<PAGE>
PROSPECTUS
2,255,833 SHARES
RADYNE CORP.
COMMON STOCK
------------------
Radyne Corp., a New York corporation (the "Company" or "Radyne"), is
distributing subscription rights entitling the holder of each subscription right
to purchase one share of the Company's Common Stock, par value $.002 per share
(the "Common Stock"), for $2.50 (the "Subscription Price") during a specified
period. Of the subscription rights, approximately 215,833 (the "Shareholder
Rights") will be distributed to holders of record of shares of the Common Stock
as of the close of business on January 15, 1997 (the "Record Date"), other than
Stetsys US, Inc. ("ST") and residents of California. In addition to the
Shareholder Rights, 2,040,000 subscription rights (the "ST Rights") will be
distributed to Stetsys Pte Ltd, the parent company of ST. Of the 2,040,000 ST
Rights, up to 74,000 will be made available by Stetsys Pte Ltd to employees of
ST affiliates, including non-employee directors of the Company. Shareholders
(other than ST and residents of California) will be entitled to three
Shareholder Rights for every five shares of Common Stock held on the Record Date
(as adjusted for a 1-for-5 reverse stock split approved by the shareholders on
January 8, 1997 and effective on January 9, 1997). The number of ST Rights has
been similarly determined, i.e. there will be three ST Rights for every five
shares of Common Stock held by ST on the Record Date (as adjusted for such
reverse split). However, under certain circumstances described below, up to
280,000 ST Rights will be unexercisable. No fractional Rights will be issued.
The Shareholder Rights and the ST Rights are hereinafter referred to as the
"Rights." The Rights will in general expire at 5:00 p.m., New York time, on June
16, 1997, unless extended by the Company (such date, as it may be extended on
one or more occasions, is referred to herein as the "Expiration Date"). The
Shareholder Rights will be freely transferable, but the ST Rights will have only
limited transferability. The distribution of the Shareholder Rights and the ST
Rights and the sale of shares of Common Stock in connection therewith are
collectively referred to herein as the "Rights Offering." The shares of Common
Stock underlying the Rights are referred to herein as the "Rights Shares" and
holders of Rights are referred to herein as "Holders." See "The Rights
Offering."
Concurrently with the distribution of the Rights, 280,000 options (the
"Rights Options") granted under the Company's 1996 Incentive Stock Option Plan
will become exercisable at the Subscription Price until May 30, 1997. The Rights
Options were granted by the Board on November 13, 1996, and extended on March 3,
1997, at the request of ST. In order to ensure that ST's interest, rather than
the other shareholders' interests, in the Company would be diluted by the
exercise of the Rights Options, 280,000 of the ST Rights will not be
exercisable, if at all, until the Expiration Date. A portion of these 280,000 ST
Rights, up to the number of Shareholder Rights and Rights Options, if any, which
expire unexercised, will then be exercisable during the five business days
following the Expiration Date.
The Common Stock is not currently traded in an established market and, as a
result, there is only a limited trading market in the Company's Common Stock.
The Company's Common Stock is traded over the counter, is not listed on any
exchange, and is currently not quoted by "NASDAQ." See "Price Range of Common
Stock." The Subscription Price has been established by the Board in part in
reliance upon the opinion of an investment banking firm, which opinion is
described commencing on page 16. See "Purpose of the Rights Offering and Use of
Proceeds." Although the Shareholder Rights are transferable, the Shareholder
Rights are not expected to trade on any securities exchange or over the counter
and no assurance can be given that any market for the Shareholder Rights will
develop. See "The Rights Offering."
Funds provided in payment of the Subscription Price may be sent to the
Company or to Continental Stock Transfer & Trust Company, as the Subscription
Agent. In the latter case, such funds will be held by the Subscription Agent
until the issuance of the related Rights Shares, which will occur promptly after
exercise. The exercise of Rights will be irrevocable once made, and no interest
will be paid to Holders exercising their Rights.
--------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
SUBSCRIPTION PRICE DISCOUNT COMPANY (1)
Per Share.................................. $2.50 N/A $2.50
<S> <C> <C> <C>
Total(2)................................... $5,639,582.50 N/A $5,639,582.50
</TABLE>
(1) Before deducting estimated expenses of $260,000, which are payable by the
Company.
(2) Represents the maximum total subscription and purchase price and total
proceeds to the Company. The actual amount could be less.
--------------------------
THE DATE OF THIS PROSPECTUS IS MAY 12, 1997
<PAGE>
AVAILABLE INFORMATION
The Company intends to furnish to its stockholders annual reports, which
will include financial statements audited by independent accountants, and such
other periodic reports as it may determine to furnish or as may be required by
law, including Sections 13(a) and 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington D.C. 20549, a registration
statement on Form S-1 (the "Registration Statement"), including amendments
thereto, under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits and
schedules filed therewith, as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Rights
Offering, reference is hereby made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
as to the contents of any contract or other document which has been filed as an
exhibit to the Registration Statement are qualified in their entirety by
reference to such exhibits for a complete statement of their terms and
conditions. The Registration Statement and the exhibits and schedules thereto
may be inspected without charge at the offices of the Commission and copies of
all or any part thereof may be obtained from the Commission's principal office
at 450 Fifth Street, N.W., Washington D.C. 20549 or at certain of the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, upon payment of the fees prescribed by the Commission. Electronic
registration statements filed through the Electronic Data Gathering, Analysis,
and Retrieval system are publicly available through the Commission's Web site
(http://www.sec.gov).
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED HEREIN, THE INFORMATION
IN THIS PROSPECTUS DOES NOT GIVE EFFECT TO UP TO 1,282,042 SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE PURSUANT TO THE COMPANY'S 1996 INCENTIVE STOCK
OPTION PLAN (THE "PLAN"). THE INFORMATION IN THIS PROSPECTUS RELATING TO SHARES
OF COMMON STOCK AND PER SHARE AMOUNTS GIVES EFFECT TO A 1-FOR-5 REVERSE STOCK
SPLIT WHICH BECAME EFFECTIVE ON JANUARY 9, 1997. FOR THE MEANINGS OF CERTAIN
TECHNICAL TERMS USED IN THIS PROSPECTUS IN REGARD TO THE BUSINESS OF THE
COMPANY, PLEASE SEE THE GLOSSARY COMMENCING ON PAGE 58.
THE COMPANY
Radyne has been involved in the advanced design and production of digital
data communications equipment and associated equipment for satellite
telecommunications systems for over sixteen years. Since the Company's inception
in 1980, Radyne has established itself as a supplier in the satellite ground
equipment business.
Radyne designs, manufacturers and sells satellite modems, frequency
converters, ancillary products and equipment racks containing integrated modems
and supporting equipment for data communications.
Although the Company was forced to file for Chapter 11 bankruptcy protection
in April 1994, it successfully emerged from bankruptcy in December of that year
upon the acquisition of approximately 91% of its Common Stock by Engineering and
Technical Services, Inc. ("ETS"), then a major customer of Radyne. On August 12,
1996, ETS was acquired by Singapore Technologies Pte Ltd through its indirect
wholly owned subsidiary, Stetsys US, Inc. ("ST"). As a result, approximately 91%
of the Company's Common Stock is now held by ST. ST is wholly owned by Stetsys
Pte Ltd, which is wholly owned by Singapore Technologies Pte Ltd, which is in
turn wholly owned by Temasek Holdings (Private) Limited, the sole shareholder of
which is the Minister for Finance (Incorporated) of Singapore. See "Principal
and Management Stockholders."
In 1995, ETS caused Radyne to install a new management team, which promptly
moved the Company's operations from New York to Phoenix, Arizona and commenced
the hiring of an almost all new staff of engineering, sales and support
personnel. With funding provided by ETS, and subsequently ST and its affiliates,
the new Radyne team has reinstituted Radyne's research, development and
marketing programs and reinvigorated its product line.
The Company's engineering staff and support facilities are dedicated to (i)
maintaining the state-of-the-art status of Radyne's traditional products for the
satellite ground equipment segment of the market, (ii) designing and enhancing
products for emerging markets, such as rural telephony for developing areas,
high-speed satellite communications, government data equipment and the growing
private network market, and (iii) providing special configurations to satisfy
customers' special needs.
Radyne's modems cover data rates from 2.4 Kilobytes per second to 50
Megabytes per second. The Company's frequency converters handle all three
frequency bands used in satellite communications. Radyne believes that most of
its current line of modems and converters are smaller and lower priced than the
previous generation of products, enabling large system installation in
significantly less rack space than the products of the Company's competitors.
The Company also markets redundancy switches which operate in conjunction with
satellite modems and converters and provide automatic fault monitoring and
switch over to standby equipment in the event of modem or converter failure.
Radyne's line of frequency converter products is usable in virtually all
earth stations for the conversion of intermediate frequencies to microwave
frequencies for satellite transmission. These converters are competitively
priced, small in size and offer either single, dual or all three bands used in
the satellite industry. In addition to being offered to commercial customers,
there is a military market for the three-band units.
3
<PAGE>
The Company's newer products include a low cost modem with expanded features
and super fast acquisition capabilities, making it attractive for use in both
private networks and rural telephone systems being offered in China, Indonesia
and India, and a line of satellite frequency translators presently used for
testing in satellite earth stations.
The development of digital compression technology has allowed the
transmission of television in a small bandwidth which has made TV transmission
by satellite more economical than ever before. Video compression allows 10 to 12
times as many channels on a satellite as before, producing a new market of major
interest. This compression technology is or may be used for transmission of TV
to all network facilities, distribution of cable TV to cable companies, high
definition TV distribution and video teleconferencing. Radyne has developed a
modulator product to be used in conjunction with compression equipment and has
been shipping this product for the past ten months.
Radyne's operating strategy is to (i) continue to build on the experience,
skills and customer access of its new management team, (ii) capitalize on its
development of smaller, less costly satellite modems, and (iii) expand into
market segments, such as rural telephone, private networks and compressed
television transmission. See "Business."
Notwithstanding the foregoing, investors should be aware that the Company's
plans are subject to a number of variables outside of its control, and there can
be no assurance that the Company will be able to implement any or all of such
plans or that such plans, when and if implemented, will be successful. See "Risk
Factors."
Radyne was incorporated in the State of New York on November 25, 1980. The
Company's current address is 5225 South 37th Street, Phoenix, Arizona 85040 and
its telephone number is (602) 437-9620.
PURPOSE OF THE RIGHTS OFFERING AND USE OF PROCEEDS
The Rights Offering, together with the Rights Options, is intended to raise
approximately $5,640,000 of gross proceeds as part of the Company's on-going
efforts to improve its ability to fund the growth of its business, in particular
the cash needs associated with sharply increased orders for Radyne products. In
establishing the size of the Rights Offering, the Board of Directors consulted
with management, and considered the Company's need for additional capital.
If the Rights Offering is consummated, the maximum gross proceeds to the
Company from the Rights Offering, together with the Rights Options, would be
approximately $5,640,000 before payment of related fees and expenses estimated
to be $260,000. However, although the Company has been informed that ST's
affiliate, Stetsys Pte Ltd ("SPL"), intends to fully exercise its ST Rights, no
assurance can be given that any or all of the Rights received by others or the
Rights Options will be exercised. Shares underlying any unexercised Rights will
not be reoffered to the public or otherwise. Therefore, the actual proceeds from
the Rights Offering could be somewhat lower.
The Company currently expects that the net proceeds from the Rights Offering
will be used to repay the Company's indebtedness to ST (approximately $4,133,000
including principal and interest) and either to reduce the Company's short-term
bank debt or for general corporate and working capital purposes (including
research and development costs), although a final determination as to the use or
uses will not be made until after the completion of the Rights Offering. Factors
that will be considered at that time in determining how the net proceeds will be
used will include: the amount of net proceeds actually generated, the Company's
actual and projected working capital requirements at that time, the amount of
the Company's bank debt, interest rates in effect at that time and such other
factors as the Board of Directors considers to be relevant at that time. For a
description of the Company's debt, including interest rates, maturity dates and
use of proceeds from such debt, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
4
<PAGE>
The Subscription Price has been established by the Board of Directors at
$2.50 per share, which the Board considers to be the fair market value of the
Common Stock. See "Purpose of the Rights Offering and Use of Proceeds."
THE RIGHTS OFFERING
<TABLE>
<S> <C>
Shareholder Rights..................... Shareholders, other than ST and residents of
California, will receive three Rights for every
five shares of Common Stock held on the Record
Date, as adjusted by the 1-for-5 reverse stock
split approved by the shareholders on January 8,
1997 and effective on January 9, 1997 (the "Reverse
Split"). An aggregate of approximately 215,833
Shareholder Rights will be distributed. Holders are
entitled to purchase at the Subscription Price one
share of Common Stock for each Shareholder Right
exercised. The Shareholder Rights will expire on
the Expiration Date. The Shareholder Rights will be
transferable. No fractional Shareholder Rights will
be issued.
ST Rights.............................. SPL will receive three Rights for every five shares
of Common Stock held by ST on the Record Date (as
adjusted for the Reverse Split), a total of
2,040,000 Rights, each entitling the Holder to
purchase one share of Common Stock at the
Subscription Price. SPL will make available up to
74,000 of such Rights to employees of its
affiliates, including non-employee directors of the
Company. The ST Rights will otherwise be
nontransferable. The ST Rights will expire on the
Expiration Date, except that 280,000 of such Rights
will be exercisable, if at all, only during the
five business days next following the Expiration
Date. See "Rights Options" below.
Rights Options......................... Concurrently with the distribution of the Rights,
280,000 options (the "Rights Options") granted
under the Company's 1996 Incentive Stock Option
Plan will become exercisable at the Subscription
Price until May 30, 1997. The Rights Options were
granted by the Board on November 13, 1996, and
extended on March 3, 1997, at the request of ST. In
order to ensure that ST's interest, rather than the
other shareholders' interests, in the Company would
be diluted by the exercise of the Rights Options,
280,000 of the ST Rights will not be exercisable,
if at all, until the Expiration Date. A portion of
these 280,000 ST Rights, up to the number of
Shareholder Rights and Rights Options, if any,
which expire unexercised, will then be exercisable
during the five business days following the
Expiration Date. See "Management--Stock Option
Plan.")
Subscription Price..................... $2.50 per Rights Share.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Record Date............................ January 15, 1997.
Transferability of Shareholder
Rights............................... The Shareholder Rights will be transferable, but it
is not anticipated that a market will be made in
the Rights or that they will be listed for trading
on any exchange. Because subscriptions cannot be
accepted from residents of California, Shareholder
rights may not be transferred to such residents.
Expiration Date........................ 5:00 p.m., New York time, on June 16, 1997, unless
the Board of Directors determines that a material
event has occurred that necessitates one or more
extensions of the Expiration Date in order to
permit adequate disclosure to Holders of
information concerning such event.
Procedure for Exercising Rights........ Rights may be exercised by properly completing the
certificate evidencing such Rights (a "Subscription
Certificate") and forwarding such Subscription
Certificate to the Subscription Agent or the
Company (or following the Guaranteed Delivery
Procedures, referred to below) on or prior to the
Expiration Date, together with payment in full of
the Subscription Price with respect to such Rights.
If the mail is used to forward Subscription
Certificates, it is recommended that insured,
registered mail be used. The exercise of a Right
may not be revoked or amended. If time does not
permit a Holder of a Right to deliver its
Subscription Certificate to the Subscription Agent
or the Company on or before the Expiration Date,
such Holder should make use of the Guaranteed
Delivery Procedures described under "The Rights
Offering-- Exercise of Rights."
THE EXERCISE OF RIGHTS IS IRREVOCABLE ONCE MADE. NO
INTEREST WILL BE PAID ON THE MONEY DELIVERED IN
PAYMENT OF THE SUBSCRIPTION PRICE.
If paying by uncertified personal check, please
note that the funds paid thereby may take at least
five business days to clear. Accordingly, Holders
who wish to pay the Subscription Price by means of
uncertified personal check are urged to make
payment sufficiently in advance of the Expiration
Date to ensure that such payment is received and
clears by such date and are urged to consider
payment by means of certified or cashier's check or
money order.
A Right may not be exercised in part and fractional
Rights Shares will not be issued.
