf of any Person rights with respect to
the Purchased Assets or any assets or securities of Buyer or Microdyne
Corporation under Seller's shareholder rights plan;
(g) by Buyer, if (i) the Board of Directors of Seller shall
have recommended to the stockholders of Seller any Competing Transaction or
resolved to do so or (ii) Seller shall have entered into any agreement with
respect to, or consummated, any Competing Transaction;
(h) notwithstanding any provision of this Agreement, by
Seller or Buyer if the Closing has not occurred on or before September 14,
1994; or
(i) by Buyer, if Seller fails to timely comply with its
obligations under Section 5.17.
The right of any party hereto to terminate this Agreement
pursuant to this Section 9.1 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any party
hereto, any Person controlling any such party or any of their respective
officers or directors, whether prior to or after the execution of this
Agreement.
9.2 EFFECT OF TERMINATION. Except as provided in Section 9.5, in
the event of the termination of this Agreement pursuant to Section 9.1, this
Agreement shall forthwith become void, there shall be no liability on the part
of Buyer, Seller or any of their respective officers, directors or stockholders
to the other parties hereto and all rights and obligations of any party hereto
shall cease.
9.3 AMENDMENT. This Agreement and the exhibits and schedules
hereto may be amended at any time prior to Closing provided that any such
amendment is approved in writing by each of the parties hereto. All
representations and warranties which are true and correct as modified and
approved shall be deemed true and correct for the purposes of Sections 6.2(a)
and 6.3(a).
9.4 EXTENSION; WAIVER. At any time prior to the Closing either
party to this Agreement may (a) extend the time for the
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performance of any of the obligations of the other party hereto, (b) waive a
breach of a representation or warranty of the other party hereto or (c) waive
compliance of the other party hereto with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid only if set
forth in a written instrument signed by the party giving the extension or
waiver.
9.5 FEES, EXPENSES AND OTHER PAYMENTS.
(a) In the event that the transactions contemplated by this
Agreement are not consummated, except as provided in Sections 9.5(c) and
9.5(d), all Expenses incurred by the parties hereto shall be borne solely and
entirely by the party which has incurred such Expenses.
(b) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants
to a party hereto and its Affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement and all other matters related to
the closing of the transactions contemplated herein.
(c) (i) Seller agrees that if this Agreement shall be
terminated pursuant to Section 9.1(b), Seller shall pay to Buyer an amount
equal to all of Buyer's Expenses (not to exceed $75,000); and
(ii) Buyer agrees that if this Agreement shall be
terminated pursuant to Section 9.1(c), Buyer shall pay to Seller an amount
equal to all of the Seller's Expenses (not to exceed $75,000).
(d) Seller agrees that if this Agreement shall be terminated
pursuant to:
(i) Section 9.1(b) and, within 270 days after the
date of termination of this Agreement, Seller shall have entered into an
agreement providing for a Competing Transaction (other than an initial public
offering of securities of Seller or the granting of a Lien in a commercial
lending transaction);
(ii) Section 9.1(f); or
(iii) Section 9.1(g);
then, in consideration of the substantial time and effort devoted by Buyer to
the transactions contemplated by this Agreement including, without limitation,
significant engineering and product development costs incurred by Microdyne in
anticipation of the
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consummation of this acquisition, Seller shall pay to Buyer the sum of $400,000
less the amount of Buyer's Expenses which has been reimbursed pursuant to
Section 9.5(c)(i).
(e) Any payment required to be made pursuant to Section
9.5(c) shall be made as promptly as practicable but not later than five
Business Days after the termination of this Agreement and any payment required
to be made pursuant to Section 9.5(d) shall be made as promptly as practicable
but not later than five Business Days after any action described in Section
9.1(b), 9.1(f) or 9.1(g).
ARTICLE X
GENERAL PROVISIONS
10.1 INVESTIGATION OF BUSINESS AND PROPERTIES. From and after the
date hereof until the Closing, Seller will afford Buyer and its attorneys,
accountants, financial advisors and other representatives complete access at
all reasonable times to its officers, employees, properties, contracts, books,
records and customers. Seller will furnish Buyer with such financial,
operating and additional data as Buyer may reasonably request concerning the
operations, properties and personnel of Seller.
10.2 NOTICES. All notices and other communications required or
permitted to be given by this Agreement shall be in writing and shall be deemed
duly given (a) one Business Day after delivery, if delivered personally, (b)
seven Business Days after posting, if mailed by registered or certified first
class air mail (return receipt requested) or (c) one Business Day after
dispatch, if sent by telex or telefax (with an answer back from the receiving
party and a confirmatory mailing as provided in (b) by the sender) to the
parties at the following addresses (or at such other address for the party as
shall be specified by like notice):
(i) If to Buyer:
Microdyne Peyton Street Corporation
207 South Peyton Street
Alexandria, Virginia 22314
Facsimile: (703) 739-0558
Attention: Philip T. Cunningham
President
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Asset Purchase Agreement
<PAGE> 30
(ii) If to Seller:
Gateway Communications, Inc.
2941 Alton Avenue
Irvine, California 92714
Facsimile: (714) 553-1616
Attention: Patrick F. Cadigan, Ph.D.
Chairman of the Board,
Chief Executive Officer
and President
with a copy to:
Steel Partners II, L.P.
750 Lexington Avenue
New York, N.Y. 10022
Attention: Mr. Warren G. Lichtenstein
Rejection or other refusal to accept, or the inability to deliver
because of a changed address of which no notice was given, shall not affect the
date of such notice sent in accordance with the foregoing provisions.
10.3 INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement. Unless the context otherwise requires as used herein, words
in the singular shall include words in the plural and vice versa, words in one
gender shall include words in the other gender. Time is of the essence of this
Agreement.
10.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
10.5 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, and their respective successors and
permitted assigns, and the provisions of Article VIII shall inure to the
benefit of the indemnified parties referred to therein; provided, however, that
neither this Agreement nor any of the rights, interests or obligations
hereunder may be assigned by any of the parties hereto without the prior
written consent of the other parties.