Condition to Exercise by
Shareholders......................... Any shareholder of record who wishes to exercise a
Shareholder Right must submit his Common Stock
share certificate(s), either simultaneously with
his Subscription Certificate or prior to that time,
for exchange into a new share certificate
reflecting the Reverse Split. SUBSCRIPTION
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
CERTIFICATES WILL NOT BE ACCEPTED FROM SHAREHOLDERS
OF RECORD WHO DO NOT COMPLY WITH THIS REQUIREMENT.
However, this requirement will not affect the
transferability of Shareholder Rights.
Persons Holding Shares, or Wishing to
Exercise Rights, Through Others...... Persons holding shares of Common Stock, and
receiving Shareholder Rights distributable with
respect thereto, through a broker, dealer,
commercial bank, trust company or other nominee, as
well as persons holding certificates for Common
Stock personally who would prefer to have such
institutions effect transactions relating to the
Shareholder Rights on their behalf, should contact
the appropriate institution or nominee and request
it to effect the transactions for them.
Issuance of Common Stock............... Certificates representing Rights Shares issuable
upon exercise of Rights will be delivered to the
Holder of such Rights as soon as practicable after
such Rights are validly exercised. Funds delivered
to the Subscription Agent will be held by the
Subscription Agent until the issuance of the
related Rights Shares. No interest will be paid to
Holders on funds held by the Subscription Agent
regardless of whether such funds are applied to the
Subscription Price or returned to the Holders.
Subscription Agent..................... Continental Stock Transfer & Trust Company
Information............................ Any questions regarding the Rights Offering,
including the procedure for exercising Rights, and
requests for additional copies of this Prospectus,
the Subscription Certificate or the notice of
guaranteed delivery should be directed to the
Company at 5225 South 37th Street, Phoenix, Arizona
85040, Attention: Director of Administration.
Telephone: (602) 437-9620.
Maximum Shares of Common Stock
Outstanding after the Rights
Offering............................. 6,015,554 shares based on 3,759,721 shares
outstanding on December 31, 1996 after adjustment
for the Reverse Split. Does not give effect to the
issuance of 1,002,042 shares reserved for issuance
upon the exercise of options (other than Rights
Options) heretofore granted or that may be granted
from time to time under the 1996 Incentive Stock
Option Plan.
</TABLE>
For more information regarding the Rights Offering, including the procedure
for exercising Rights, see "The Rights Offering."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
See "Certain Federal Income Tax Consequences" for a discussion of certain
tax consequences that should be considered in connection with the Rights
Offering.
7
<PAGE>
RISK FACTORS
The purchase of Rights and the purchase of Common Stock in the Rights
Offering involve investment risks relating to the Company, to the data
communications equipment industry in general and to the Rights Offering.
Investors are urged to read and consider carefully the information set forth
under the heading "Risk Factors."
THE BOARD OF DIRECTORS OF THE COMPANY MAKES NO RECOMMENDATION TO HOLDERS
WITH RESPECT TO WHETHER A HOLDER SHOULD EXERCISE RIGHTS TO PURCHASE SHARES OF
COMMON STOCK PURSUANT TO THE RIGHTS OFFERING OR TO PERSONS WITH RESPECT TO
WHETHER A PERSON SHOULD PURCHASE RIGHTS.
8
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SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
PREDECESSOR(1)
----------------------------
SIX MONTHS TEN AND ONE-
ENDED SIX AND HALF YEAR
DECEMBER YEAR ONE-HALF MONTHS ENDED ENDED
31, ENDED MONTHS ENDED DECEMBER 16, JANUARY 31,
1996(2) JUNE 30, 1996 JUNE 30, 1995 1994 1994
---------- -------------- ------------- ------------ --------------
Net sales................ $4,905,059 $ 3,829,523 $ 1,861,262 $2,569,396 $ 4,966,617
<S> <C> <C> <C> <C> <C>
Cost of sales............ 4,052,433 2,559,350 1,228,747 2,229,329 5,620,108
Gross profit (loss)...... 852,626 1,270,173 632,515 340,067 (653,491)
Selling, general, and
administrative
expenses............... 1,437,971 1,843,576 961,162 1,658,388 3,363,893
Asset impairment
charge(3).............. 421,000
Research and
development............ 808,025 1,794,823 785,679
Operating loss........... (1,814,370) (2,368,226) (328,647) (1,918,519) (4,803,063)
Interest expense......... 255,604 256,871 36,209 118,235 634,061
Professional fees related
to reorganization...... 600,198
Loss before fresh start
adjustments and
extraordinary items.... $(2,069,974) $ (2,625,097) $ (364,856) $(2,036,754) $ (5,437,124)
Fresh start
adjustments............ 1,598,841
Loss before extraordinary
items.................. $(2,069,974) $ (2,625,097) $ (364,856) $ (437,913) $ (5,437,124)
Extraordinary items(4)... 2,699,156
Net income (loss)........ $(2,069,974) $ (2,626,097) $ (364,856) $2,261,243 $ (5,437,124)
Net loss per share before
extraordinary items.... $ (.55) $ (.70) $ (.10) $ (1.33) $ (21.30)
Net income (loss) per
share.................. $ (.55) $ (.70) $ (.10) $ 6.87 $ (21.30)
Weighted average number
of outstanding
shares................. 3,750,699 3,742,227 3,729,721 329,020 255,169
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
AT DECEMBER 31, 1996
------------------------------------
PRO AS
ACTUAL FORMA(5) ADJUSTED(6)
---------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents........................ $ 186,488 $ 186,488 $ 186,488
Working capital (deficit)........................ (5,851,527) (5,851,527) (471,944)
Total assets..................................... 6,572,917 8,972,917 8,972,917
Long-term liabilities............................ 161,968 161,968 161,968
Total liabilities................................ 11,019,543 13,419,543 8,039,960
Stockholder equity (deficit)..................... (4,446,626) (4,446,626) 932,957
</TABLE>
- ------------------------
(1) The Company petitioned for bankruptcy protection in April 1994 and operated
as a debtor-in-possession until December 16, 1994.
(2) The Company has changed its fiscal year to the calendar year.
(3) Consists of the writedown of designs and drawings in light of the
introduction of replacement products.
(4) Consists of $1,062,667 gain on exchange of debt for common stock and
$1,636,489 gain on debt forgiveness.
(5) Gives effect to an approximately $2,400,000 increase in short-term
indebtedness after December 31, 1996.
(6) Adjusted to reflect the receipt by the Company of the estimated net proceeds
of $5,379,583 from the sale of the Rights Shares at the offering price of
$2.50 per Rights Share and the application of the net proceeds therefrom to
the repayment of short-term debt. See "Purpose of the Rights Offering and
Use of Proceeds."
9
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK IS HIGHLY SPECULATIVE, INVOLVES A HIGH
DEGREE OF RISK, AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT
DECISION, SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER MATTERS REFERRED TO
IN THIS PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND NOTES THERETO, THE
FOLLOWING RISK FACTORS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE IMPLIED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND
ELSEWHERE IN THIS PROSPECTUS. THE ORDER IN WHICH THESE CONSIDERATIONS ARE
PRESENTED SHOULD NOT BE INTERPRETED AS BEING INDICATIVE OF THEIR RELATIVE
IMPORTANCE. THIS SECTION CONTAINS FORWARD-LOOKING STATEMENTS. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS."
LOSSES FROM RECENT OPERATIONS; WORKING CAPITAL DEFICIENCY
The Company incurred operating losses of $1,814,370, $2,368,226 and
$328,647, respectively, during the six months ended December 31, 1996, the year
ended June 30, 1996 and the six and one-half months ended June 30, 1995. The
Company's operating loss for the six month period ended December 31, 1996
exceeded 75% of the operating loss for the preceding twelve month period,
primarily as a result of increased cost of sales as a percentage of net sales
and an asset impairment charge, both of which were associated with the
accelerated pace of the Company's updating of its product lines. As of December
31, 1996, the Company had a working capital deficiency of $5,851,527. The
Company has been largely dependent upon loans from ETS, ST and its affiliates to
satisfy its working capital requirements. See "Debt Financing" below and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Accordingly, the likelihood of the future success of the Company
must be considered in light of its recent bankruptcy and the possibility of
future operating losses, as well as the problems, expenses, difficulties, risks
and complications frequently encountered in connection with similarly situated
companies. In addition, the Company's future plans are subject to known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance implied
herein. See "Recent Bankruptcy" below and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEBT FINANCING
The Company has been largely dependent on a succession of short-term loans
and guarantees from its controlling shareholder and affiliates thereof since it
emerged from Chapter 11 protection on December 16, 1994. At present Radyne has
short-term indebtedness of $4,100,000 to ST, payable on July 31, 1997, and has
$10,500,000 in bank lines of credit on which it owes approximately $6,900,000.
Although the Company's indebtedness to the banks is not supported by a guarantee
or any other form of binding agreement, the banks have been provided with
letters of awareness by ST's grandparent corporation, Singapore Technologies Pte
Ltd. Certain loans pursuant to these bank lines are demand loans. There can be
no assurance that the banks will not demand repayment at an inopportune time for
the Company or that ST and its affiliates will continue to assist the Company in
maintaining such financing. If the Company were to fail to realize substantially
the anticipated net proceeds of the Rights Offering, its ability to repay its
indebtedness (including its indebtedness to ST) and its financial condition
could be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ADDITIONAL FINANCING REQUIREMENTS
Based on the Company's operating plan, the Company believes that the net
proceeds of the Rights Offering, together with cash flows from operations and
funding available under its bank credit lines, will be sufficient to satisfy its
capital requirements and finance its plans for expansion for at least the next
18 months. Such belief is based on certain assumptions, including without
limitation the respective rates of growth of the Company's orders and sales, and
there can be no assurance that such assumptions are
10
<PAGE>
correct. Accordingly, there can be no assurance that such resources will be
sufficient to satisfy the Company's capital requirements for such period. After
such 18-month period, the Company anticipates that it may require additional
financing in order to meet its current plans for expansion. Such financing may
take the form of the issuance of common or preferred equity securities or debt
securities, or may involve additional bank financing. There can be no assurance
that the Company will be able to obtain such additional capital on a timely
basis, on favorable terms, or at all. See "Purpose of the Rights Offering and
Use of Proceeds," "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RECENT BANKRUPTCY
In April 1994, Radyne sought protection from creditors under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code"). By order dated
December 16, 1994, a Plan of Reorganization was confirmed by the United States
Bankruptcy Court for the Eastern District of New York and the Company emerged
from protection under Chapter 11 of the Bankruptcy Code. Despite the belief of
the Company that the confluence of circumstances which caused the Company to
seek bankruptcy protection no longer persists, the business and reputation of
the Company have undoubtedly been damaged. See "Business-- Bankruptcy
Reorganization."
DEPENDENCE ON FACILITY
The Company maintains only one facility. Accordingly, any disruption or
suspension in the operations of the Facility would require the Company to seek
alternative facilities. While the Company believes that it would be able to
arrange for a suitable alternative facility without any significant interruption
in its business operations, there can be no assurance thereof. If for any reason
a suitable alternative facility could not be found, the Company's operations
could be materially and adversely affected. See "Business-- Facilities."
DEPENDENCE ON INTERNATIONAL MARKETS
The Company's success will be materially dependent upon its ability to
continue to successfully market video and data communication products in both
international and domestic markets. The Company's export sales, as a percentage
of net sales, increased from approximately 46% in the six and one-half month
period ended June 30, 1995 to approximately 66% in the six month period ended
December 31, 1996. This figure may increase further in the future. The figure
for the recent period includes sales to a single customer in Brazil and combined
sales to several customers in China accounting for 18.3% and 19.4%,
respectively, of the Company's net sales. The Company has entered into
distribution or representation agreements with companies in Europe, the Middle
East, Canada, Latin America and the Pacific Rim. There can be no assurance that
these arrangements will be successful or continuing. Foreign sales may be
subject to political and economic risks, including political instability and
changes in import/export regulations, tariffs, freight rates and currency
exchange rates. Changes in current tariff structures or other trade policies
could adversely affect the Company's sales to foreign customers. Failure to
realize growth in its international sales could have a material adverse impact
on the Company's business and financial condition. See "Business--Sales and
Marketing."
DEPENDENCE ON DISTRIBUTORS AND PRINCIPAL CUSTOMERS
Sales to distributors and large orders from individual customers have
constituted and are anticipated to constitute a significant portion of the
Company's business. One customer has accounted for over 11% of the Company's net
sales for the ten and one-half month period ended December 16, 1994, the six and
one-half month period ended June 30, 1995, the year ended June 30, 1996 and the
six month period ended December 31, 1996. For the latest of those periods one
order from another customer accounted for over 18% of the Company's net sales.
For the period ended June 30, 1995, another single order accounted for
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<PAGE>
22% of net sales. The loss of any of these distributors or the failure to
generate such large orders could have a material adverse effect on the operating
results and financial condition of the Company. The Company's distributors are
not obligated to purchase any minimum quantity of the Company's products. There
can be no assurance that such distributors will continue to purchase the
Company's products or that the Company will be able to enter into favorable
agreements with other distributors for the sale of its products. See
"Business--Sales and Marketing."
DEPENDENCE ON KEY PERSONNEL AND RECRUITMENT
The Company's future performance is significantly dependent on the continued
active participation of Robert C. Fitting, its President, and Steve Eymann,
Executive Vice President, and Peter Weisskopf, Microwave Products Division
President. Should any of these key employees leave or otherwise become
unavailable to the Company, the Company's business and results of operations
could be materially adversely affected. See "Management." The ability of the
Company to attract and retain highly skilled personnel is critical to the
operations and expansion of the Company. To date, the Company has been able to
attract and retain the personnel necessary for its limited operations. However,
there can be no assurance that the Company will be able to do so in the future.
If the Company is unable to attract and retain personnel with necessary skills
when needed, its business and expansion plans could be materially adversely
affected.
MANUFACTURING
The Company's products are to a certain extent assembled and tested at its
Phoenix, Arizona facilities using subsystems and circuit boards supplied by
subcontractors. Although the Company believes that it maintains adequate stock
to reduce the procurement lead time for certain components, the Company's
products use a number of specialized chips and customized components or
subassemblies produced by a limited number of suppliers. In the event that such
suppliers were to be unable to fulfill the Company's requirements, the Company
could experience an interruption in production until an alternative source of
supply was developed. Moreover, given its previous financial difficulties, the
Company has experienced inflexibility on the part of some suppliers as to the
delivery of components in desired quantities on acceptable credit terms. The
Company believes that there are a number of companies capable of providing
replacements for the types of unique chips and customized components and
subassemblies used in its products. See "Business--Manufacturing."
RAPID TECHNOLOGICAL CHANGE
The market for modems, converters and related equipment is characterized by
rapid and significant technological change. There can be no assurance that the
Company's competitors will not succeed in developing or marketing products or
technologies that are more effective and/or less costly and which render the
Company's products obsolete or non-competitive. In addition, new technologies
could be developed that replace or reduce the value of the Company's products.
For example, as more fiber cables are laid under the oceans or otherwise brought
into service, the use of satellites for international telephony is slowing. The
Company's success will depend in part on its ability to respond quickly to
technological changes through the development and improvement of its products.
Accordingly, the Company believes that a substantial amount of capital will be
required to be allocated to research and development activities in the future.
There can be no assurance that the Company's product development efforts will be
successful. The failure by the Company to improve its existing products and
develop new products could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Industry
Overview", "Business--Research and Development" and "Business-- Competition."
12
<PAGE>
RESEARCH AND DEVELOPMENT
The Company's research and development efforts to date have been devoted to
the design and development of new products for the satellite communications and
telecommunications industries. The Company's future growth depends on increasing
the market shares of its new products and adaptation of its existing satellite
communications products to new applications, and the introduction of new
communications products that will find market acceptance and benefit from the
Company's established international distribution channels. Accordingly, the
Company is actively applying its communications expertise to design and develop
new hardware and software products and enhance existing products. However, there
is no assurance that the Company will continue to have access to sufficient
capital to fund the necessary research and development or that such efforts,
even if adequately funded, will prove successful.