10.6 ENTIRE AGREEMENT. This Agreement (including all exhibits and
schedules hereto and the Disclosure Schedule) constitutes the entire agreement
and supersede all other prior agreements and understandings, both written and
oral, between the parties with respect to the transactions contemplated by this
Agreement. There are no restrictions, agreements, promises, warranties,
covenants or undertakings with respect to the
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transactions contemplated by this Agreement other than those expressly set
forth therein.
10.7 GOVERNING LAW. This Agreement and the relationship between the
parties shall be governed in all respects by the laws of the Commonwealth of
Virginia without regard to its laws or regulations relating to conflicts of
laws.
10.8 BENEFITS. Except as provided in Article VIII, this Agreement is
not intended to and shall not confer upon any other Person, other than the
parties hereto, any rights or remedies with respect to the subject matter
hereof.
10.9 SEVERABILITY. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable.
10.10 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement shall
be deemed to constitute a partnership, joint venture or other form of entity.
10.11 KNOWLEDGE. Whenever a representation or warranty is made
herein to Seller's knowledge, it means all facts and conditions referred to in
such representation or warranty which are known by the following individuals:
Patrick F. Cadigan, Al M. Cosentino, Warren G. Lichtenstein, Ronald W. Hayes,
Jack Howard and each other present director, officer or employee of Seller.
[END OF TEXT]
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<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers.
GATEWAY COMMUNICATIONS, INC.
By:/S/ Patrick F. Cadigan
---------------------------------
Patrick F. Cadigan, Ph.D.
Chairman of the Board,
Chief Executive Officer
and President
MICRODYNE PEYTON STREET CORPORATION
By: /S/ Phillip T. Cunningham
---------------------------------
Philip T. Cunningham
President
AGREED (as to Section 5.17(a)(i) only)
and
WAIVED (as to Section 5.17(a)(ii) only)
STEEL PARTNERS II, L.P.
By: Steel Partners Associates, L.P.,
General Partner
By: Steel Partners, Ltd.,
General Partner
By: /S/ Warren G. Lichenstein
--------------------------------
Warren G. Lichtenstein
Chief Executive Officer
<PAGE> 1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of September 12, 1995 (the
"Agreement"), is made between MICRODYNE CORPORATION, a Maryland corporation
(the "Purchaser"), and NATIONAL SEMICONDUCTOR CORPORATION, a Delaware
corporation (the "Seller"). Either Purchaser or Seller may be referred to
herein as a Party or the Parties, as the case may require.
Purpose of the Agreement
Seller is in the business of manufacturing, having manufactured,
packaging, selling, distributing, designing, enhancing, maintaining and
repairing certain NE2OOO Plus, NE32OO, and 10/10 ISA adapter card assemblies.
Purchaser desires to purchase, and Seller desires to sell all assets, tangible
and intangible, and the related goodwill associated with this adapter card
business.
ARTICLE I
DEFINITIONS
Wherever used in this Agreement, the following terms shall have the
following meanings:
1.1 "Assets" means the assets of the Business as specified in
Section 3.1
1.2 "Business" means Seller's manufacturing (including
manufacturing for Seller), packaging, selling, distributing,
designing, enhancing, maintaining and repairing of the
Ethernet Cards.
1.3 "Closing" means the consummation of the transactions provided
for in Article VIII on the terms and subject to the conditions
of this Agreement.
1.4 "Closing Date" means the date on which the Closing is held.
1.5 "Ethernet Cards" means Seller's NE 2000 Plus, NE3200, PCMCIA
and 10/100 ISA adapter card assemblies, identified by the part
numbers specified in Schedule 1.5.
1.6 "Product Warranties" means the express warranties given by
Seller with respect to the Inventory as specified in Schedule
8.8.
<PAGE> 2
ARTICLE II
PURCHASE AND SALE
Section 2.1 Delivery By Seller. At the Closing, Seller shall
sell, transfer and convey to Purchaser all right, title and interest of the
Seller in the Assets of the Business as provided herein and shall grant and
assign Purchaser the rights associated with the Business as specified in this
Agreement.
Section 2.2 Deliveries and Payment by Purchaser. At the
Closing, Purchaser shall assume the obligations specified herein and deliver to
Seller the amount specified in Section 6.2 by wire transfer of immediately
available funds to Bank of America, ABA # 121000358, 1850 Gateway Boulevard,
Concord, California 94520, Attention: National Semiconductor Corporation,
Account No. 1233203690.
ARTICLE III
ASSETS TO BE SOLD, RIGHTS TO BE GRANTED,
OBLIGATIONS TO BE ASSUMED
Section 3.1 The Assets. The Assets to be sold at Closing
shall be free and clear of all mortgages, liens, pledges, security interests,
charges, claims, restrictions and encumbrances of any nature whatsoever and
shall consist of the following:
(a) The Inventory of the Business listed on Schedule 1.5 (the
"Inventory")
The Inventory includes:
(i) saleable finished goods inventory, and "grey bag"
(completed board level product in a static bag)
inventory of the NE 2000 Plus and NE3200 series
adapter card assemblies (the "NE 2000 Plus
Inventory") owned by Seller on the Closing Date
excluding, however, the NE2000 Plus Inventory
located at NSC facilities in Japan in the
approximate amount of 100 pieces;
(ii) saleable finished goods inventory, and raw
materials on hand and useable for the 10/100 ISA
adapter card assemblies (the "10/100 Inventory")
owned by Seller on the Closing Date excluding
however, kits of raw materials sufficient to make
approximately 19,100 10/100 adapter card
assemblies;
(iii) raw materials on hand and currently being used in
the manufacture of Seller's NE 2000 Plus adapter
card assemblies, provided the materials are used
in Purchaser's NE 2000 Plus
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<PAGE> 3
series adapter card assemblies, as specified on
Purchaser's applicable parts purchase list.
(iv) saleable finished goods inventory and grey bag
inventory of the PCMCIA adapter cards (the
"PCMCIA Inventory") existing at NSC on the
Closing Date excluding, however, the PCMCIA
Inventory located at NSC facilities in Japan in
the approximate amount of 300 pieces.
The Inventory will be subject to a physical count which will be conducted at
Seller's facilities in Santa Clara, California immediately prior to the Closing
in a manner mutually agreed to by the Parties. Inventory which cannot be
counted prior to Closing because it is not physically located at Seller's
facilities in Santa Clara, California at the time of Closing will be shipped by
Seller to Seller's Santa Clara, California facilities and counted in a manner
mutually agreed to by the Parties as soon as possible after the Closing. The
actual purchase price paid shall be adjusted based on the results of the
physical count in accordance with the terms of Article v.
(b) A documentation package consisting of all information
including technologies, methods, formulations, databases,
trade secrets, engineering, manufacturing and repair
information, drawings, packages, modifications, know-how,
inventions, concepts, and designs for the Ethernet Cards, and
designs and work in process for new Ethernet Card products and
modifications, revisions or enhancements thereto, used in or
relating to the Seller's manufacture, sale and maintenance of
computer boards for the Ethernet Card Business; and
(c) All sales information, files, records, data, plans, goodwill
and recorded knowledge of or relating to the Business or the
Assets, including, without limitation, the Statement of Work
No. 2 ("Novell SOW2") of that certain Master Task Agreement
between Seller and Novell, Inc. effective April 30, 1993 (the
"Novell MTA") including the remaining unused portion of
Seller's royalty prepayment thereunder, all business plans,
bids, quotations, proposals, instruments, computer programs,
information generated from databases, manuals and guidebooks,
price books, price lists, customer, vendor, distributor and
subscriber lists, sales, marketing and warranty files,
correspondence and other documents, books, records, papers and
data belonging to or licensed by Seller and used in or
constituting a part of the Business.
Section 3.2 Assignment of Rights and Obligations. Assuming
that assignment has been obtained or is otherwise permissible under the
applicable
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<PAGE> 4
governing documents, the rights and obligations to be assigned to Purchaser at
the Closing shall consist of the following:
(a) All rights and obligations under any of Seller's
noncancellable purchase orders given to subcontract assembly
vendors for the Ethernet Cards, a list of which is attached
hereto as Schedule 3.2(a).
(b) All rights under any express or implied warranties given by
Seller's vendors and relating to the Assets;
(c) All rights and obligations under the Novell SOW2; and
(d) All rights and obligations under any OEM contracts or purchase
orders for the sale of Ethernet Cards. If such contracts or
purchase orders cannot be assigned or if Purchaser finds the
terms of the contracts or purchase orders commercially
unacceptable (as judged by a reasonable party), the servicing
of the contracts and purchase orders will be handled as
provided in Section 3.8 (g). A list of any such OEM contracts
or purchase orders will be delivered to Purchaser at the
Closing.
Section 3.3 Intellectual Property License. At the Closing,
Seller shall grant to Purchaser the nonexclusive, nontransferable (except in
connection with a sale or transfer of Purchaser's Ethernet Card business) right
and license to use Seller's patents, copyrights and trade secrets, whether
registered or unregistered, and any applications therefore used in or relating
to the Business or the Assets or embodied in the documentation package
delivered pursuant to Section 3.1(b), to make, have made, use, sell,
distribute, design, enhance, maintain and repair the Ethernet Cards. The
license granted herein shall include the right to reproduce and distribute
Seller's datasheets for the Ethernet Cards, provided Purchaser's name is
substituted for that of Seller. Provided Purchaser complies with the terms and
conditions of this Agreement, Seller will make no other grants of this license.
Section 3.4 Trademark License. At the Closing, Seller will
grant Purchaser the exclusive (except for use by Seller in or related to
anything other than Ethernet Cards) nontransferable (except in connection with
a sale or transfer of Purchaser's Ethernet Card business) right and license to
use and display the trademarks, service marks, tradenames and logos relating to
the Seller's InfoMover trademark (the "InfoMover Marks) in connection with the
Ethernet Cards for a period of five (5) years. Except as provided in Article
XIII, Purchaser shall have no right to use "National Semiconductor,"
"National," the National logo, or similar marks or names associated with Seller
except to the extent such marks are already on finished goods or
work-in-process, in which case Purchaser shall have the right to sell such
products marked with Seller's name and/or logo for a transition period not to
exceed six (6) months.
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<PAGE> 5
Section 3.5 Software License. At the Closing, Seller will
grant Purchaser a nonexclusive license to use, distribute, reproduce and make
modifications to the source and object code of Seller's Ethernet Card driver
software in connection with Ethernet Cards running on integrated circuits
supplied by Seller. Provided Purchaser complies with the terms and conditions
of this Agreement, Seller will make no other grants of this license.
Section 3.6 Delivery of Assets. Except as provided in the
next sentence, the Assets, including Inventory, purchased under this Agreement
shall be packaged by Seller and shipped to Purchaser at its facility at San
Jose, California immediately following the Closing. Assets which are not
physically in Santa Clara, California at the time of Closing will be packaged
by Seller and shipped to Purchaser at its facility at San Jose, California as
soon as the physical count is complete. In both cases, Purchaser shall be
responsible for the costs of shipping and insurance for the shipping of the
Assets from Santa Clara, California to San Jose, California.
Section 3.7 Assumed Obligations. On and after the Closing
Date or on the date specified below, whichever is later, Purchaser shall assume
and agree to pay, discharge or perform, as appropriate, the following
liabilities and obligations of Seller relating to the Business to be performed
after the Closing (hereinafter collectively referred to as the "Assumed
Obligations")
(a) Upon completion of the Transition Period (as that term is
defined in Section 10.6), Purchaser will assume all claims
under the Product Warranties for breach or nonconformity with
the Product Warranties of the Ethernet Cards shipped by Seller
prior to the Closing.
(b) Except as provided in Section 10.8, Purchaser will accept
distributor stock rotation and product returns (in accordance
with Seller's standard policy) for Ethernet Cards shipped by
Seller prior to the Closing.
(c) Purchaser will assume all current Ethernet Card OEM contracts
in existence, and Purchaser will complete all negotiations for
such contracts, including, but not limited to those with IBM
and Intel.
(d) All of Seller's obligations to be performed after the date of
this Agreement pursuant to the Novell SOW2.
(e) All of Seller's obligations under the noncancellable purchase
orders given to subcontractor vendors for the Ethernet Cards.
(f) All of Seller's obligations under noncancellable purchase
orders for the sale by Seller of Ethernet Cards accepted by
Seller prior to Closing.