In its fiscal years ended June 30, 1995 and June 30, 1996 and the six months
ended December 31, 1996, the Company spent $0, $1,795,000 and $808,000,
respectively, on research and development activities. During this period, the
Company introduced the RCS-10 Redundant Modem System, the DMD-15 Universal
Modem, the DVB-3000 Digital Video Modulator, the SFC-6400 Up Converter, the
SFC-4200 Down Converter, and the RCS-20 Modem Switch as well as the DMD-2400
Modem. See "Business--Research and Development."
COMPETITION
The Company has a number of major competitors in the satellite
communications field. These include large companies, such as Hughes Network
Systems, NEC, California Microwave, and Spar Aerospace, which have significantly
larger and more diversified operations and greater financial, marketing, human
and other resources than Radyne. The Company believes that it has been able to
compete by concentrating its sales efforts in the international market,
utilizing the resources of local distributors, and by emphasizing product
features. However, most of the Company's competitors offer products which have
one or more features or functions similar to those offered by the Company. The
Company believes that the quality, performance and capabilities of its products,
its ability to customize certain network functions and the relatively lower
overall cost of its products, as compared to the costs generally offered by the
Company's major competitors, have contributed to Radyne's ability to compete
successfully. However, the Company's major competitors have the resources
available to develop products with features and functions competitive with or
superior to those offered by the Company. There can be no assurance that such
competitors will not successfully develop such products or that the Company will
be able to maintain a lower cost advantage for its products. Moreover, there can
be no assurance that the Company will not experience increased competition in
the future from these or other competitors currently unknown. See "Business--
Competition".
PATENTS AND INTELLECTUAL PROPERTY
The Company believes that improvement of existing products, reliance upon
trade secrets, copyrights and unpatented proprietary know-how and the
development of new products are generally as important as patent protection in
establishing and maintaining a competitive advantage. Because patents often
provide only narrow protection which may not provide a competitive advantage in
areas of rapid technological change and because patent applications require
public disclosure of information which may otherwise be subject to trade secret
protection, Radyne has not obtained, and has no present intention to obtain,
patents on existing products. However, there can be no assurance that the
Company's technology will not be found to infringe upon the intellectual
property of others. If the Company's technology should be found to impermissibly
utilize the intellectual property of others, the Company's ability to utilize
the technology could be materially restricted or prohibited. In such event, the
Company might be required to obtain licenses from third parties to utilize the
patents or proprietary rights of others. No assurance can be given that any
licenses required could be obtained on terms acceptable to the Company or at
all. In addition, in such event, the Company could incur substantial costs in
defending itself against infringement claims made
13
<PAGE>
by third parties or in enforcing its own intellectual property rights. It should
also be noted that some foreign countries in which the Company's products are
sold provide less protection to intellectual property than do the laws of the
United States. Although the Company believes that its significant intellectual
property (generally firmware included in the Company's products) is unlikely to
be successfully misappropriated by foreign competitors, there can be no
assurance that no such misappropriation will ever occur or that the Company's
business would not be adversely affected by such a misappropriation. See
"Business-- Technology."
CONTROL BY PRINCIPAL STOCKHOLDER
Upon the closing of the Rights Offering, ST, which currently owns
approximately 91% of the Company's outstanding Common Stock, will continue to
own a substantially similar level of control together with its affiliate, SPL.
ST and SPL will, therefore, continue to have the ability to elect all of the
directors of the Company and to control the outcome of all issues submitted to a
vote of the stockholders of the Company. As a result of ST and SPL's substantial
ownership interest in the Common Stock, it may be more difficult for a third
party to acquire the Company. A potential buyer would likely be deterred from
any effort to acquire the Company absent the consent of ST and SPL or their
participation in the transaction. See "Principal and Management Stockholders."
The Company is subject to Section 912 of the New York Business Corporation
Law, which restricts certain business combinations that are not approved by a
corporation's board of directors.
NO DIVIDENDS
The Company has not paid any cash dividends on the Common Stock since
inception and does not intend to pay any dividends to its stockholders in the
foreseeable future. The Company currently intends to reinvest earnings, if any,
in the development and expansion of its business. See "Dividend Policy" and
"Description of Common Stock."
SUBSTANTIAL PORTION OF NET PROCEEDS ALLOCATED FOR GENERAL CORPORATE AND WORKING
CAPITAL PURPOSES
Approximately $1,247,000 of the net proceeds from the Rights Offering are
expected to be allocated for the reduction of short-term bank debt or for
general corporate and working capital purposes (including research and
development costs). However, such proceeds may be utilized in the discretion of
the Board of Directors. As a result, investors will not know in advance how such
net proceeds will be utilized by the Company. See "Purpose of the Rights
Offering and Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION; NET TANGIBLE BOOK VALUE DEFICIENCY BEFORE
OFFERING
Upon the closing of the Rights Offering, investors in the offering will
incur immediate and substantial dilution in the per share net tangible book
value of their Common Stock. At December 31, 1996, giving effect to the Reverse
Split and receipt by the Company of the maximum net proceeds of the Rights
Offering, the Company had a pro forma net tangible book value of approximately
$.04 per share. Net tangible book value is the amount of the Company's total
assets minus intangible assets and liabilities. See "Dilution."
To the extent that Rights are exercised by other Holders and Rights Options
are exercised by employees, shareholders who do not exercise their Rights in
full will realize a dilution in their percentage voting interest and ownership
interest in future net earnings, if any, of the Company. The Company is not able
to predict the effect, if any, the Rights Offering will have on the market price
of the Common Stock. See "Market Considerations; Volatility of Stock Price"
below.
In addition to the 280,000 presently exercisable Rights Options, the Company
currently has outstanding under the 1996 Incentive Stock Option Plan options
which (if certain performance targets are met)
14
<PAGE>
may become exercisable to purchase an aggregate of 668,395 shares of Common
Stock at an exercise price of $2.50 per share. Options on an additional 29,000
shares will become exercisable at $2.50 per share over the next four years,
assuming that the grantees' employment does not terminate prematurely. An
additional 304,647 shares are available for options yet to be granted under the
Plan. Exercise of the options granted under the 1996 Incentive Stock Option Plan
would further reduce a shareholder's percentage voting and ownership interest.
See "Management--Stock Option Plan."
ELIMINATION OF PREEMPTIVE RIGHTS
The Company's shareholders recently voted to amend the Company's Certificate
of Incorporation to eliminate the preemptive rights accorded shareholders under
Section 622 of the New York Business Corporation Law with respect to the
purchase of securities of the Company. Therefore, the Company may in the future
offer securities for sale without giving existing shareholders an opportunity to
purchase any particular amount of such securities.
SHARES ELIGIBLE FOR FUTURE SALE
The sale, or availability for sale, of a substantial number of shares of
Common Stock in the public market subsequent to this offering pursuant to Rule
144 under the Securities Act ("Rule 144") or otherwise could materially
adversely affect the market price of the Common Stock and could impair the
Company's ability to raise additional capital through the sale of its equity
securities or debt financing. Upon completion of the Rights Offering, if all
Rights and Rights Options are fully exercised, there would be approximately
6,015,554 shares of Common Stock issued and outstanding. Of these shares, the
Company believes that approximately 905,554 would be freely transferable
immediately due to the present or prior registration or the present availability
of a Rule 144 exemption from the requirement of registration. The remaining
approximately 5,110,000 shares would be "restricted securities" for purposes of
the Securities Act and would be eligible for resale at various times in the
future, in each case subject to the volume and manner of sale limitations of
Rule 144 under the Securities Act. Of these restricted shares, 3,400,000 shares
are owned by ST and it is estimated that 1,680,000 shares would be owned by SPL.
In addition to the Rights Options (which have been taken into account in the
above figures), there are currently 1,002,042 shares of Common Stock reserved
for issuance pursuant to options granted or to be granted under the 1996
Incentive Stock Option Plan. See "Shares Eligible for Future Sale."
In addition, the Registration Statement, of which this Prospectus forms a
part, includes a separate prospectus relating to the offering and resale by one
shareholder of 30,000 shares of Common Stock. See "Concurrent Sale by Selling
Stockholder."
DISCLOSURES RELATING TO LOW PRICED STOCKS
The Company's securities are subject to Rule 15g-9 under the Securities
Exchange Act of 1934, as amended, which imposes additional sales practice
requirements for broker-dealers which sell penny stocks to persons other than
established customers and accredited investors as defined in Regulation D under
the Securities Act of 1933. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, such rule may adversely affect the ability of broker-dealers
to sell the Company's securities and may adversely affect the ability of
purchasers in the Rights Offering to sell any of the securities acquired hereby
in the secondary market.
Securities and Exchange Commission regulations define a "penny stock" to be
any equity security not registered on a national securities exchange or for
which quotation information is disseminated on NASDAQ that has a market price
(as therein defined) of less than $5.00 per share or an exercise price of less
than $5.00 per share, subject to certain exceptions. Unless exempt, the rules
require delivery, prior to a
15
<PAGE>
transaction in a penny stock, of a disclosure schedule prescribed by the
Securities and Exchange Commission relating to the penny stock market.
Disclosure is also required to be made about commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
MARKET CONSIDERATIONS; VOLATILITY OF STOCK PRICE
The Company cannot predict the effect that the Rights Offering will have on
the trading price of the Common Stock. There can be no assurance that the market
price of the Common Stock will not fall below the Subscription Price or that,
following the exercise of Rights, a Holder will be able to sell shares acquired
in the Rights Offering at a price equal to or greater than the Subscription
Price. Since the Company emerged from bankruptcy, the price of the Common Stock,
which trades in the over-the-counter market under the OTC Bulletin Board symbol
"RADN" (prior to the Reverse Split, the symbol was "RDYN"), has varied widely
and the price of the Common Stock or the Shareholder Rights may be subject to
significant fluctuation in the future. See "Price Range of Common Stock" and
"Dividend Policy." There has been no prior market for the Rights.
PURPOSE OF THE RIGHTS OFFERING AND USE OF PROCEEDS
ESTABLISHMENT OF SUBSCRIPTION PRICE
This section contains forward-looking statements. See "Special Note
Regarding Forward-Looking Statements".
The Subscription Price and the exercise price for the employee stock options
granted on November 13, 1996 (see "Management--Stock Option Plan") have been
independently established by the Board of Directors at $2.50 per share (after
adjustment for the Reverse Split), which the Board determined to be the fair
market value of the Common Stock. In making this determination, the Board
received the assistance of Corporate Capital Consultants, Inc. ("CCC"). CCC is a
speciality investment banking firm, which, since its inception in 1974, has
performed services in the areas of financial consulting, corporate valuations,
fairness opinions and mergers and acquisitions. In the valuation area, CCC has
provided valuations of corporate securities in connection with pending purchase
offers, plans to sell, recapitalizations, going-private transactions, tender
offers, the purchase of minority interests, employee stock purchase plans and
public offerings, for both publicly and privately held companies in a broad
range of industries. In determining the value of the Common Stock, the Board
considered a number of factors, including the negative book value of the Common
Stock, the Company's results of operations, its business plan, the recent change
in control, publicly available information about companies considered comparable
to Radyne in nature of business, the Company's history, the limited trading
activity in the Common Stock since early 1996 and, most importantly, the
analysis performed by CCC. In view of the financial history of the Company (in
particular, its recent bankruptcy and its record of operating losses), it is
impractical to give precise quantitative weights to each of these factors.
However, the Board recognized that the Company's negative net asset value and
its history of bankruptcy and losses detract heavily from the value of its
Common Stock. These factors and the extremely thin nature of the public market
for the Common Stock convinced the Board that the reported prices at which
shares have changed hands since the Company's emergence from Chapter 11
protection do not necessarily reflect the fair value of the Common Stock. On the
other hand, the widely reported prospects for the satellite communications
industry generally, the Company's recent increases in orders and backlog and
management's aggressive implementation of its plan for rejuvenating the
Company's human resources and product lines, together with the recent change in
control, were viewed by the Board as positive factors. Given this confluence of
indicators, the Board considered it advisable to rely heavily on the results of
CCC's analysis.
CCC assisted Radyne in establishing the Subscription Price and the exercise
price for the employee stock options granted on November 13, 1996 by providing
an analytically and statistically based opinion as
16
<PAGE>
to the value of the issued and outstanding Common Stock as of October 25, 1996.
That opinion (which indicates a pre-Reverse Split value of $.50 per share), and
the methodology employed in reaching it, is set forth in a letter dated October
25, 1996 to the Board of Directors of Radyne, a copy of which is annexed hereto.
CCC's opinion did not reflect the effects of the 1-for-5 Reverse Split, which
occurred in January 1997. The Board of Directors simply multiplied the value of
$.50 per share by five to reach the Subscription Price of $2.50, which
consequently may not reflect the actual market value of the Common Stock
following the Reverse Split. See "Price Range of Common Stock." CCC's
compensation for its assistance was based on an hourly rate and aggregated
$12,150.00. CCC had no prior relationship with Radyne and its affiliates.
With respect to the publicly traded companies to which Radyne was compared,
CCC focused on Standard Industrial Classification Codes 3661 (telephone and
telegraph apparatus) and 3663 (radio and TV broadcasting and communications
equipment), which are Radyne's SIC codes. Within these codes, CCC reviewed
companies with less than $500 million of sales and avoided large companies such
as Hughes and NEC that also had substantial operations in many other SIC codes
(and, of course, revenues far in excess of $500 million). Specifically, the
companies for which parameters were derived included: Aydin Corp.; California
Microwave; ECI Telecommunications; General Datacomm; Optelcom, Inc.; Pico
Products; Proxim Inc.; Qualcomm Inc.; Science Dynamics; Spar Aerospace; Sunair
Electronics; and SSE Telecom. Similarly, the acquisitions and similar
transactions CCC reviewed were in SIC codes 3661 and 3663 and ranged in size
from $8 million to $4.4 billion, but were principally in the middle eight digit
to low nine digit area.
The parameters of value measurement for the compared companies included
market price as a multiple of latest 12 months' earnings; market value plus
interest bearing debt as a multiple of latest 12 months' earnings before
interest and taxes, less interest bearing debt, to ascertain value of equity;
market value as a multiple of book value; and market value as a multiple of
latest 12 months' revenues. Inasmuch as Radyne has yet to show
post-reorganization earnings, a proxy for earnings (both after taxes and before
interest and taxes) was used by discounting management's projected 2001 results
by 30% to 40% to reflect target returns of venture investors as well as the
results of the capital asset pricing model utilizing historical small stock risk
premiums and historical volatility of small stock prices and returns. Based on
CCC's experience in analyzing such investments, venture capitalists typically
require returns of 30% to 40% on an investment in a new venture with projected
future earnings but no historical earnings. Discount rates in this range are
utilized as a reflection of the higher risk associated with a business which is
not sufficiently seasoned to demonstrate a high likelihood of meeting its income
projections. Given Radyne's history, its negative book value and its recent
reorganization (including new ownership, new management, new staff, new
facilities and new products), the application of venture capital target rates of
return was considered appropriate. The capital asset pricing model endeavors to
establish relationships, on the basis of historical financial information, among
the risk free rate of return (i.e., that on U.S. Government securities), the
risk premiums appropriate for equity securities, the volatility of prices of
equity securities and the values of such equity securities. In calculating
averages for the aforementioned parameters of the compared companies, medians as
well as means without extreme values were used, and discounts of 20% to 25% were
taken in their application to Radyne to reflect the small size and unseasoned
nature of Radyne.
Given Radyne's negative book value and lack of earnings, CCC performed its
economic comparisons by reference to management's projections of the Company's
sales and earnings before interest and taxes ("EBIT") for fiscal 2001 and book
value as of the end of fiscal 2001. In reviewing the following discussion of
CCC's analysis, the reader is cautioned that management's projections were
generated in mid-1996, several months before the Board decided to proceed with
the Rights Offering, and were prepared for internal planning purposes, rather
than with a view to providing material for prospective investors. Management
prepared their projections without the participation, review or approval of any
outside experts, including CCC. Furthermore, the Company has not updated
management's projections and has no plans to prepare or publish any such updates
in the future. Accordingly, and in light of Radyne's recent emergence from
bankruptcy as an essentially new company, the reader should consider carefully
the potential impact of these facts on the inherent reliability and continued
validity of management's projected
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<PAGE>
results and their effect on CCC's October 1996 analysis and the Board's
determination of the Subscription Price. Moreover there are no assurances that
the Company's performance will meet the projected results.
Management's projections that constitute the key components of the
parameters of value measurement utilized by CCC, all for, or as of the end of,
fiscal 2001 were as follows (in thousands): sales-- $40,014; EBIT--$7,432; net
assets (book value) -- $17,124. The present values of these components, at 30%
and 40% discount rates from 2001 to 1996 (5 years) are as follows (in
thousands):
<TABLE>
<CAPTION>
30% 40%
--------- ---------
<S> <C> <C>
Sales.................................................................... $ 10,776 $ 7,440
EBIT..................................................................... $ 2,002 $ 1,382
Book Value............................................................... $ 4,612 $ 3,184
</TABLE>
To estimate net income, a tax rate of 37% was applied to the present valued
EBIT figures, which yielded net income figures of $1,261 and $871, respectively,
at the 30% and 40% discount rates.
The range of price-earnings ratios of the twelve companies compared to
Radyne (six of which had deficits and, therefore, did not enter the calculations
of the mean form of average) was 16.5 to 102 and the mean excluding extreme
values was 38. Applying this multiple to the above calculated values of net
income, and dividing by the number of shares outstanding before giving effect to
the Reverse Split (18.75 million shares), yielded a value per share of $1.76 to
$2.56.
Although the similarly calculated ratio of market value plus interest
bearing debt to EBIT produced an average of 28 (4 of the 12 compared companies
had EBIT deficits and the range of the others was 11.5 to 70), the resulting
values (after subtracting Radyne's outstanding $4.6 million of interest bearing
debt as of June 30, 1996), $1.82 per share to $2.74 per share, were not used.
Indeed, they were rather duplicative of the price-earnings ratio results.
Instead, on the basis of CCC's experience in venture capital investments,
including those in leveraged buyouts, a multiple of 4 times EBIT, less
outstanding interest bearing debt, was used, yielding values of $.05 to $.18 per
share.
With respect to comparable company market value to book value ratios, the
average (mean without extreme values) was 2.2 with a range of .54 to 10.28. The
value per share range for Radyne on this parameter was calculated at $.37 to
$.54.
Similarly, the market value to revenues ratios of the comparable companies
ranged from .2 to 5.6 and averaged 1.7, with a resultant value for Radyne of
$.67 to $.98 per share.
Averaging the foregoing parameter-based values produced a range of $.93 to
$1.40 per share, before excluding the duplicative net income and EBIT
calculations, and $.36 to $.57, after such exclusion.
With respect to the comparable acquisition transaction approach, CCC
reviewed acquisitions completed or pending after January 1, 1995. These included
acquisitions of ConferTech International, Microwave Networks, Inc., Primary
Access Corp., Chyron (Pesa/Pesa Electronica), TIE/Communications Inc., Lucent
Technologies Inc., Pinnacle Investment Associates, StrataCom Inc., Network
Express Inc., Sunair Electronics Inc., Penril DataComm Networks Inc., Telebit
Corp., Colonial Data Technologies, Fibronics International Inc., and LXE.
Extremes and inapplicable comparisons (Lucent Technologies Inc. and LXE) were
excluded, and the following parameters were used: 1) offering price-earnings
ratio; 2) ratio of offering enterprise value (including assumed debt) to target
EBIT; 3) ratio of offering price to target book value; 4) ratio of offering
price to target sales; and 5) premium of offering price over target company
18
<PAGE>
market price four weeks prior to announcement of the offer. The ranges and
averages for these parameters were as follows:
<TABLE>
<CAPTION>
PARAMETER RANGE AVERAGE
----------------
<C> <S> <C>
1) 14.1-80.7 (excluding 6 companies with earnings deficits).................. 20.9
2) 9.8-51.5 (excluding 6 companies with earnings deficits)................... 27.0
3) 1.2-30.8.................................................................. 3.4
4) .27-12.09................................................................. 2.3
5) 6.8% discount--85.5% premium.............................................. 33% premium
</TABLE>
In calculating Radyne's value, the values resulting from the application of
the first four parameters to Radyne's discounted parameter components were
reduced by the 33% average premium paid in the comparable transactions. The
resultant values ranged from $.38 per share to $1.84 per share.
However, it should be noted that most of the companies and acquisition
targets included in the analysis have businesses developed to a much higher
maturity level than that of the Company. This fact may be seen as adversely
affecting the validity of the comparison. Therefore, after considering the
other, essentially non-quantifiable factors described above and the foregoing
ranges and averages: $1.76-$2.56; $.05-$.18; $.37-$.54; $.67-$.98--in summary
$.36-$.57; and $.38-$1.84, CCC applied a further discount of 20% to 25% to
reflect Radyne's small size and unseasoned nature and estimated that a
reasonable value for submission to the Board of Directors for consideration of
the Subscription Price was $.50 per share (before giving effect to the Reverse
Split.) As indicated above, the Board multiplied this figure by 5 for a
post-split number of $2.50 per share.
USE OF PROCEEDS
The maximum net proceeds to be received by the Company from the sale of the
Rights Shares, net of estimated expenses payable by the Company, are estimated
to be approximately $5,380,000. The Company presently intends to use the net
proceeds of this offering to repay indebtedness to ST (approximately $4,133,000
including principal and interest) and either a portion of the Company's
short-term bank debt or for general corporate and working capital purposes
(including research and development costs).
The indebtedness to ST which the Company intends to repay with the proceeds
of the offering equals $4,100,000 in principal amount, with interest at 6.625%,
due July 31, 1997. This indebtedness was incurred for short-term working capital
purposes or to repay other indebtedness incurred for such purposes.
The net proceeds of the sale of the Rights Shares are subject to
apportionment among the categories listed above or to new categories in response
to, among other things, changes in the Company's plans, industry conditions, the
amount of the Company's bank debt (approximately $6,900,000 as of the date
hereof), interest rates and future revenues and expenditures. The amount and
timing of expenditures will vary depending on a number of factors, including
changes in the Company's contemplated operations or business plan and changes in
economic and industry conditions.
Based on the Company's operating plan, the Company believes that the net
proceeds of this offering, together with cash flows from operations, funding
available under its bank credit lines and funding which may be made available
from or through affiliates (See "Risk Factors--Debt Financing"), will be
sufficient to satisfy its capital requirements and finance its plans for
expansion for at least the next 18 months. Such belief is based upon certain
assumptions, including, but not limited to, the Company's operating cash flow
expectations, and there can be no assurance that such assumptions are correct.
Accordingly, there can be no assurance that such resources will satisfy the
Company's capital requirements for such period. After such 18-month period, the
Company anticipates that it may require additional financing in order to meet
its current plans for expansion. Such financing may take the form of the
issuance of common or preferred equity securities or debt securities, and may
involve bank financing. In addition, contingencies may arise which may require
the Company to obtain additional capital. There can be no assurance that the
Company will be able to obtain such additional capital on a timely basis, on
favorable terms, or at all. In any of such events, the Company may be unable to
implement its current plans. See "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
19
<PAGE>
CAPITALIZATION
The following table sets forth, as at December 31, 1996, (a) the actual
capitalization of the Company giving effect to the Reverse Split, (b) the pro
forma capitalization of the Company giving effect to an approximately $2,400,000
increase in the Company's short-term indebtedness after that date, and (c) the
capitalization of the Company, adjusted to give effect to the receipt by the
Company of estimated net proceeds of approximately $5,379,583 from the sale of
the Rights Shares and the use of such proceeds to repay short-term indebtedness.
See "Purpose of the Rights Offering and Use of Proceeds."
<TABLE>
<CAPTION>
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
<S> <C> <C> <C>
Short-term debt:................................. $ 8,646,862 $ 11,046,862 $ 5,667,279
Long-term debt:.................................. 81,016 81,016 81,016
Stockholders' equity (deficit):
Common stock--$.002 par value,
Authorized--20,000,000 shares; issued and
outstanding 3,759,721 shares; 6,015,554
shares, as adjusted.......................... 7,519 7,519 12,031
Additional paid in capital....................... 605,782 605,782 5,980,853
Retained earnings (deficit)...................... (5,059,927) (5,059,927) (5,059,927)
Total stockholders' equity (deficit)............. (4,446,626) (4,446,626) 932,957
Total capitalization............................. (4,365,610) (4,365,610) 1,013,973
</TABLE>
DILUTION
The net tangible book value (deficit) of the Company at December 31, 1996,
was $(5,148,269), or $(1.37) per share of Common Stock. Net tangible book value
per share of Common Stock represents the tangible assets (total assets less
intangible assets) less total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the sale of the Rights Shares
offered hereby, and the application of the net proceeds therefrom, the net
tangible book value of the Common Stock at December 31, 1996 would have been
approximately $231,314 or $.04 per share. This represents an immediate increase
in net tangible book value of $1.41 per share to existing shareholders and an
immediate dilution to purchasers of Rights Shares of $2.46 (98%) per share.
<TABLE>
<CAPTION>
PER SHARE
--------------------
<S> <C> <C>
Rights offering price....................................................... $ 2.50
Net tangible book value (deficit) at December 31, 1996...................... $ (1.37)
Increase attributable to sale of Rights Shares.............................. $ 1.41
Pro forma net tangible book value after this offering(1).................... $ 0.04
---------
Dilution to new investors................................................... $ 2.46
---------
---------
</TABLE>
- ------------------------
(1) After deducting offering expenses of approximately $260,000 payable by the
Company.
The foregoing computations exclude (i) 977,395 shares of Common Stock
issuable upon exercise of stock options outstanding as of April 30, 1997, at an
exercise price of $2.50 per share and (ii) 304,647 shares reserved for future
grants under the Company's 1996 Incentive Stock Option Plan, the exercise of
which would not be dilutive. See "Management--Stock Option Plan" and Note 14 of
Notes to Financial Statements.
20
<PAGE>
THE RIGHTS OFFERING
SHAREHOLDER RIGHTS
Shareholders, other than ST and residents of California, will receive three
Shareholder Rights for every five shares of Common Stock held on the Record
Date, as adjusted for the Reverse Split. An aggregate of approximately 215,833
Shareholder Rights will be distributed. Holders are entitled to purchase at the
Subscription Price one share of Common Stock for each Shareholder Right held.
The Shareholder Rights will expire on the Expiration Date. The Shareholder
Rights will be transferable. No fractional Rights will be issued.
ST RIGHTS
SPL will receive 2,040,000 ST Rights. This equals the number of rights which
ST would have received on the 3-for-5 basis applicable to other shareholders.
SPL will make up to 74,000 of such Rights available to employees of its
affiliates, including non-employee directors of the Company. The ST Rights will
otherwise be nontransferable. The ST Rights will expire on the Expiration Date,
except that 280,000 of such Rights will be exercisable, if at all, only during
the five business days next following the Expiration Date. Holders will be
entitled to purchase one share of Common Stock at the Subscription Price for
each ST Right.
Concurrently with the distribution of the Rights, 280,000 Rights Options
granted under the Company's 1996 Incentive Stock Option Plan will become
exercisable at the Subscription Price until May 30, 1997. (See
"Management--Stock Option Plan.") The Rights Options were granted by the Board
on November 13, 1996, and extended on March 3, 1997, at the request of ST. In
order to ensure that ST's interest, rather than the other shareholders'
interests, in the Company would be diluted by the exercise of the Rights
Options, 280,000 of the ST Rights will not be exercisable, if at all, until the
Expiration Date. A portion of these 280,000 ST Rights, up to the number of
Shareholder Rights and Rights Options, if any, which expire unexercised, will
then be exercisable during the five business days following the Expiration Date.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., New York time, on June 16, 1997, except
that the Company reserves the right to extend the exercise period on one or more
occasions if the Board of Directors determines that the occurrence of a material
event necessitates an amendment of the Registration Statement or recirculation
of this Prospectus, which forms a part thereof, in order to permit time for the
distribution of such information. After the Expiration Date, unexercised Rights
(except certain ST Rights as described above) will be null and void. The Company
will not be obligated to honor any purported exercise of such Rights received by
the Subscription Agent or the Company after the Expiration Date, regardless of
when the documents relating to such exercise were sent, except pursuant to the
Guaranteed Delivery Procedures described below.
If the Company elects to extend the Expiration Date, it will issue a press
release to such effect not later than the first business day following the most
recently announced Expiration Date. In the event the Company elects to extend
the Expiration Date by more than 14 calendar days, it will, in addition, cause
written notice of such extension to be promptly sent to all Holders of record.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to the Subscription Agent or the
Company, at or prior to 5:00 p.m., New York time, on the Expiration Date, the
properly completed and executed Subscription Certificate evidencing such Rights
with any required signatures guaranteed, together with payment in full of the
Subscription Price for each Right exercised. Such payment in full must be by
check drawn upon a
21
<PAGE>
U.S. bank or postal, telegraphic or express money order payable to Continental
Stock Transfer & Trust Company, as Subscription Agent; provided, however, that
checks or money orders sent directly to the Company should be made payable to
Radyne Corp. Payment of the Subscription Price will be deemed to have been
received by the Subscription Agent or the Company, as the case may be, only upon
(a) clearance of any uncertified check, or (b) receipt by the Subscription Agent
or the Company, as the case may be, of any certified check drawn upon a United
States bank or of any postal, telegraphic or express money order.
IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID
THEREBY MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS WHO
WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE
URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE
THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER
PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
The address to which the Subscription Certificates and payment of the
Subscription Price with respect to Rights should be delivered to the
Subscription Agent is set forth below under "Subscription Agent."
If a Holder wishes to exercise Rights, but time will not permit such Holder
to cause the Subscription Certificate or Subscription Certificates evidencing
such Rights to reach the Subscription Agent or the Company on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such Holder has caused payment in full of the Subscription Price for
each Rights Share being subscribed for to be received (in the manner set
forth above) by the Subscription Agent on or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration
Date, a guaranteed notice (a "Notice of Guaranteed Delivery") from a member
firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or from a commercial bank
or trust company having an office or correspondent in the United States
(each, an "Eligible Institution"), substantially in the form available upon
request from the Subscription Agent whose address and telephone numbers are
set forth under "Subscription Agent" below, stating the name of the
exercising Holder, the number of Rights represented by the Subscription
Certificate(s) held by such exercising Holder, the number of Rights Shares
being subscribed for and guaranteeing the delivery to the Subscription Agent
of any Subscription Certificate(s) evidencing such Rights within three
business days following the date of the Notice of Guaranteed Delivery; and
(iii) the properly completed Subscription Certificate(s), with any
required signatures guaranteed, is received by the Subscription Agent within
three business days following the date of the Notice of Guaranteed Delivery
relating thereto. The Notice of Guaranteed Delivery may be delivered to the
Subscription Agent in the same manner as Subscription Certificates at the
address set forth under "Subscription Agent" below, or may be transmitted to
the Subscription Agent by facsimile transmission (telecopy no. (212)
509-5150).
A Holder who holds shares of Common Stock for the account of others, such as
a broker, a trustee or a depository for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record holder of such Rights
should complete the Subscription Certificate and submit it to the Subscription
Agent with the proper payment. In addition, the beneficial owner of Common Stock
or Rights held through such a holder of record should contact the Holder and
request the Holder to effect transactions in accordance with the beneficial
owner's instructions.
Unless a Subscription Certificate (i) provides that the shares of Common
Stock to be issued pursuant to the exercise of Rights represented thereby are to
be delivered to the Holder or (ii) is submitted for the account of an Eligible
Institution, signatures on such Subscription Certificate must be guaranteed by
an Eligible Institution.
22
<PAGE>
If either the number of Rights Shares being subscribed for is not specified
on the Subscription Certificate, or the amount delivered is not enough to pay
the Subscription Price for all Rights Shares stated to be subscribed for, the
number of Rights Shares subscribed for will be assumed to be the maximum amount
that could be subscribed for upon payment of such amount, after allowance for
the Subscription Price of any specified Rights Shares.
These instructions should be read carefully and followed in detail.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT OR THE COMPANY WILL BE AT THE
ELECTION AND RISK OF THE RIGHTS HOLDER, BUT IF SENT BY MAIL IT IS RECOMMENDED
THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE
ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT OR THE COMPANY AND
CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK TIME, ON THE EXPIRATION DATE.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR, RIGHTS HOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY
MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
Any shareholder of record who wishes to exercise a Shareholder Right must
submit his Common Stock share certificate(s), either simultaneously with his
Subscription Certificate or prior to that time, for exchange into a new share
certificate reflecting the Reverse Split, in accordance with instructions
heretofore distributed by the Company's transfer agent. SUBSCRIPTION
CERTIFICATES WILL NOT BE ACCEPTED FROM OR ON BEHALF OF SHAREHOLDERS OF RECORD
WHO DO NOT COMPLY WITH THIS REQUIREMENT. However, this requirement will not
affect the transferability of Shareholder Rights.