5
<PAGE> 6
(g) If Purchaser is not able to assume the obligations under
Sections 3.7(c) or 3.7(f) for the reasons set forth in Section
3.2(d), then the parties shall cooperate in good faith with
the customer to reach suitable contractual agreements with the
customer for the supply of Ethernet Cards. If such agreements
cannot be reached despite the reasonable commercial efforts of
the Parties, Purchaser will sell Ethernet Cards to Seller in
amounts sufficient for Seller to meet its outstanding
contractual obligations at reasonable prices to be agreed to
by the Parties.
Section 3.8 Excluded Liabilities. Notwithstanding anything
to the contrary set forth herein, in no event shall Purchaser assume or incur
any liability or obligation of any kind or nature, whether accrued, absolute,
contingent, known, unknown or otherwise, or otherwise become responsible in
respect of any liability or obligation of Seller, which is not an Assumed
Obligation.
ARTICLE IV
EXCLUDED ASSETS
Notwithstanding anything to the contrary set forth herein, the Assets
sold hereunder shall not include any of the following (hereinafter collectively
referred to as "Excluded Assets"):
(a) Any assets, properties or rights of the Seller used in the
operations and businesses currently conducted by Seller, other
than the Ethernet Card Business, which assets, properties or
rights are not being sold to Purchaser hereunder (the
"Excluded Business");
(b) Any defective, broken or unusable parts, any "down revved"
materials or parts or parts which have been superseded by a
new release or version and parts not currently used in the
manufacture of the Ethernet Cards;
(c) Any intellectual property right, or technical information
related to the manufacture of any integrated circuits
manufactured by or for Seller and used for the Ethernet Cards;
(d) Any liabilities, contracts, or other obligations of Seller
relating to the Business other than those expressly assumed in
accordance with Article III;
(e) Any accounts receivable of the Business;
6
<PAGE> 7
(f) Any other asset, property or right of Seller not otherwise
identified in Article III.
ARTICLE V
PURCHASE PRICE
Section 5.1 Purchase Price
(a) Purchaser shall pay a total of six million seven hundred
thirty six thousand dollars ($6,736,000.00) for the Business,
subject, however, to the following adjustments:
(i) If the NE 2000 Plus Inventory does not equal One
Million Nine Hundred Forty Thousand Two Hundred
Eighty Dollars ($1,940,280.00), based on Seller's
standard cost, then the purchase price shall be
adjusted up or down, to reflect the actual amount
delivered, using Seller's standard cost.
(ii) If the Raw Materials Inventory does not equal Two
Hundred Seventy Thousand Dollars ($270,000.00),
based on Seller's standard cost, then the
purchase price shall be adjusted, up or down, to
reflect the actual amount delivered, using the
Seller's standard cost.
(iii) If the 10/100 Inventory does not equal Two
Million Three Hundred Thousand Dollars
($2,300,000.00) based on Seller's standard cost,
then the amount shall be adjusted, up or down, to
reflect the actual amount delivered, using the
Seller's standard cost.
(iv) If the PCMCIA Inventory does not equal Four
Hundred and Two Thousand Dollars ($402,000.00)
based on Seller's standard cost, then the
purchase price shall be adjusted, up or down, to
reflect the actual amount delivered, using the
Seller's standard cost. The PCMCIA Inventory
shall be subject to the adjustment provided for
in Article VI.
(b) The remaining Assets, any goodwill of the Business and other
covenants and agreements of Seller under this Agreement shall
be deemed to constitute $1,836,000 of the purchase price and
shall not be subject to further adjustments.
7
<PAGE> 8
(c) The exact purchase price of the Business shall be determined
upon completion of the physical inventory described in Section
3.1(a). The purchase price for the Business shall be adjusted
to reflect any changes based upon the physical inventory.
Section 5.2 Payment of Purchase Price. At Closing, Purchaser
shall pay to Seller, by wire transfer of immediately available funds, a partial
payment of One Million Dollars ($1,000,000.00) toward the purchase price for
the Business. Purchaser shall pay to Seller the remaining balance of the
purchase price for the Business, as adjusted, in accordance with Schedule 5.2.
Upon full payment of the purchase price, the licenses granted in Sections 3.3,
3.4 and 3.5 shall be fully paid up and irrevocable.
Section 5.3 Allocation of Purchase Price. The Parties
shall agree on an appropriate allocation of the purchase price.
ARTICLE VI
ADJUSTMENTS FOR PCMCIA INVENTORY
Purchaser shall use reasonable commercial efforts to sell the PCMCIA
Inventory for a price exceeding Seller's standard cost; however, Purchaser
makes no guarantees that the PCMCIA Inventory may be sold for a price exceeding
Seller's standard cost. Purchaser and Seller hereby agree that both shall
share equally (50%) either (i) the amount by which the net price for which
Purchaser sells the PCMCIA Inventory exceeds Seller's standard cost or (ii) the
amount by which the net price for which Purchaser sells the PCMCIA Inventory is
less than Seller's standard cost. Within sixty (60) days of the end of each
calendar quarter, Purchaser shall pay to Seller such increases for sales that
occurred during the quarter, after deducting any decreases. If decreases
exceed increases, then Purchaser shall invoice Seller for same, who shall pay
such invoice within sixty (60) days thereafter.
ARTICLE VII
THE CLOSING
Section 7.1 Time and Place. The Closing will be held at the
offices of the Seller, 2900 Semiconductor Drive, Santa Clara, California at
4:00 p.m. on Wednesday, September 13, 1995 or at such other time, day or place
as the Purchaser and Seller may mutually agree.
Section 7.2 Seller Deliverables. At the Closing, Seller will
deliver to Purchaser in form reasonably satisfactory to Purchaser the following
items:
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(a) A Bill of Sale covering the Assets; and
(b) Such other documents and instruments as are reasonably
necessary and/or appropriate to implement and complete the
sale and transfer of the Assets to Purchaser and the other
transactions as required by this Agreement.
Section 7.3 Purchaser Deliverables. At the Closing, Purchaser
will deliver to Seller in form reasonably satisfactory to Seller, the following
items:
(a) Confirmation of the wire transfer amount specified in Section
5.2; and
(b) Such other documents and instruments as are reasonably
necessary and/or appropriate to implement and complete the
purchase of the Assets by Purchaser and the other transactions
as required by this Agreement.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants at Closing:
Section 8.1 Organization. Seller is a corporation duly
organized, 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 the Business as is now being conducted.