Because the cost of qualifying the Rights Shares for sale in the State of
California would have been disproportionately high as compared to the expected
proceeds of such sales, the Rights Shares have not been so qualified.
Accordingly subscriptions cannot be accepted from residents of California.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company, in its sole discretion, may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted until
all irregularities have been waived or cured within such time as the Company
determines in its sole discretion. NEITHER THE COMPANY NOR THE SUBSCRIPTION
AGENT WILL BE UNDER ANY DUTY TO GIVE NOTIFICATION OF ANY DEFECT OR IRREGULARITY
IN CONNECTION WITH THE SUBMISSION OF SUBSCRIPTION CERTIFICATES OR INCUR ANY
LIABILITY FOR FAILURE TO GIVE SUCH NOTIFICATION.
Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus or the Notice of
Guaranteed Delivery should be directed to the Company at 5225 South 37th Street,
Phoenix, Arizonia 85040, Attention: Director of Administration. Telephone: (602)
437-9620.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THOSE RIGHTS, SUCH EXERCISE MAY NOT BE
REVOKED.
FRACTIONAL SHARES
Fractional Rights will not be distributed by the Company and a Right may not
be exercised in part.
23
<PAGE>
METHOD OF TRANSFERRING SHAREHOLDER RIGHTS
The Shareholder Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate may be transferred (but only in units to
purchase whole shares) by delivering to the Subscription Agent a Subscription
Certificate properly endorsed for transfer, with instructions to register such
portion of the Rights evidenced thereby in the name of the transferee (and to
issue a new Subscription Certificate to the transferee evidencing such
transferred Rights). In such event, a new Subscription Certificate evidencing
the balance of the Rights will be issued to the Holder or, if the Holder so
instructs, to an additional transferee.
Holders wishing to transfer all or a portion of their Shareholder Rights
(but only in units to purchase whole shares) should allow a sufficient amount of
time prior to the Expiration Date for (i) the transfer instructions to be
received and processed by the Subscription Agent, (ii) a new Subscription
Certificate to be issued and transmitted to the transferee or transferees with
respect to transferred Rights, and to the transferor with respect to retained
Rights, if any, and (iii) the Rights evidenced by such new Subscription
Certificates to be exercised or sold by the recipients thereof. If time does not
permit a transferee of a Right who wishes to exercise its Right to deliver its
Subscription Certificate to the Subscription Agent on or before the Expiration
Date, such transferee should make use of the Guaranteed Delivery Procedure
described under "Exercise of Rights" above. Neither the Company nor the
Subscription Agent shall have any liability to a transferee or transferor of
Rights if Subscription Certificates or new Subscription Certificates are not
received in time for exercise or sale prior to the Expiration Date.
It is not anticipated that a market will be made in the Rights or that they
will be traded on any exchange. There is no assurance that any market will
develop for the Rights. In any event, trading in the Rights will cease at the
close of business on the business day preceding the Expiration Date. Because
subscriptions cannot be accepted from residents of California, Rights may not be
transferred to such residents.
FEES AND EXPENSES
Except for the fees charged by the Subscription Agent (which will be paid by
the Company as described below), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase or sale of Rights will be for the account of the transferor of the
Rights, and none of such commissions, fees or expenses will be paid by the
Company or the Subscription Agent.
All fees and other expenses incurred in connection with the exercise of
Rights will be for the account of the Holder of such Rights, and none of such
fees or expenses will be paid by the Company or the Subscription Agent.
SUBSCRIPTION AGENT
The Company has appointed Continental Stock Transfer & Trust Company as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is its address to which the Subscription Certificates and payment of the
Subscription Price must be delivered, as well as the address to which Notice of
Guaranteed Delivery must be delivered, is:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
(212) 509-4000
Subscription Price payments received by the Subscription Agent will be held
thereby, pending the application or return of such payments in accordance with
the terms of the Rights Offering.
24
<PAGE>
The Company will pay the Subscription Agent reasonable and customary
compensation for its services in connection with the Rights Offering and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
THE BOARD OF DIRECTORS OF THE COMPANY MAKES NO RECOMMENDATION TO HOLDERS
WITH RESPECT TO WHETHER A HOLDER SHOULD EXERCISE RIGHTS TO PURCHASE SHARES OF
THE COMMON STOCK PURSUANT TO THE RIGHTS OFFERING, TO INVESTORS WITH RESPECT TO
WHETHER AN INVESTOR SHOULD PURCHASE SHARES OF THE COMMON STOCK, OR TO PERSONS
WITH RESPECT TO WHETHER A PERSON SHOULD PURCHASE RIGHTS.
25
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brock, Fensterstock, Silverstein, McAuliffe & Wade, LLC,
special counsel to Radyne, the following are the federal income tax consequences
of the Rights Offering that are likely to be material to the Holders (other than
certain Holders described in the following paragraph) upon the issuance,
exercise, transfer and lapse of the Rights.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Regulations promulgated thereunder, judicial
authority and current administrative rulings and practice, all of which are
subject to change on a prospective or retroactive basis, and on the accuracy of
certain representations of the Company. The tax consequences of the Rights
Offering under state, local and foreign law are not discussed. Moreover, special
considerations not described herein may apply to certain taxpayers, such as
financial institutions, broker-dealers, life insurance companies, regulated
investment companies, foreign entities, individuals who are not citizens or
residents of the United States for federal income tax purposes, tax-exempt
organizations or accounts and corporations affiliated with the Company. The
discussion is limited to those who have held the Common Stock, and will hold the
Rights and any Common Stock acquired upon the exercise of Rights as capital
assets (generally, property held for investment) within the meaning of Section
1221 of the Code and to U.S. citizen or resident individuals who receive ST
Rights in connection with the performance of services as a director of the
Company.
SHAREHOLDER RIGHTS
ISSUANCE OF THE SHAREHOLDER RIGHTS. Holders of Common Stock will not
recognize taxable income for federal income tax purposes in connection with the
receipt of the Shareholder Rights.
BASIS AND HOLDING PERIOD OF THE SHAREHOLDER RIGHTS. If either (i) the fair
market value of the Shareholder Rights on the date of issuance is equal to 15%
or more of the fair market value (on such date) of the Common Stock with respect
to which they are received or (ii) the shareholder properly elects, in the
shareholder's federal income tax return for the taxable year in which the
Shareholder Rights are received, to allocate part of the basis of such Common
Stock to the Shareholder Rights, then upon exercise or transfer of the
Shareholder Rights, the shareholder's basis in such Common Stock will be
allocated between the Common Stock and the Shareholder Rights exercised or
transferred in proportion to the fair market values of each on the date of
issuance. Except as provided in the preceding sentence, the basis of the
Shareholder Rights received by a shareholder as a distribution with respect to
such shareholder's Common Stock will be zero.
The holding period of a shareholder with respect to the Shareholder Rights
received as a distribution on such shareholder's Common Stock will include the
shareholder's holding period for the Common Stock with respect to which the
Shareholder Rights were issued.
In the case of a purchaser of Shareholder Rights, the tax basis of such
Shareholder Rights will be equal to the purchase price paid therefor, and the
holding period for such Shareholder Rights will commence on the day following
the date of the purchase.
TRANSFER OF THE SHAREHOLDER RIGHTS. A shareholder who sells the Shareholder
Rights prior to exercise will recognize gain or loss equal to the difference
between the amount realized from the sale and such shareholder's basis (if any)
in the Shareholder Rights sold. Such gain or loss will be capital gain or loss
if gain or loss from a sale of the underlying Rights Shares would be
characterized as capital gain or loss at the time of such sale. Any gain or loss
recognized on a sale of Shareholder Rights acquired by purchase will be capital
gain or loss if the underlying Rights Shares would be a capital asset in the
hands of the seller.
LAPSE OF THE SHAREHOLDER RIGHTS. Shareholders who allow the Shareholder
Rights received by them to lapse will not recognize any gain or loss, and no
adjustment will be made to the basis of the Common Stock, if any, owned by such
shareholders.
26
<PAGE>
Purchasers of the Shareholder Rights will be entitled to a loss equal to
their tax basis in the Shareholder Rights, if such Shareholder Rights expire
unexercised. Any loss recognized on the expiration of the Shareholder Rights
acquired by purchase will be a capital loss if the underlying Rights Shares
would be a capital asset in the hands of the purchaser.
EXERCISE OF THE SHAREHOLDER RIGHTS; BASIS AND HOLDING PERIOD OF COMMON
STOCK. Holders of Shareholder Rights will not recognize any gain or loss upon
the exercise of Shareholder Rights. The basis of the Common Stock acquired
through exercise of the Shareholder Rights will be equal to the sum of the
Subscription Price paid therefor and the holder's basis in such Shareholder
Rights (if any).
The holding period for the Common Stock acquired through exercise of the
Shareholder Rights will begin on the date the Shareholder Rights are exercised.
ST RIGHTS RECEIVED IN CONNECTION WITH SERVICES
The following discussion relates to individuals who are U.S. citizens or
residents for federal income tax purposes and receive ST Rights in connection
with the performance of services as a non-employee director of the Company.
RECEIPT OF RIGHTS. Directors will not recognize taxable income for federal
tax purposes in connection with the receipt of such ST Rights.
LAPSE OF RIGHTS. There would be no tax consequences in the event of the
lapse of such ST Rights.
EXERCISE OF RIGHTS. A director who exercises ST Rights generally will
recognize ordinary income on the exercise date in an amount equal to the excess,
if any, of the fair market value of the underlying Rights Shares on that date
over the Subscription Price, provided that he properly makes and files an
election under Section 83(b) of the Code (an "83(b) Election") within 30 days
after the exercise date to recognize ordinary income based on the value of the
Common Stock on the exercise date. Otherwise, the amount of such director's
ordinary income would be measured by the value of the Common Stock at the end of
the six-month holding period imposed under Section 16(b) of the Exchange Act.
Special rules may apply to a director who exercises an ST Right if the
Subscription Price is greater than the fair market value of the underlying
Rights Shares on the exercise date of the Right. Directors should consult their
tax advisors to determine the tax consequences to them of exercising Rights.
BASIS AND HOLDING PERIOD OF COMMON STOCK. A director's basis in a share of
Common Stock received upon the exercise of an ST Right will equal the
Subscription Price paid therefor plus the amount includible in income as
ordinary income as discussed above. The holding period for the Common Stock
acquired upon exercise of ST Rights will begin upon the expiration of the
six-month holding period imposed under Section 16(b) of the Exchange Act, unless
the director makes a timely and proper 83(b) Election with respect to such
stock, in which case the holding period would begin on the day after the
exercise date.
INFORMATION REPORTING AND WITHHOLDING
Under the backup withholding rules of the Code, a Holder may be subject to
backup withholding at the rate of 31 percent with respect to payments made
pursuant to the Rights Offering, unless such Holder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (ii) provides a correct taxpayer identification number and
certifies under penalties of perjury that the taxpayer identification number is
correct and that the Holder is not subject to backup withholding because of a
failure to report all dividends and interest income. Any amount withheld under
these rules will be credited against such Holder's federal income tax liability.
The Company may require Holders to establish exemption from backup withholding
or to make arrangements satisfactory to the Company with respect to the payment
of backup withholding.
27
<PAGE>
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ACCORDINGLY,
EACH HOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH RESPECT TO
THE TAX CONSEQUENCES OF THE RIGHTS OFFERING APPLICABLE TO HIS OR HER OWN
PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE
AND LOCAL INCOME AND OTHER TAX LAWS.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market under
the OTC Bulletin Board symbol "RADN" (prior to the Reverse Split, the symbol was
"RDYN"). However, there is no established trading market as actual transactions
are infrequent. The following table sets forth the range of high and low trading
prices as reported by the National Quotation Bureau, Inc. for the periods
indicated. It should be noted that these quotations relate largely to periods
prior to the Reverse Split. All pre-split quotations have accordingly been
multiplied by 5. At December 9, 1996, the Company had approximately 550
shareholders of record. The Company believes that the number of beneficial
owners is actually in excess of 1,600, due to the fact that a large number of
shares are held in street name.
<TABLE>
<CAPTION>
HIGH LOW
------ ---
<S> <C> <C> <C> <C>
1995:
First Quarter (December 16, 1994* through March 31, 1995).................... 8 1/8 5/8
Second Quarter............................................................... 6 7/8 3 1/8
Third Quarter................................................................ 8 1/8 3 1/8
Fourth Quarter............................................................... 7 1/2 3 3/4
1996:
First Quarter................................................................ 5 5/8 2 1/2
Second Quarter............................................................... 6 7/8 3 3/4
Third Quarter................................................................ 9 7/32 4 1/16
Fourth Quarter............................................................... 10 5
1997:
January...................................................................... 6 1
February..................................................................... 4 1/2 3 3/4
March........................................................................ 4 1/2 3 1/8
April........................................................................ 5 3/4 3
</TABLE>
- ------------------------
* The first day of trading of the Common Stock following Radyne's emergence
from bankruptcy.
On April 24, 1997 the last sale price of the Common Stock as reported by the
OTC Bulletin Board was $3.00 per share.
DIVIDEND POLICY
The Company has not paid dividends on the Common Stock since inception and
does not intend to pay any dividends to its stockholders in the foreseeable
future. The Company currently intends to reinvest earnings, if any, in the
development and expansion of its business. The declaration of dividends in the
future will be at the election of the Board of Directors and will depend upon
the earnings, capital requirements and financial position of the Company,
general economic conditions and other pertinent factors.
28
<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data for the six month period
ended December 31, 1996, the year ended June 30, 1996, the six and one-half
month period ended June 30, 1995 and the ten and one-half month period ended
December 16, 1994, and the selected balance sheet data at those dates, are
derived from the Financial Statements of the Company and notes thereto audited
by Deloitte & Touche LLP, independent certified public accountants for the
Company. The selected statement of operations data for the years ended January
31, 1994 and January 31, 1993 and the selected balance sheet data at January 31,
1994 and January 31, 1993 are derived from the unaudited financial statements of
the Company. Per share data and shares outstanding reflect an adustment for the
effects of the Reverse Split. The following data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of the Company and notes thereto
included elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
PREDECESSOR(1)
SIX MONTHS ----------------------------------
ENDED SIX AND ONE-HALF TEN AND ONE-HALF YEAR ENDED
DECEMBER 31, YEAR ENDED MONTHS ENDED MONTHS ENDED JANUARY 31,
1996(2) JUNE 30, 1996 JUNE 30, 1995 DECEMBER 16, 1994 1994
------------ ------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $4,905,059 $ 3,829,523 $1,861,262 $ 2,569,396 $ 4,966,617
Cost of sales...................... 4,052,433 2,559,350 1,228,747 2,229,329 5,620,108
Gross profit (loss)................ 852,626 1,270,173 632,515 340,067 (653,491)
Selling, general, and
administrative expenses........... 1,437,971 1,843,576 961,162 1,658,388 3,363,893
Asset impairment charge(3)......... 421,000
Research and development........... 808,025 1,794,823 785,679
Operating income (loss)............ (1,814,370) (2,368,226) (328,647) (1,918,519) (4,803,063)
Interest expense................... 255,604 256,871 36,209 118,235 634,061
Professional fees related to
reorganization.................... 600,198
Income (loss) before fresh start
adjustments, extraordinary items
and taxes on income............... $(2,069,974) $(2,625,097) $ (364,856) $(2,036,754) $(5,437,124)
Fresh start adjustments............ 1,598,841
Income (loss) before extraordinary
items and taxes on income......... $(2,069,974) $(2,625,097) $ (364,856) $ (437,913) $(5,437,124)
Extraordinary items(4)............. 2,699,156
Income (loss) before taxes on
income............................ $(2,069,974) $(2,625,097) $ (364,856) $ 2,261,243 $(5,437,124)
Taxes on income....................