Section 8.2 Authorization Seller has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Seller and the performance by
Seller of its obligations hereunder and the consummation of the transactions
provided for herein have been duly and validly authorized by all necessary
corporate action on the part of the Seller. Neither the corporation law of the
State of Delaware nor the certificate of incorporation or bylaws of Seller
require that the stockholders of Seller approve this Agreement or any of the
transactions contemplated hereunder. This Agreement has been duly executed and
delivered by Seller and constitutes the valid and binding agreement of Seller,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally, general equitable principles and the discretion of
courts in granting equitable remedies.
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Section 8.3 Consent and Approvals. Except as set forth in
Schedule 8.3 there is no requirement applicable to Seller to make any filing
with, or to obtain any permit, authorization, consent or approval of any public
body as a condition to the lawful consummation of the transactions contemplated
by this Agreement.
Section 8.4 Non-Contravention. The execution and delivery by
Seller of this Agreement does not and the consummation of the transactions
contemplated hereby will not (i) violate or result in a breach of any provision
of the certificate of incorporation or bylaws of Seller, (ii) result in a
default (or give rise to any right of termination, cancellation or
acceleration) under the terms, conditions, or provisions of any note, bond,
mortgage, indenture, license, agreement, lease or other instrument or
obligation to which Seller is a party or by which Seller or any of the Assets
may be bound or (iii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Seller or any of the Assets or the Business.
Section 8.5 Title to Assets. Seller has good title to all of
the personal property, tangible and intangible, which is a part of the Assets,
free and clear of any liens, charges, pledges, security interests or other
encumbrances.
Section 8.6 Ownership of Assets and Related Matters
(a) The finished goods and grey bag Inventory (i) is useable or
saleable in the ordinary course of business, (ii) is
sufficient but not excessive in kind or amount for the conduct
of the Business as it is presently being conducted and (iii)
is carried on the books of Seller at an amount which reflects
valuations not in excess of the cost as determined in
accordance with generally accepted accounting principles
applied on a consistent basis.
(b) The Novell SOW2 and any Ethernet Card OEM contracts are valid
and enforceable in accordance with their terms with respect to
Seller, and are valid and enforceable in accordance with their
terms with respect to the other party, in each case subject to
applicable bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally,
general equitable principles and the discretion of courts in
granting equitable remedies. There is not, under any of the
agreements referenced in Section 3.7, including without
limitation the Novell SOW2 or any Ethernet Card OEM contract,
any existing breach, default or event of default by Seller or
event that with notice or lapse of time or both would
constitute a breach, default or-event of default by Seller,
nor does Seller know of, and Seller has not received notice
of, or made a claim with respect to, any breach or default by
the other party thereto. All royalty and other payments
required to be paid by Seller, including the Prepayment under
the Novell SOW2, any Ethernet Card OEM contract,
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or any other agreement referenced in Section 3.7, have been
paid by Seller. Seller has received from Novell consent to the
assignment of the Novell SOW2 to Purchaser.
Section 8.7 Intellectual Property Schedule 8.7 sets forth a
summary list of the major components of intellectual property that Seller owns
or otherwise has the right to use, free and clear of any restrictions, that
Seller has identified is used by Seller in the Business. The intellectual
property used by Seller in the manufacture, sale, distribution of the Ethernet
Cards, or embodied in the Ethernet Cards, and licensed to Purchaser pursuant to
this Agreement, constitutes, to the best knowledge of Seller, all of the
intellectual property necessary in the Business, and to the best knowledge of
the Seller, no license or grants from any third parties are necessary and no
royalties, fees or other payments would be due to any third parties. There is
no claim, suit, action or proceeding, pending or to the knowledge of Seller
threatened, against Seller asserting that its use of such intellectual property
infringes upon the rights of any third party or otherwise contesting its rights
with respect to any of the Intellectual Property. All letters, patents,
registrations and certificates issued by any governmental agency relating to
such intellectual property so identified by Seller are valid and subsisting and
have been properly maintained.
Section 8.8 Warranty Policy Schedule 8.8 sets forth complete
copies and/or descriptions of all of Seller's express warranties which are in
effect with respect to the Inventory (the "Product Warranties"). To the best
of Seller's knowledge, Seller has disclaimed all implied warranties for the
Inventory.
Section 8.9 Conduct of Business Pending Closing. From the
date of execution of this Agreement until Closing, Seller will conduct the
Business in the ordinary usual course.
Section 8.10 Brokers, Finders and Investment Bankers. Neither
Seller nor any of its respective officers, directors or employees has employed
any broker, finder or investment banker or incurred any liability for
investment banking fees, financial advisory fees or finders' fees in connection
with the transactions contemplated hereby.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants at the Closing:
Section 9.1 Organization. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland, and has all
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requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted.
Section 9.2 Authorization. Purchaser has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement
by Purchaser and the performance by Purchaser of its obligations hereunder and
the consummation of the transactions provided for herein have been duly and
validly authorized by all necessary corporate action on the part of the
Purchaser. Neither the corporation law of the State of Maryland nor the
certificate of incorporation or bylaws of Purchaser require that the
stockholders of Purchaser approve this Agreement or any of the transactions
contemplated hereunder. This Agreement has been duly executed and delivered by
Purchaser and constitutes the valid and binding agreement of Purchaser,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally, general equitable principles and the discretion of
courts in granting equitable remedies.
Section 9.3 Consent and Approvals. Except as set forth in
Schedule 9.3 there is no requirement applicable to Purchaser to make any filing
with, or to obtain any permit, authorization, consent or approval of any public
body as a condition to the lawful consummation of the transactions contemplated
by this Agreement.
Section 9.4 Non-Contravention. The execution and delivery by
Purchaser of this Agreement does not and the consummation of the transactions
contemplated hereby will not (i) violate or result in a breach of any provision
of the certificate of incorporation or bylaws of Purchaser, (ii) result in a
default (or give rise to any right of termination, cancellation or
acceleration) under the terms, conditions, or provisions or any note, bond,
mortgage, indenture, license, agreement, lease or other instrument or
obligations to which Purchaser is a party or by which Purchaser may be bound or
(iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Purchaser.
Section 9.5 Brokers, Finders and Investment Bankers. Neither
Purchaser nor any of its respective officers, directors or employees has
employed any broker, finder or investment banker or incurred any liability for
investment banking fees, financial advisory fees or finders' fees in connection
with the transactions contemplated hereby.
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ARTICLE X
CERTAIN COVENANTS AND AGREEMENTS
Section 10.1 Taxes. All personal property taxes relating to
the Assets, if any, shall be prorated as of the Closing and borne by Seller and
Purchaser in their respective shares.
Section 10.2 Risk of Loss. Risk of loss in connection with
the tangible Assets passes to Purchaser upon delivery to the carrier.
Section 10.3 Reliance on Representations and Warranties.
Notwithstanding any investigation at any time conducted by any of the Parties
hereto, each of the Parties shall be entitled to rely on the representations
and warranties of each of the other Parties set forth herein or in any
schedule, exhibit, or document inspected or delivered pursuant to this
Agreement.
Section 10.4 Purchase of 10/100 ISA Chip Set.
(a) For a period of two(2)years after Closing, Seller will sell
and Purchaser will purchase Purchaser's requirements for
Seller's 10/100 ISA Chip Set (the "Chip Set"),and any updates
thereto, consisting of the Media Process Controller Chip
("MAC"), Seller's part number DP83800; Phy Chip ("PHY"),
Seller's part number DP83840; and Twister Chip ("Twister"),
Seller's part number DP83223. During this period, Seller will
sell the Chip Set at Seller's lowest price made available to
Seller's other customers purchasing similar quantities under
similar terms and conditions. Initial pricing for the Chip Set
is provided in Schedule 10.4.
(b) For a period of two (2) years after Closing, Seller will sell
and Purchaser may purchase Seller's MAC, PHY and Twister Chips
individually and any updates thereto at Seller's lowest price
made available to Seller's other customers purchasing similar
quantities under similar terms and conditions. For the
purpose of computing volume discounts hereunder, purchases of
complete Chip Sets, as well as purchase of individual chips,
will count in computing the volume purchased. Initial pricing
of the PHY and Twister Chips is provided in Schedule 10.4.
(c) The obligation for Purchaser to purchase its requirements for
the 10/100 Chip Set is dependent on: (i) Seller offering each
Chip Set at commercially competitive pricing and on
commercially competitive terms; (ii) the Chip Set being
available from Seller in amounts and on delivery schedules
required by Purchaser to meet its requirements; (iii) there
being no change to the detriment in the quality and
specifications of the Chip Set manufactured by Seller; and
(iv) no other manufacturer is
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offering at a price less than the combined price of the MAC,
Phy and Twister Chips, any chip products that combines the
function of all three chips into one chip product.
(d) Provided Purchaser does in fact purchase its requirements for
Chip Sets and otherwise complies with the terms of this
Agreement, Seller will not sell the MAC chip to any other
customers for a period of nine (9) months after Closing unless
the customer has represented in writing to Seller that it
intends to use the MAC chip for something other than Ethernet
cards used in a PCI or ISA bus compatible with the Windows/DOS
environment.
(e) All purchases of chips from Seller shall be made pursuant to
Seller's standard terms and conditions of sale contained in
Schedule 10.4(e), and shall be subject to approval of Seller's
credit department which approval will not be unreasonably
withheld or delayed.
(f) In the event Seller determines that it shall discontinue
production of any or all of the MAC, PHY or Twister chips,
then not less than one year prior to such discontinuance it
shall provide Purchaser with notice of discontinuance and an
opportunity to make a lifetime buy during the one year notice
period. If Seller has been the sole source of the chip, at
the end of the one year notice period, Seller will provide to
Purchaser all designs, mask works, production, schedule,
information, and other materials used by Seller to produce
such chip, in formats and on media agreed to by the Parties.
Purchaser shall have a nonexclusive worldwide, fully paid up,
irrevocable, nontransferable (except in connection with a sale
or transfer of Purchaser's Ethernet Card business), license to
use all such information, (including a license under any
necessary patents or copyrights) for the manufacture of such
chip or chips to support Purchaser's Ethernet Card business.
Section 10.5 Non-Competition. Seller hereby covenants and
agrees that Seller and any entity that directly or indirectly, through one or
more intermediaries controls, or is controlled by or is under common control
with Seller, shall not, in any manner (other than as authorized by Purchaser in
Purchaser's sole discretion), for a period of four (4) years from Closing,
directly or indirectly engage in any business which engages in the manufacture,
sale or distribution of Ethernet Cards or products directly competitive with
Ethernet Cards such as 10/100 PCI adapters. The foregoing shall not limit
Seller's ability to sell local area network integrated circuits either by
themselves or on a awe or to participate in markets involving superset
implementations of Ethernet technology such as IsoEthernet or markets involving
derivative implementations of Ethernet technology such as an ATM to Ethernet
bridge adapter. The foregoing shall also not limit Seller's right to sell,
use, or otherwise
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dispose of the NE 2000 Plus Inventory located in Japan and excluded from this
Agreement pursuant to Section 3.1(a) (i) or the PCMCIA Inventory located in
Japan and excluded from this Agreement pursuant to Section 3.1(a) (iv).
Section 10.6 Transition Period. For a period of 45 days after
Closing (the "Transition Period"), Seller will provide the following transition
assistance at Seller's expense:
(a) Seller will be responsible for and handle all warranty returns
for Ethernet Cards;
(b) Seller will provide technical support to its customers for
Ethernet Cards;
(c) Seller will make no changes to its telemarketing and account
managers supporting the Ethernet Card Business and will pay
commissions to its sales representatives on sales of Ethernet
Cards by Purchaser during the Transition Period, which sales
commissions shall be reimbursed to Seller by Purchaser within
thirty (30) days of Seller's invoice therefore;
(d) Seller will make available appropriate personnel from its
sales and marketing organization to assist in the transition
of sales efforts, including participating in joint sales calls
to distribution accounts, during the Transition Period;
(e) Seller will make available Mark Hoke or, if Mark Hoke is not
available, one other engineer specified by Seller, to work
with Purchaser on the transfer of engineering issues during
the Transition Period; and
(f) Seller will make available David Chin or, if David Chin is not
available, one other manufacturing person specified by Seller,
to work with Purchaser on the transfer of manufacturing issues
during the Transition Period.