Net income (loss).................. $(2,069,974) $(2,625,097) $ (364,856) $ 2,261,243 $(5,437,124)
Net income (loss) per share before
extraordinary items............... $ (.55) $ (.70) $ (.10) $ (1.33) $ (21.30)
Net income (loss) per share........ $ (.55) $ (.70) $ (.10) $ 6.87 $ (21.30)
Weighted average number of
outstanding shares................ 3,750,699 3,742,227 3,729,721 329,020 255,169
<CAPTION>
YEAR ENDED
JANUARY 31,
1993
---------------
<S> <C>
Net sales.......................... $ 7,016,427
Cost of sales...................... 4,128,567
Gross profit (loss)................ 2,887,860
Selling, general, and
administrative expenses........... 1,403,438
Asset impairment charge(3).........
Research and development........... 619,758
Operating income (loss)............ 864,664
Interest expense................... 106,546
Professional fees related to
reorganization.................... 758,118
Income (loss) before fresh start
adjustments, extraordinary items
and taxes on income............... 758,118
Fresh start adjustments............
Income (loss) before extraordinary
items and taxes on income......... 758,118
Extraordinary items(4).............
Income (loss) before taxes on
income............................ $ 758,118
Taxes on income.................... 46,291
Net income (loss).................. $ 711,827
Net income (loss) per share before
extraordinary items............... $ 3.40
Net income (loss) per share........ $ 3.40
Weighted average number of
outstanding shares................ 208,306
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
PREDECESSOR
AT -----------------------------------
12/31/96 AT 6/30/96 AT 6/30/95 AT 12/16/94 AT 1/31/94 AT 1/31/93
---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.................................. $ 186,488 $ 971 $ 2,109 $ 256,398 $ 84,467 $ 35,936
Working capital (deficit).................................. (5,851,527) (4,082,987) (1,343,018) (977,678) (2,284,575) 794,530
Total assets............................................... 6,572,917 3,272,686 3,452,999 3,084,394 1,354,933 3,127,276
Long-term liabilities...................................... 161,968 130,414 168,304 192,603 188,123 248,269
Total liabilities.......................................... 11,019,543 5,669,338 3,264,554 2,531,093 3,612,875 2,202,969
Stockholder equity (deficit)............................... (4,446,626) (2,396,652) 188,445 553,301 (2,257,942) 924,307
</TABLE>
- ------------------------
(1) The Company petitioned for bankruptcy protection in April 1994 and operated
as a debtor-in-possession until December 16, 1994.
(2) The Company has changed its fiscal year to the calendar year.
(3) Consists of the writedown of designs and drawings in light of the
introduction of replacement products.
(4) Consists of $1,062,667 gain on exchange of debt for common stock and
$1,636,489 gain on debt forgiveness.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
In reviewing the following material, the reader should take note of the fact
that the respective periods being compared are of various durations. This is due
to several changes in the Company's fiscal year. Prior to bankruptcy, the
predecessor company's fiscal year was from February 1 to January 31. Upon
emergence from bankruptcy on December 16, 1994, the predecessor company's fiscal
year ended on that date, thus creating a ten and one-half month fiscal period
from February 1 through December 16, 1994. The adoption of the fiscal year of
the Company's new parent (ETS) at that time created a fiscal period from
December 17, 1994 through June 30, 1995, followed by a full year ended June 30,
1996. Upon becoming a subsidiary of ST in August of 1996, the Company adopted
ST's fiscal year (the calendar year), creating a stub fiscal period from July 1
through December 31, 1996.
This section contains forward-looking statements. See "Special Note
Regarding Forward-Looking Statements."
RESULTS OF OPERATIONS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED JUNE
30, 1996.
The Company's net sales increased 28% to $4,905,000 during the six month
period ended December 31, 1996 from $3,830,000 during the twelve months ended
June 30, 1996. This increase was primarily attributable to the introduction of
the Company's new product lines which have experienced exceptional market
acceptance. Volume in terms of units sold increased with sales of products
introduced since July 1, 1995 increasing from $434,000 for the period ended June
30, 1996 to $3,477,000 for the period ended December 31, 1996.
The Company's cost of sales as a percentage of net sales increased to 83%
during the six months ended December 31, 1996 from 67% for the fiscal year ended
June 30, 1996. There were two primary reasons for this increase in percentage,
both of which the Company considers largely extraordinary. First, there were
adjustments to inventory of $491,000 (10% of sales) for obsolescence. Of this
amount $364,000 was related to the introduction of new products which
essentially rendered one entire older product line obsolete, $110,000 was
related to ongoing product development and $17,000 was related to the valuation
of excess materials on hand. Second, $340,000 (7% of sales) of start-up costs
related to the introduction of new products was included in the cost of sales
for the period ended December 31, 1996. These products include a new generation
modem sub-system which makes use of the Company's proprietary technology from
older products while adding features and reducing future manufacturing costs.
Also, the Company has introduced and shipped the new "Digital Video Broadcast"
modem which has experienced exceptional acceptance in the marketplace. Also
contributing to the increase in cost of sales as a percentage of sales were
freight charges related to international sales (2% of sales) and higher than
anticipated warranty expense on some of the Company's older products (1% of
sales).
The Company is obligated to pay royalties to Merit Microwave, Inc. ("Merit")
on sales of certain translator products developed by Merit. The royalty rate
ranges from five to ten percent of the selling price. During the period ended
December 31, 1996, the Company paid $2,200 for royalty expenses, which were
included in direct cost of goods sold.
Selling, general and administrative costs decreased to $1,438,000 or 29% of
sales during the six months ended December 31, 1996 from $1,844,000 or 48% of
sales for the fiscal year ended June 30, 1996. The decrease in expenses was
primarily attributable to the decreased time frame of the current period over
the prior period and partially offset by increased costs related to the higher
level of business that the Company experienced during the current period.
30
<PAGE>
The Company recorded an "asset impairment charge" of $421,000 during the
period to reflect a valuation adjustment to Designs and Drawings which were
partially impaired due to the introduction of new product lines. The valuation
of designs and drawings is the result of adjustments made by the Company to
adopt Fresh Start reporting in accordance with AICPA Statement of Position
("SOP") 90-7, FINANCIAL REPORTING BY ENTITIES IN REORGANIZATION UNDER THE
BANKRUPTCY CODE, and represents the excess reorganization value that has been
applied to the acquired technology supporting the Company's products (Note 3 to
the Financial Statements). Amortization of designs and drawings is computed
using the straight-line method over an estimated useful life of four to seven
years. The remaining asset carries a net book value of $702,000 and will be
amortized using the straight-line method over the remaining estimated useful
life of two to five years.
Research and development expenditures decreased to $808,000 (16% of sales)
during the six months ended December 31, 1996 from $1,795,000 (47% of sales) for
the twelve months ended June 30, 1996. The decrease in expenses was primarily
attributable to the decreased time frame of the current period relative to the
prior period. Additionally, the Company had embarked on a major development
program during the fiscal year ended June 30, 1996, in order to regain a
competitive posture after two fiscal periods during which the Company had made
no development effort.
Interest expense net of interest income decreased to $256,000 (5% of sales)
during the six months ended December 31, 1996 from $257,000 (7% of sales) for
the fiscal year ended June 30, 1996. The small decrease in expense was primarily
attributable to the decreased time frame of the current period as compared to
the prior period, offset by additional interest from the Company's increased
debt level.
For the period ended December 31, 1996, the Company did not provide for
income taxes, due to the net loss. The Company also did not provide for income
taxes for the twelve month period ended June 30, 1996, due to net operating
losses.
For the six month period ended December 31, 1996, the Company had a net loss
of ($2,070,000) as compared with a net loss of ($2,625,000) in the twelve month
period ended June 30, 1996. The decrease was primarily attributable to the
decreased time frame of the current period relative to the prior period as
partially offset by the increase in cost of sales as a percentage of sales and
the expenses of increased business activity, as discussed above.
"New Orders Booked" (firm, fixed orders from customers) for the six months
ended December 31, 1996 were $5,939,000 as compared to $4,184,000 for the year
ended June 30, 1996. The Company's "Backlog" of orders to be shipped (orders
from the prior period which had not yet been shipped plus New Orders Booked less
orders shipped during the period) was $2,473,000 as of December 31, 1996, an
increase of 72% over the $1,439,000 in Backlog as of June 30, 1996. The
Company's Backlog consists of firm orders as evidenced by written contracts
and/or purchase orders from customers.
SIX MONTH PERIOD ENDED DECEMBER 31, 1996
COMPARED TO SIX MONTH PERIOD ENDED DECEMBER 31, 1995
The following table sets forth, for the periods indicated, certain financial
items used in the discussion below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net Sales.............................................. $ 4,905,059 $ 2,397,235
Cost of Sales.......................................... 4,052,433 1,475,284
Selling G&A............................................ 1,437,971 846,113
R&D.................................................... 808,025 588,451
Net Interest Expense................................... 255,604 71,274
Net Loss............................................... (2,069,974) (583,887)
</TABLE>
31
<PAGE>
The Company's net sales increased 105% to $4,905,000 during the six month
period ended December 31, 1996 from $2,397,000 during the six month period ended
December 31, 1995. This increase was primarily attributable to the introduction
of the Company's new product lines. Volume in terms of units sold increased with
sales of products introduced since July 1, 1995 increasing from $183,000 for the
period ended December 31, 1995 to $3,477,000 for the period ended December 31,
1996.
The Company's cost of sales as a percentage of net sales increased to 83%
during the six months ended December 31, 1996 from 62% for the six months ended
December 31, 1995. There were two primary reasons for this increase in
percentage, both of which the Company considers largely extraordinary. First,
there were adjustments to inventory of $491,000 (10% of sales) for obsolescence.
Of this amount $364,000 was related to the introduction of new products which
essentially rendered one entire older product line obsolete, $110,000 was
related to ongoing product development and $17,000 was related to the valuation
of excess materials on hand. Second, $340,000 (7% of sales) of start-up costs
related to the introduction of new products was included in the cost of sales
for the period ended December 31, 1996 as described on page 30 above. Also
contributing to the increase in cost of sales as a percentage of sales were
freight charges related to international sales (2% of sales) and higher than
anticipated warranty expenses on some of the Company's older products (1% of
sales).
Selling, general and administrative costs increased to $1,438,000 or 29% of
sales during the six months ended December 31, 1996 from $846,000 or 35% of
sales for the six months ended December 31, 1995. The increase in expenses was
primarily attributable to the higher level of business that the Company
experienced during the current period.
The Company recorded an "asset impairment charge" of $421,000 during the
period, as described above.
Research and development expenditures increased to $808,000 (16% of sales)
during the six months ended December 31, 1996 from $588,000 (25% of sales) for
the six months ended December 31, 1995, as the Company's development program,
which commenced in the earlier period, continued at an even stronger pace.
Interest expense net of interest income increased to $256,000 (5% of sales)
during the six months ended December 31, 1996 from $71,000 (3% of sales) for the
six months ended December 31, 1995. The increase was due to the Company's
increased debt level.
For the period ended December 31, 1996, the Company did not provide for
income taxes, due to the net loss. The Company also did not provide for income
taxes for the six month period ended December 31, 1995, due to net operating
losses.
For the six month period ended December 31, 1996, the Company had a net loss
of ($2,070,000) as compared with a net loss of ($584,000) in the six month
period ended December 31, 1995. The increase was primarily attributable to the
increase in cost of sales as a percentage of sales and the expenses of increased
business activity, as discussed above.
New Orders Booked for the six months ended December 31, 1996 were $5,939,000
as compared to $1,525,000 for the six months ended December 31, 1995. The
Company's Backlog of orders to be shipped was $2,473,000 as of December 31,
1996, a more than 1,000% increase over the $213,000 in Backlog as of December
31, 1995.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO SIX AND ONE-HALF MONTH PERIOD
ENDED JUNE 30, 1995
The Company's net sales increased 206% to $3,830,000 during the period ended
June 30, 1996 from $1,861,000 during the six and one-half months ended June 30,
1995 primarily due to the increased time frame of the period being reported upon
herein over the prior period.
The Company's cost of sales as a percentage of net sales increased to 67%
during the fiscal year ended June 30, 1996 from 66% for the six and one-half
months ended June 30, 1995.
32
<PAGE>
Selling, general and administrative costs increased to $1,844,000 or 48% of
sales during the fiscal year ended June 30, 1996 from $961,000 or 52% of sales
for the six and one-half months ended June 30, 1995. The increase in expenses
was primarily attributable to the increased time frame of the current period
over the prior period.
Research and development expenditures increased to $1,795,000 during the
fiscal year ended June 30, 1996 from $-0- for the six and one-half months ended
June 30, 1995. The Company embarked on a major development program during the
fiscal year ended June 30, 1996, in order to regain a competitive posture after
two fiscal periods during which the Company had made no development effort.
Interest expense net of interest income increased to $257,000 (7% of sales)
during the fiscal year ended June 30, 1996 from $36,000 (2% of sales) for the
six and one-half months ended June 30, 1995, due primarily to increased
borrowings.
For the period ended June 30, 1996, the Company did not provide for income
taxes, due to the net loss. The Company also did not provide for income taxes
for the six and one-half month period ended June 30, 1995, due to net operating
losses.
For the twelve month period ended June 30, 1996, the Company had a net loss
of ($2,625,000) as compared with a net loss of ($365,000) in the period ended
June 30, 1995. The increase was primarily attributable to the increased level of
research and development expenditures and interest expense along with the
increased time frame of the period being reported upon over the prior period.
SIX AND ONE-HALF MONTH PERIOD ENDED JUNE 30, 1995 COMPARED TO TEN AND ONE-HALF
MONTH PERIOD ENDED DECEMBER 16, 1994 (PREDECESSOR COMPANY)
In March, 1995, the Company's Board of Directors resolved to end the
predecessor company's fiscal year that began February 1, 1994 on December 16,
1994, the date on which the Company's Second Amended Plan of Reorganization was
confirmed by the Bankruptcy Court. In addition, the Board of Directors resolved
to end the Company's fiscal year on June 30 for all ensuing periods.
The Company's net sales decreased 28% to $1,861,000 during the six and
one-half month period ended June 30, 1995 from $2,569,000 during the period
ended December 16, 1994. The decrease in sales was partially attributable to the
filing of bankruptcy in April 1994 and the lack of credit from vendors to supply
product to the Company. Additionally, there were customer delays in placing
orders in anticipation of the Company's next generation of satellite modems,
which were expected to be introduced in the first quarter of 1994, but because
of the bankruptcy filing, were introduced in the first quarter of 1995.
The Company's cost of sales as a percentage of net sales decreased to 66%
during the six and one-half month period ended June 30, 1995 from 87% during the
ten and one-half month period ended December 16, 1994. The concomitant increase
in gross margin resulted, in part, from the Company's emergence from bankruptcy.
Selling, general and administrative costs decreased to $961,000 during the
six and one-half month period ended June 30, 1995 from $1,658,000 during the ten
and one-half month period ended December 16, 1994. The reduction was mainly
attributable to the difference in time of the periods being compared.
Research and development expenditures were $-0- during the six and one-half
month period ended June 30, 1995, and $-0- during the ten and one-half month
period ended December 16, 1994.
Interest expense net of interest income decreased to $36,000 during the six
and one-half month period ended June 30, 1995 from $118,000 during the ten and
one-half month period ended December 16, 1994.
For the ten and one-half month period ended December 16, 1994, the
predecessor company incurred $600,000 in professional fees related to its
reorganization, had a fresh start adjustment of $1,599,000, had a
33
<PAGE>
gain of $1,063,000 on the exchange of debt for common stock and had a gain of
$1,636,000 on debt forgiveness.
For the six and one-half month period ended June 30, 1995, the Company did
not provide for income taxes, due to the net losses for the year. The
predecessor company also did not provide for income taxes for the prior period
ended December 16, 1994, due to net operating loss carry forwards from prior
years.