Each Party shall pay for the travel costs of its own personnel
incurred during the Transition Period.
Section 10.7 Post Closing Assistance. In addition to the
assistance provided by Seller in the Transition Period, Seller agrees,
following the Closing to:
(a) refer to the Purchaser any customers, distributors, original
equipment manufacturers, or other person requesting to
purchase the Ethernet Cards and the 10/100 adapter card
assemblies;
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(b) promptly deliver to Purchaser all mail and other
communications it receives relating to the Assumed Obligations
or to the Business which are appropriately provided to
Purchaser as owner of the Business, including, but not limited
to, misdirected payments;
(c) provide to Purchaser reasonable incidental engineering support
and assistance, including but not limited to the engineering
assistance detailed in Schedule 10.7(c) for Purchaser to
smoothly transition the Business to Purchaser; and
(d) provide to Purchaser the Ethernet Card documentation package
and related intellectual property in such formats as the
Parties shall mutually agree. Thereafter, should Purchaser
discover that any of the information is incomplete, unusable,
or in the wrong format, or that certain of the Intellectual
Property has not been provided, it shall notify Seller which
shall promptly replace or furnish the requested information
provided Seller has confirmed that the information is in fact
incomplete, unusable or in the wrong format.
(e) In the event that Seller is not able to assign any warranties
given by Seller's vendors that relate to the Assets, Seller
will process warranty returns from Purchaser for Assets
manufactured by Seller's subcontractors and will deal directly
with Seller's subcontractors to obtain the warranty service.
Section 10.8 Conduct of Distribution Business Post-Closing.
As provided by Section 3. 7 (b), after Closing, Purchaser will accept and
process stock returns from Seller's distributors. Seller will keep all
distributor accounts receivable. If a distributor wishes to return Ethernet
Card product to Seller for credit against distributor's account receivable,
Seller will accept the return of the product and sell it to Purchaser at
Seller's standard cost. Any sales to Purchaser under this section will be
subject to Seller's standard terms and conditions of sale and Seller's credit
department requirements.
Section 10.9 Assembly of 10/100 Ethernet Cards. Upon
Purchaser's placement of a purchase order therefore, Seller will arrange for
the assembly of the approximately 19,100 raw material kits of 10/100 adapter
card assemblies excluded from this Agreement pursuant to Section 3.1(a) (ii) .
Seller will sell the finished products to Purchaser once assembly is complete
at Seller's standard cost of $71.65. Purchaser shall pay for the 10/100
adapter cards within thirty (30) days of date of Seller's invoice or
Purchaser's receipt of the finished goods whichever is later.
Section 10.10 Financial Statements. Should it be determined
that it is necessary for Purchaser to file a Form 8-K with the Securities and
Exchange
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Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), Seller shall deliver to Purchaser, not later than seventy (70) days
after the date of this Agreement such audited financial statements and interim
unaudited financial statements for the Business as may be required by
Regulation S-X of the Securities and Exchange Commission S-X for the fiscal
periods required to be reported by Purchaser in its filings with the Securities
and Exchange Commission under the Exchange Act prepared by an independent
accounting firm of national recognition, that is reasonably acceptable to
Purchaser, all in accordance with generally acceptable accounting principles,
consistently applied. Seller shall pay the fees of the independent accounting
firm and Purchaser shall reimburse Seller for the first $12,500.00 of such fees
and one half of all fees in excess of $25,000.00. Purchaser shall make such
reimbursement to Seller within thirty (30) days of Seller's invoice for the
fees.
ARTICLE XI
INDEMNIFICATION
Section 11.1 Indemnification Obligations of Seller. From and
after Closing, the Seller shall indemnify and hold harmless Purchaser and its
subsidiaries and affiliates, each of their respective officers, directors,
employees, agents and representatives and each of their heirs, executors,
successors and assigns of any of the foregoing (collectively, the "Purchaser
Indemnified Parties") from, against and in respect of any and all claims,
liabilities, obligations, losses, costs, expenses, penalties, fines, and other
judgments (at equity or at law) and damages whenever arising or incurred
(including, without limitation, amounts paid in settlement, costs of
investigation and reasonable attorneys' fees and expenses) arising out of or
relating to:
(a) Any Excluded Liability or any and all other liabilities and
obligations of Seller of any nature whatsoever, except the
Assumed Obligations;
(b) Any and all actions, suits, claims, or legal, administrative,
arbitration, governmental or other proceedings or
investigations against any Purchaser Indemnified Party that
relate to Seller, the Business or the Assets, to the extent
the principal event giving rise thereto occurred prior to the
Closing or which result from or arises out of any action or
inaction prior to the Closing of Seller or any affiliate,
officer, director, employee, agent, representative or
subcontractor of Seller, except to the extent such claim is
based on an Assumed Obligation; and
(c) Any material breach of any representation, warranty, covenant,
agreement or undertaking made by Seller in this Agreement or
in any agreement, schedule or other writing delivered by
Seller to Purchaser in connection with the matters
contemplated hereby or pursuant to the
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provisions hereof. For purposes of this section, any item in
excess of $100,000 shall be considered material.
Section 11.2 Indemnifications Obligations of Purchaser. From
and after the Closing, Purchaser shall indemnify and hold harmless Seller and
its subsidiaries and affiliates, each of their respective officers, directors,
employees, agents and representatives and each of their heirs, executors,
successors and assigns of any of the foregoing (collectively, the "Seller
Indemnified Parties") from, against and in respect of any and all claims,
liabilities, obligations, losses, costs, expenses, penalties, fines, and other
judgments (at equity or at law) and damages whenever arising or incurred
(including, without limitation, amounts paid in settlement, costs of
investigation and reasonable attorneys' fees and expenses) arising out of or
relating to:
(a) Any Assumed Obligations; and
(b) Any and all actions, suits, claims, or legal and
administrative arbitration, government or other proceedings or
investigations against any Seller Indemnified Party that
relate to Purchaser, the Business or the Assets to the extent
the principal event giving rise thereto occurred after the
Closing or which result from or arise out of any action or
inaction after the Closing of Purchaser or any affiliate,
officer, director, employee, agent, representative or
subcontractor of Purchaser; and
(c) Any material breach of any representation, warranty, covenant,
agreement or undertaking made by Purchaser in this Agreement
or in any agreement, schedule or other writing delivered by
Purchaser to Seller in connection with the matters
contemplated hereby or pursuant to the provisions hereof. For
purposes of this section, any item in excess of $100,000 shall
be considered material.