For the six and one-half month period ended June 30, 1995, the Company had a
net loss before extraordinary items of ($365,000) as compared with a net loss of
($438,000) in the period ended December 16, 1994. This improvement was due in
part to the reduction in work force and the reduction of debt associated with
the bankruptcy proceeding.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit was ($5,852,000) at December 31, 1996,
an increase of $1,769,000 from ($4,083,000) at June 30, 1996 and $4,015,000 from
($1,837,000) at December 31, 1995. The increase in the deficit from June 30,
1996 was due primarily to $1,994,000 of new bank borrowings, a net increase in
borrowings from affiliates of $2,005,000 and an approximately $1,298,000
increase in accounts payable and accrued liabilities, partially offset by
increases of approximately $186,000 in cash and cash equivalents, $2,450,000 in
accounts receivable and $841,000 in inventories. The increase in the deficit
from December 31, 1995 was due primarily to $1,994,000 of new bank borrowings, a
net increase in borrowings from affiliates of $3,582,000 and an approximately
$1,411,000 increase in accounts payable and accrued liabilities, partially
offset by increases of approximately $140,000 in cash and cash equivalents,
$2,002,000 in accounts receivable and $926,000 in inventories.
Net cash used in operating activities was $3,546,000 for the six months
ended December 31, 1996, as compared to $2,581,000 used in the year ended June
30, 1996 and $1,120,904 used in the six months ended December 31, 1995. The
principal causes for the difference were the net loss for the period ended
December 31, 1996 of $2,070,000 and increases in inventories, prepaid expenses
and accounts receivable, partially offset by increases in accounts payable and
accrued liabilities. Management considers these differences to be consistent
with the introduction of new products and the increase in New Orders Booked and
Backlog as discussed above.
Cash used in investing activities, consisting of additions to equipment,
amounted to $255,000 for the period ended December 31, 1996, or approximately
$134,000 less than the amount expended during the period ended June 30, 1996 for
this purpose and $243,000 more than the amount so expended during the six month
period ended December 31, 1995. The Company has no material commitments to make
capital expenditures in 1997 or thereafter.
The Company derived net cash from financing activities of $3,986,000,
$2,969,000 and $1,295,000, respectively, during the six month period ended
December 31, 1996, the one year period ended June 30, 1996 and the six month
period ended December 31, 1995, with the difference resulting from greater net
borrowings during the current period.
As a result of the foregoing, the Company increased its cash balance by
$186,000 for the six months ended December 31, 1996, decreased its cash balance
by $1,000 for the year ended June 30, 1996 and increased its cash balance by
$44,000 for the six months ended December 31, 1995.
A bank line of credit, in the amount of $2,000,000, was established for the
Company with Bank of America NT&SA, Asian Banking Unit, by Stetsys US, Inc., the
new beneficial owner of 90.67% of the Company's outstanding stock. As of
December 31, 1996, the Company had drawn down $1,994,000 of the available funds
in the form of demand loans which were originally guaranteed by an affiliate of
Stetsys US, Inc. (Note 8 to the Financial Statements). Subsequent to the end of
the current period, this facility was expanded to $5,000,000, a nonbinding
letter of awareness from that affiliate replaced the guarantee, and the amount
drawn down was increased to $3,000,000 as of March 24, 1997. The interest rates
on these loans range from 6.2125% to 7.25% per annum. The Company also has a
$5,500,000 credit facility with Citibank NA with respect to which the same
affiliate of ST has also issued a nonbinding letter of
34
<PAGE>
awareness. Subsequent to the end of the current period, the Company borrowed
$400,000, due July 22, 1997 with interest at 6.875%, $2,600,000, due September
30, 1997 with interest at 6.625% per annum, $400,000, due September 30, 1997
with interest at 6.75% per annum and $400,000, due October 6, 1997, with
interest at 6.96875%, under the Citibank facility.
The Company borrowed $4,500,000 (plus $141,000 in accrued interest) from
Singapore Technologies Electronics Pte Ltd, a related company, the proceeds from
which were used to pay down the loan payable to ETS. An additional $504,000 of
the Company's cash was used to pay the balance of the ETS loan. This $4,500,000
loan was repaid on February 10, 1997 with the proceeds of the above described
$2,600,000 Citibank loan and the proceeds of a $2,000,000 loan from ST, due July
31, 1997 with interest at 6.625% per annum.
In order to meet its capital needs in the period reported on herein, the
Company obtained additional financing from ST. At December 31, 1996, the Company
had borrowed $2,127,000 (including accrued interest) from ST. The interest on
these short-term loans was paid at maturity and the $2,100,000 in principal
amount was rolled over until July 31, 1997 with interest at 6.625% per annum.
The interest rate on all of the ST loans may be increased by 1% to 7.625% per
annum for any period following a default in payment.
The purpose of all of the above described loans has been to finance or
refinance the capital needs associated with the Company's recent rapid sales and
Backlog growth and the cost of research and development. To date, the Company's
capital resources (as supplemented by loans from ST and its affiliates) have
been sufficient to fund its operations and increased level of business. The
Company believes that the net proceeds from the Rights Offering, along with its
bank credit lines and cash from operations, should be sufficient to fund its
future operations and capital requirements for continued growth through the end
of 1998.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material impact on
revenues or expenses during the last four fiscal periods reported on herein.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 addresses issues
surrounding the measurement and recognition of losses when the value of certain
assets has been deemed to be permanently impaired. As a result of SFAS No. 121,
the Company recorded an "Asset Impairment Charge" of $421,000 during the period
to reflect a valuation adjustment to Designs and Drawings which were partially
impaired due to the introduction of new product lines. The valuation of designs
and drawings is the result of adjustments made by the Company to adopt Fresh
Start reporting in accordance with AICPA statement of Position ("SOP") 90-7,
FINANCIAL REPORTING BY ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE, and
represents the excess reorganization value that has been applied to the acquired
technology supporting the Company's products (Note 3 to the Financial
Statements). Amortization of designs and drawings is computed using the
straight-line method over an estimated useful life of four to seven years. The
remaining asset carries a net book value of $702,000 and will be amortized using
the straight-line method over the remaining estimated useful life of two to five
years.
In October 1995, the FASB issued Statement No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION", which encourages, but does not require, a fair value
based method of accounting for employee stock options. As permitted under the
new standard, the Company will continue to account for employee stock options
under APB No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." The pro forma
disclosures required by this standard have been adopted as of July 1, 1996.
35
<PAGE>
BUSINESS
GENERAL
Radyne has been involved in the advanced design and production of digital
data communications equipment and associated equipment for satellite
telecommunications systems for over sixteen years. Since the Company's inception
in 1980, Radyne has established itself as a supplier in the satellite ground
equipment business.
Radyne designs, manufactures and sells satellite modems, frequency
converters, ancillary products and equipment racks containing integrated modems
and supporting equipment for data communications.
Although the Company was forced to file for Chapter 11 bankruptcy protection
in April 1994, it successfully emerged from bankruptcy in December of that year
upon the acquisition of approximately 91% of its Common Stock by Engineering and
Technical Services, Inc. ("ETS"), then a major customer of Radyne. On August 12,
1996, ETS was acquired by Singapore Technologies Pte Ltd through its indirect
wholly owned subsidiary, Stetsys US, Inc. ("ST"). As a result, approximately 91%
of the Company's Common Stock is now held by ST. See "Bankruptcy Reorganization"
below.
In 1995, ETS caused Radyne to install a new management team, which promptly
moved the Company's operations from New York to Phoenix, Arizona and commenced
the hiring of an almost all new staff of engineering, sales and support
personnel, with funding advanced by ETS and subsequently ST and its affiliates.
The new Radyne team has reinstituted Radyne's research, development and
marketing programs and reinvigorated its product line.
The Company's engineering staff and support facilities are dedicated to (i)
maintaining the state-of-the-art status of Radyne's traditional products for the
satellite ground equipment segment of the market, (ii) designing and enhancing
products for emerging markets, such as rural telephony for developing areas,
high-speed satellite communications, government data equipment and the growing
private network market, and (iii) providing special configurations to satisfy
customers' special needs. The Company has already shipped commercial volumes of
its products for rural telephony and private network applications and has
shipped product qualification units to one government data equipment customer.
Radyne's modems cover data rates from 2.4 Kilobytes per second to 50
Megabytes per second. The Company's frequency converters handle all three
frequency bands used in satellite communications. Radyne believes that most of
its current line of modems and converters are smaller and lower priced than the
previous generation of products, enabling large system installation in
significantly less rack space than the products of the Company's competitors.
The Company also markets redundancy switches which operate in conjunction with
satellite modems and converters and provide automatic fault monitoring and
switch over to standby equipment in the event of modem or converter failure.
Radyne's line of frequency converter products is usable in virtually all
earth stations for the conversion of intermediate frequencies to microwave
frequencies for satellite transmission. These converters are competitively
priced, small in size and offer either single, dual or all three bands used in
the satellite industry. In addition to being offered to commercial customers,
there is a military market for the three-band units.
The Company's newer products include a low cost modem with expanded features
and super fast acquisition capabilities, making it attractive for use in both
private networks and rural telephone systems being offered in China, Indonesia
and India, and a line of satellite frequency translators presently used for
testing in satellite earth stations.
The development of digital compression technology has allowed the
transmission of television in a small bandwidth, which has made TV transmission
by satellite more economical than ever before. Video compression allows many
times more channels on a satellite than was previously the case, thus producing
a new market of major interest. This compression technology is or is expected to
be used for transmission of
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TV to all network facilities, distribution of cable TV to cable companies, high
definition TV distribution and video teleconferencing. Radyne has developed a
modulator product to be used in conjunction with compression equipment and has
been shipping this product for the past ten months.
Radyne's operating strategy is to (i) continue to build on the experience,
skills and customer access of its new management team, (ii) capitalize on its
development of smaller, less costly satellite modems, and (iii) expand into
market segments, such as rural telephone, private networks and compressed
television transmission. See "Target Markets" below.
Notwithstanding the foregoing, investors should be aware that the Company's
future plans are subject to a number of variables outside of its control, and
there can be no assurance that the Company will be able to implement any or all
of such plans or that such plans, when and if implemented, will be successful.
See "Risk Factors."
This section contains forward-looking statements. See "Special Note
Regarding Forward-Looking Statements."
BANKRUPTCY REORGANIZATION
In December 1994, Radyne emerged from protection under Chapter 11 of the
Bankruptcy Code. The Company believes that the reasons for Radyne having sought
bankruptcy protection have been neutralized by its new management team and
interim financing sources. When Radyne filed its bankruptcy petition in April
1994, it was suffering from severe cash flow problems due to shrinking sales.
Years of uninspired management and the failure to maintain the sort of research
and development program which is necessitated by the fast-moving data
communications industry had left Radyne with an aging product line and an
inability to access emerging markets.
On April 28, 1994, Radyne filed a petition for relief under Chapter 11 of
the federal bankruptcy laws in the United States Bankruptcy Court for the
Eastern District of New York. Under Chapter 11, certain claims against the
Company in existence prior to the filing were stayed while the Company continued
business operations as debtor-in-possession. Claims secured by the Company's
assets were also stayed, although the holders of such claims had the right to
move the court for relief from the stay prior to the Company's reorganization
plan being confirmed. Secured claims were secured primarily by liens on all of
the Company's assets.
The Company received approval from the Bankruptcy Court to pay certain of
its pre-petition obligations, employee wages and benefits. Tax claims were
rescheduled for payment in equal quarterly installments of $9,600, with interest
at 7%, over six years. A portion of these tax claims is the sole remaining
pre-petition liability of the Company.
On December 16, 1994, the Bankruptcy Court confirmed the Company's Plan of
Reorganization effective at the close of business on December 16, 1994. The
Plan, which has been consummated, called for the establishment of an escrow
account from which to pay claims and provided for the following:
(1) Exchange of Debt for Common Stock--The Company issued 17,000,000
(pre-Reverse Split) shares of previously authorized but unissued Common
Stock to Radyne Florida (a special purpose subsidiary of ETS), which had
previously purchased the Company's secured bank debt and the position of
certain holders of secured promissory notes. This issuance of stock gave
Radyne Florida approximately 91% of the Company's outstanding Common Stock.
In exchange for the stock, the Company was discharged of $2,350,000 of debt
owed to Radyne Florida. In addition, the 1,750,000 warrants held by Radyne
Florida (purchased along with the secured promissory notes) were cancelled.
37
<PAGE>
(2) Cancellation of Debt--Unsecured claims and capitalized lease
obligations were settled as follows:
<TABLE>
<CAPTION>
ORIGINAL
TYPE OF CLAIM AMOUNT REDUCTIONS COMPROMISED
- ----------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Accounts payable, accrued expenses, and capitalized lease
obligations.................................................. $ 1,483,343 $ 1,111,872 $ 371,471
Convertible debentures and bridge notes........................ 487,885 439,225 48,660
Taxes.......................................................... 309,143 99,866 209,277
------------ ------------ -------------
$ 2,280,371 $ 1,650,963 $ 629,408
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
(3) Other Claims--Priority Claims for wages of $53,786 were paid in
full.
Holders of the Company's Common Stock and options to purchase the Company's
Common Stock had their interests significantly diluted by the distribution of
Common Stock to Radyne Florida.
Holders of warrants to purchase the Company's Common Stock exchanged the
warrants for an aggregate of 53,437 shares of Common Stock.
INDUSTRY OVERVIEW
There are more than 150 major commercial communications satellites in orbit
today, representing an investment of more than $30 billion. Over 80 more of
these expensive geosynchronous earth orbiting satellites (GEO's) are on order.
(Source: VIA SATELLITE, September 1996). The ways in which satellites are used
continue to shift over time. The principal uses today are for television
distribution, international telephone service and private networks. As more
fiber cables are laid under the oceans, the use of satellites for international
telephony is slowing. However, satellites represent a sizable investment and a
unique communications medium which will continue to be used in other ways. For
example, the use of this satellite resource is already shifting towards domestic
telephony in countries, such as China and India, which are seriously lacking in
infrastructure. In addition, technological advances, such as voice compression,
have made it economical for third world countries to have more telephone
service. Moreover, television distribution is going through a technology
revolution in which ten times as many programs can be transmitted through
satellites. This technological and economical breakthrough has created many new
markets. For example, it is now cost-effective for many relatively small market
segments to have their own TV networks (such as we are now seeing with regional
college sports). Finally, the lowering of international barriers and
privatization are allowing the expansion of more private networks.
Almost anyone who uses a satellite as a transmission path has the need for
equipment of the sort produced by Radyne. The Company expects to continue
operating within the satellite ground equipment segment of the market for the
next several years, while continuing to expand into various new markets. For
example, the Company expects to enter the market for high-speed satellite
communication products and anticipates sales in the area of government data
equipment in the near future. Although the telecommunications industry is
rapidly changing, becoming more complex and requiring new technology, the
transformation and evolution of the industry is not expected to cause satellite
data equipment to become obsolete, at least within the near future.
INDUSTRY TRENDS
Several major trends in the telecommunications industry should provide
opportunities for Radyne. First, telecommunications growth in the Pacific Rim
and an increase in the number of satellites orbiting over the Pacific and Indian
Oceans will produce a substantial need for satellite data communications
equipment. Second, the opening of the Asian Development Bank should provide
funds for badly needed telecommunications infrastructure. Third, the large
demand for telecommunications in the third world is
38
<PAGE>
expected to cause emerging countries to make use of the Asian Development Bank
to buy satellite data communications equipment. Tremendous telecommunications
growth is also expected in South America. Fourth, if the United States defense
budget continues to shrink, more NDIs (non-developmental items) and COTS
(commercial off-the-shelf products) may be purchased from suppliers, such as
Radyne, who can offer these products for much less than the government would pay
to develop the products. Radyne anticipates being able to supply commercial
versions of military equipment. Fifth, as HDTV (high-definition television)
becomes available, the need for satellite equipment will increase. Finally,
planned LEO (low earth orbit) and MEO (medium earth orbit) satellite networks
should serve as additional sources of potential business for Radyne. The
Company's products can easily be adapted to handle traffic from these or any
other type of satellite system now in use. However, there can be no assurance
that the Company will be successful in exploiting these opportunities.