ARTICLE XII
MARKETING EFFORTS
Seller and Purchaser shall cooperate in marketing efforts for the
10/100 ISA products, which cooperative efforts will be known as the 10/100
Alliance. Such cooperative efforts shall be as agreed to by the Parties, and
shall include the following:
(a) Seller and Purchaser shall use reasonable best efforts to
secure the cooperation and full equal participation of Novell
in the 10/100 Alliance.
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(b) Seller will plan, host and absorb the cost for a marketing
kickoff event in the form of a press conference to be held
either at a facility of Seller's choosing or at NetWorld +
Interop with the goal to maximize press exposure to the 10/100
Alliance. Purchaser shall ensure the appearance of the
appropriate Novell executives at the press conference. At
least two Senior executive of Seller chosen by Seller and two
senior executives of Purchaser chosen by Purchaser shall
attend the press conference.
(c) Seller will give Purchaser any credits due under Section 5.4
of the Novell SOW2 which credits will be used for a joint
10/100 Alliance ad campaign.
Provided Seller fulfills its obligations under (b) and (c) above,
Seller will not be required to pay any additional funds for joint marketing or
ad campaigns.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Notices. All notices, communications and
deliveries hereunder shall be made in writing signed by the Party making the
same, shall specify the Section hereunder pursuant to which it is given or
being made, and shall be deemed given or made on the date delivered if
delivered in person, on the date initially received if delivered by facsimile
transmission followed by registered or certified mail confirmation, on the date
delivered if delivered by a nationally recognized overnight courier service or
on the third (3rd) business day after it is mailed by registered or certified
mail (return receipt requested) (with postage and other fees prepaid) as
follows:
To Purchaser: Microdyne Corporation
3601 Eisenhower Avenue
Alexandria, Virginia 22304
Attention: Christopher M. Maginniss
Facsimile No. (703) 739-0558
With a Copy to: McGuire, Woods, Battle & Boothe, L.L.P.
8280 Greensboro Drive, Suite 900
McLean, Virginia 22102
Attention: Jocelyn West Brittin
Facsimile No. (703) 712-5050
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To Seller: National Semiconductor Corporation
2900 Semiconductor Drive M/S 16-135
Santa Clara, California 95052
Attention: General Counsel
Facsimile: (408) 733-0293
With a Copy to: National Semiconductor Corporation
2900 Semiconductor Drive M/S 16-135
Santa Clara, California 95052
Attention: Douglas McBurnie
Facsimile: (408) 821-3067
or to such other representative or at such other address of a party as such
party hereto may furnish to the other Parties in writing.
Section 13.2 Assignment, Successors in Interest. No
assignment or transfer by Purchaser or Seller of their respective rights and
obligations shall be made except with the prior written consent of the other
party hereto. This Agreement shall be binding upon and shall inure to the
benefit of the Parties hereto and their permitted successors and assigns and
any reference to a party hereto shall also be a reference to a permitted
successor or assign.
Section 13.3 Representations and Warranties. The
representations and warranties of Seller and Purchaser set forth in this
Agreement shall survive the Closing Date for three years. Notwithstanding
anything to the contrary set forth in this Section 13.3, the covenants and
agreements of Seller and Purchaser set forth herein shall remain in full force
and effect until duly satisfied or performed by the appropriate party hereto.
Section 13.4 Number; Gender. Whenever the context so
requires, the singular number shall include the plural and the plural shall
include the singular, and the gender of any pronoun shall include the other
genders.
Section 13.5 Captions. The titles and captions contained in
this Agreement are inserted herein only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof.
Section 13.6 Integration. This Agreement supersedes all
negotiations, agreements and understandings between the Parties with respect to
the subject matter hereof and constitutes the entire agreement between the
Parties hereto.
Section 13.7 Governing Law. This Agreement shall be deemed to
be made in, and in all respects shall be interpreted, construed and governed by
and in
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accordance with, the laws of the Commonwealth of Virginia, without regard to
its choice of law rules.
Section 13.8 Amendment. This Agreement may be amended,
modified or supplemented only upon written agreement executed by each of the
Parties hereto.
Section 13.9 Severability. Any provision hereof which is
prohibited or unenforceable in any jurisdiction will, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforcability in any jurisdiction will not invalidate or render unenforceable
such provision in any other jurisdiction. To the extent permitted by law, the
Parties hereto waive any provision of law which renders any such provision
prohibited or unenforceable in any respect.
Section 13.10 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
MICRODYNE CORPORATION NATIONAL SEMICONDUCTOR CORPORATION
By: By:
------------------------------ ---------------------------------
Title: Title:
--------------------------- ------------------------------
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EXHIBIT 23.2
[Grant Thornton LLP Letterhead]
We have issued our report dated November 2, 1995, accompanying the
consolidated financial statements of Microdyne Corporation contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption, "Experts."
/S/ GRANT THORNTON LLP
Vienna, Virginia
November 7, 1995
<PAGE> 1
[KPMG PEAT MARWICK LLP LETTERHEAD]
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement on
Form S-3 of Microdyne Corporation of our report dated April 3, 1995 with respect
to the balance sheets of Eagle Technology (a business unit of Artisoft, Inc.)
as of June 30, 1994 and December 31,1994 and the related statements of
operations and business unit equity and cash flows for the six month periods
ended June 30, 1994 and December 31, 1994, which report appears in the Form
8-K/A of Microdyne Corporation dated April 11, 1995 and to the reference to our
firm under the heading "Experts" in the registration statement.
/s/KPMG PEAT MARWICK LLP
Phoenix, Arizona
November 8, 1995
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 (No. 33-63737) of
our report dated January 27, 1994 relating to the financial statements of Eagle
Technology, which appears on page 15 of Microdyne Corporation's Form 8-K/A
dated April 11, 1995. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/PRICE WATERHOUSE LLP
- -----------------------
PRICE WATERHOUSE LLP
San Jose, California
November 7, 1995
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