Another trend in the telecommunications industry is the emergence of fiber
cable for voice and data transmission. Fiber cable is preferable to satellite
communications, although it performs the same functions as satellites, because
there is very little time-delay when using fiber cable. Satellite communication
exhibits a slight (approximately half-second) time delay. Although fiber cable
is favored over satellite communications, its emergence has not caused
obsolescence of satellite communications for several reasons. First, it is not
cost-effective to utilize fiber cable in all areas of the world, especially
emerging countries where telecommunications capabilities are just beginning to
develop. Second, although fiber cable has performance advantages, it has a
tendency to break, resulting in the need for satellite capabilities as a
back-up. Third, fiber cable is utilized mainly for point-to-point
communications. Satellite transmission, on the other hand, is superior for
distribution communications, for example video broadcasting on major television
networks. Thus, although fiber cable can be viewed as a competitor of satellite
communications, it has not historically reduced, nor is it anticipated to
reduce, the need for satellite modem equipment. Although the proliferation of
fiber optics is proceeding at a rapid pace, it is not expected to outrun
business requirements. Moreover, there should be "niche" requirements that can
be satisfied only with satellite communications for a long time to come.
(Source: SATELLITE COMMUNICATIONS, September 1996). For example, it is not cost
effective to lay fiber cable in mountainous terrain or in nations composed of
many islands, a geographical feature which is relatively common in the Pacific.
Sparsely populated areas are generally not suited to fiber cable on a
cost/effect basis. Moreover fiber cable is not suitable for portable
communications, such as PCS (personal communications systems), news gathering,
emergency services and other mobile communication requirements.
Compressed digital video is the latest frontier in satellite communications
technology. Three aspects of this market are of particular interest to Radyne.
The first is the requirement of television broadcasters for efficient and
economic distribution. Second, while broadcast quality digital video compression
algorithms are still in development, compressed video encoding and decoding are
already available for the less demanding business video teleconferencing and
distance learning markets. The economics of the new compressed video allow the
use of satellite transmission for nearly worldwide teaching. Third, there is an
emerging application for digital cinema distribution. As movie theaters get
smaller and thereby proliferate, the costs of making and distributing copies of
films becomes proportionally greater. Using satellite distribution, movies can
be distributed directly to thousands of theaters simultaneously. The Company
expects the digital cinema market to become substantial over the next five
years. However, there can be no assurance that the Company will succeed in the
emerging compressed digital television market.
TARGET MARKETS
Radyne has historically operated in an industry that has relatively few
customers. Today, fewer than 1,000 customers make up the market for satellite
data communication subsystems. Radyne's target markets include international
telecommunications, high speed satellite communications, rural telephony and
private network DAMA (demand assigned multiple access) users, as well as the
United States Government. Currently, Radyne has a presence in the international
telecommunications market and has just
39
<PAGE>
entered the DAMA products market with its new DMD-2400 modem, but anticipates
movement into the other markets in the near future. Of course, there can be no
assurance that Radyne will succeed in capturing a significant share of these
other markets.
The international telecommunications market includes users of IDR
(intermediate data rate), IBS (international business service) and open network
satellite equipment. The IDR environment is primarily for voice traffic, while
IBS is specific to business data traffic. In addition, the market includes
customers for MUX (multiplexers), switches and peripheral equipment. The
international telecommunications market should provide substantial business
opportunities for Radyne in the near future. To illustrate the magnitude of the
potential market for Radyne's satellite modems alone, the projected growth in
transponders can be depicted as follows. (A transponder is the part of the
satellite that receives an uplink signal at one frequency, converts that
signal's frequency, amplifies it and then retransmits the signal to the ground.)
Satellites have an average of 24 transponders each. For each transponder, an
average of 50 modems are required (25 on the transmitting side and 25 on the
receiving end). The growth in total C-Band and Ku-Band transponder capacity is
projected to average more than 250 per year until the end of 1999, to a world
total of more than 5,000 transponders (Source: VIA SATELLITE, January 1995).
This transponder growth translates into a need for up to 50,000 or more
additional satellite modems by the year 2000.
Rural telephony and private network DAMA products require special
communications equipment which is efficient for low traffic volume at many
different locations. DAMA products allow many users to access the same channel
on demand. Radyne has recently entered the DAMA products segment of the market
with its new DMD-2400 modem. The DMD-2400 can be utilized in both rural
telephony and private network systems. Rural telephony can be described as an
intra-country telecommunications network linking many small villages in a
country like Indonesia, for example, ultimately allowing the villages to
communicate with the world. A private network can be described as a network in
the commercial world. For example, banks and other financial institutions,
airlines, and large and multi-unit corporations all have the need for satellite
communications and may be linked via private networks.
Demand for DAMA products for use in private and rural telephony networks is
growing rapidly. It has been estimated that 20,000 to 50,000 new installations
will occur in North America alone over the next two or three years, translating
into substantial demand for satellite ground equipment. (Source: SATELLITE
COMMUNICATIONS, August 1996). Radyne has entered this market and has a product
agreement for both low speed data equipment and the necessary radio frequency
(RF) products. The Company sells its DAMA/ VSAT compatible products to system
integrators (customers who make a business of supplying turnkey earth station
operations for their customers), domestically and abroad, as components to
systems that they have designed, as well as directly to end users. The Company
offers these products for sale on a global basis and believes their use to be
global.
The high-speed satellite communications market is just beginning to emerge.
Communications equipment in this segment possesses higher data rate capabilities
of approximately 12-150 megabits per second, allowing much more data to be
transmitted. Tests are currently underway by AT&T to use ATM (asynchronous
transfer mode) to transfer large amounts of data. It is Radyne's intention to
enter the high-speed satellite communications market as its engineers develop
advanced equipment designed to the higher data rate specifications.
Finally, the United States Government should provide a significant market
opportunity for Radyne as the defense budget shrinks and it becomes cost
prohibitive for the government to develop its own products. Because of the
expected growth in commercial off-the-shelf (COTS) and non-developmental item
(NDI) procurement, Radyne anticipates targeting the US Government as an
important revenue source.
40
<PAGE>
PRINCIPAL PRODUCTS
The following is a brief description of the Company's principal product
lines. Readers should be aware that inasmuch as these products are frequently
customized to suit the needs of particular end users, the price range data
provided below may not represent actual prices for many units sold.
RCS5000/DMD5000 MODEM AND REDUNDANCY CONTROL SYSTEM
The model RCS5000 is a complete, self-contained satellite communication
modem system with all modems, terrestrial interfaces and redundancy switch
functions located in a single cabinet holding up to 27 modems. This compact
(17.5 inches high) and versatile common equipment package includes full support
for Intelsat's IDR/IBS services and may also be operated in closed networks.
Each built-in redundancy switch is a microcomputer controlled system which is
capable of controlling up to 9 modems, up to four of which may be designated as
back-ups. Thus, in the event of failure of an on-line modem, back-up operations
can be triggered either automatically or manually. The RCS5000 also has dual
redundant power supplies.
Depending upon the precise configuration, these systems are priced in the
range of $8,000 to $11,000 per modem module, plus the cost of optional
equipment. As the RCS5000 represents some of the older modem technology
remaining in the Company's product line, sales of these systems decreased from
$1,397,000 (36% of revenues) for the year ended June 30, 1996 to $439,000 (9% of
revenues) for the six months ended December 31, 1996.
RCS-10/DMD-10 MODEM AND REDUNDANCY CONTROL SYSTEM
The RCS-10 represents the new generation system which is replacing the
RCS5000 family in Radyne's product line. It serves the same functions as the
RCS5000, but with a number of notable improvements. Up to 30 modems can be
combined in a single rack and each redundancy switch can control up to 10
modems. In addition to an expanded data rate range (9.6 Kbps to 8.448 Mbps
compared to the RCS5000's 64 Kbps to 8.448 Mbps), the RCS-10 offers an improved
display and menu structure and more options.
The market acceptance of the RCS-10 is demonstrated by the $1,506,000 (31%
of revenues) in sales for the six- month period ended December 31, 1996, its
inaugural period. Depending upon the configuration selected, the price of the
RCS10 ranges from $6,300 to $15,000 per modem module, plus options.
DMD-4500 IBS/IDR SATELLITE MODEM
This standard satellite modem provides selectable functions for Intelsat
IDR, IBS and closed network services and is easily programmable by earth station
personnel. Data rates may be selected in 8 Kbps steps between 48 Kbps and 8.448
Mbps. The DMD-4500 can be used with a variety of redundancy switches and other
options. As this modem is based on some of Radyne's older technology and is
accordingly yielding to newer Radyne products, sales have decreased from
$1,780,000 (46% of revenues) in the year ended June 30, 1996 to $628,000 (13% of
revenues) in the six months ended December 31, 1996. Prices range from $6,900 to
$10,700, depending upon the precise function and equipment selected.
DMD-2400 SATELLITE MODEM
The DMD-2400 is a low cost, light weight (8 pounds), fast acquisition (under
1 second) modem. It is capable of data rates ranging from 2.4 Kbps to 1.6 Mbps
in steps of 1 Bps. Digital signal processing eliminates virtually all on-board
adjustments. This modem is designed to perform as both ends of a single channel
per carrier link or as a VSAT remote site modem in a hub system. Its other
applications include video conferencing, long distance learning, paging and news
gathering.
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The DMD-2400 is priced in a range from $6,000 to $7,500 . Sales have
increased from $215,000 (6% of revenues) in the year ended June 30, 1996 to
$1,150,000 (23% of revenues) for the six-month period ended December 31, 1996.
DVB-3000 DIGITAL BROADCAST MODULATOR
The DVB-3000 is a flexible, programmable digital video satellite modulator
offering full compatibility with digital video standards. Its principal
applications are for digital video hub uplinks, mobile satellite news gathering,
video distribution and one-way data distribution. The DVB-3000 is high speed,
offering programmable data rates ranging from 1.0 to 30.0 Mbps and fixed data
rates of 30 to 50 Mbps. It is also frequency agile with a base range of 50 to 90
MHz and an optional range of 100 to 180 MHz in steps of 1.0 Hz.
The DVB-3000 is priced from $8,400 to $9,500. Sales have increased from
$16,000 (less than 1% of revenues) in the year ended June 30, 1996 to $601,000
(12% of revenues) for the six months ended December 31, 1996.
CONVERTERS, TRANSLATORS AND OTHER MICROWAVE PRODUCTS
Radyne has a complete line of synthesized frequency up converters and down
converters. The SFC6400 C-Band Up Converter converts data or video signals in
the IF range of 50-180 MHz to uplink frequencies between 5.845 and 6.420 GHz.
The SFC4200 C-Band Down Converter converts microwave carriers in the 3.62 to
4.20 GHz range to the IF range of 50-180 MHz. The Company believes that its
SFC1450 Ku-Band Upconverter and the SFC1275G Ku-Band Global Downconverter offer
low phase noise, superior standard transmit output compression and the only
downconverter to receive data and detect carrier power simultaneously. The
SFC1468 Tri-Band Synthesized Up Converter is capable of converting signals in
the IF range of 50-180 MHz to C, X and Ku band microwave uplink carriers. The
SFC1274G Tri-Band Synthesized Down Converter does the reverse.
The Company also offers a full line of Loop Test Translators, including
C-Band, Ku-Band, X-Band and Tri-Band models. These are self contained frequency
converters which perform transmit to receive loopback testing of earth station
equipment.
The Company's sales of microwave products increased from $203,000 in the
year ended June 30, 1996 to $451,000 for the six months ended December 31, 1996.
MANUFACTURING
The Company's products are to a certain extent assembled and tested at its
Phoenix, Arizona facilities using subsystems and circuit boards supplied by
subcontractors. Although the Company believes that it maintains adequate stock
to reduce the procurement lead time for certain components, the Company's
products use a number of specialized chips and customized components or
subassemblies produced by a limited number of suppliers. In light of previous
financial difficulties, Radyne has experienced some inflexibility on the part of
certain suppliers in regard to credit terms for delivered components. In the
event that such suppliers were to be unable or unwilling to fulfill the
Company's requirements, the Company could experience an interruption in
production until an alternative source of supply was developed. The Company
maintains an inventory of certain chips and components and subassemblies to
limit the potential for such an interruption. The Company believes that there
are a number of companies capable of providing replacements for the types of
unique chips and customized components and subassemblies used in its products.
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SALES AND MARKETING
The Company sells its products through international representatives,
distributors and systems integrators which are supported by the Company's sales
and marketing personnel. In-house direct sales by the Company are targeted
toward large accounts, new accounts and the establishment of distributors in new
markets. The Company has recently established new distribution or representation
arrangements in the Middle East, South America, Asia and the Pacific Rim.
The Company has an informal marketing arrangement with Agilis Communication
Technologies Pte Ltd, an affiliate of ST and the General Manager of which is a
director of the Company. Under this arrangement, Agilis acts as Radyne's sales
agent for several countries in Asia. During the first seven months of this
arrangement, which was entered into prior to the Company's affiliation with ST,
Agilis produced over $650,000 of orders for Radyne products.
The Company's direct sales force is comprised of 5 individuals in the
marketing department, supported by systems and applications engineers. Direct
sales activities are focused on expanding the Company's international sales by
identifying emerging markets and establishing new distributor accounts.
Additionally, the Company directly targets certain major accounts which may
provide entry into new markets or lead to subsequent distribution arrangements.
Such major accounts tend to be telecommunications agencies and major
corporations in new international markets. The Company has a customer service
and support group, which primarily supports distributors and is responsible for
after-sale support and installation supervision. In certain instances the
Company uses third party companies for installation and maintenance.
Significant customers for the periods ended as indicated were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 16,
1996 1996 1995 1994
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Bonn Elektronik................................................. 1.6% 6.4% 22.0% 5.8%
Voice of America................................................ -0- -0- 15.3 12.2
ETS............................................................. 6.3 8.1 14.2 16.4
Comsat RSI...................................................... 15.6 12.7 11.7 14.0
Embratel........................................................ 18.3 -0- -0- -0-
</TABLE>
No other customers represented more than 10% of the Company's sales. These
customers were in most cases not end users. Nevertheless, in some cases a single
end user has been responsible for a relatively large percentage of the Company's
sales, as was the case with Embratel in the most recent period. While the
Company has been successful, and hopes to continue to be successful in
attracting large orders of this nature from year to year, in light of the nature
of the Company's products, it is not generally anticipated that the same end
user customers will be the source of such orders year after year. Nevertheless,
the failure of the Company to continue to attract orders of this nature could
have a material adverse impact on the Company's business and financial
condition.
The Company's sales in its principal foreign markets for the six-month
period ended December 31, 1996 and the year ended June 30, 1996 consisted of the
following percentages of total sales:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996
----------------------- -----------------
<S> <C> <C>
Asia............................................................................ 31% 24%
Latin America................................................................... 25 6
Europe.......................................................................... 9 20
</TABLE>
Export sales, as a percentage of total net sales, were about 45% for the ten
and one-half month period ended December 16, 1994, approximately 46% in the six
and one half month period ended June 30, 1995, about 50% in the fiscal year
ended June 30, 1996, and approximately 66% for the six month period ended
December 31, 1996. The Company believes that this figure may rise in subsequent
periods. The Company
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considers its ability to continue to make sales in developing markets to be
important to its growth potential. However, there can be no assurance that the
Company will succeed in its efforts to cultivate such markets.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts to date have been devoted to
the design and development of new products for the satellite communications and
telecommunications industries. The Company's future growth depends on increasing
the market shares of its new products, adaptation of its existing satellite
communications products to new applications, and the introduction of new
communications products that will find market acceptance and benefit from the
Company's established international distribution channels. Accordingly, the
Company is actively applying its communications expertise to design and develop
new hardware and software products and enhance existing products. However, there
is no assurance that the Company will continue to have access to sufficient
capital to fund the necessary research and development or that such efforts,
even if adequately funded, will prove successful.
In its fiscal years ended June 30, 1995 and June 30, 1996, and the six
months ended December 31, 1996, the Company spent $0, $1,795,000 and $808,000,
respectively, on research and development activities. During this period, the
Company introduced the RCS-10 Redundant Modem System, the DMD-15 Universal
Modem, the DVB-3000 Digital Video Modulator, the SFC-6400 Up Converter, the
SFC-4200 Down Converter, and the RCS-20 Modem Switch, as well as the DMD-2400
Modem.
COMPETITION
The Company has a number of major competitors in the satellite
communications field. These include large companies, such as Hughes Network
Systems, NEC, the EFData division of California Microwave and Spar Aerospace,
which have significantly larger and more diversified operations and greater
financial, marketing, human and other resources than Radyne. The Company
estimates that the major competitors in the main markets in which it operates
have the following market shares:
<TABLE>
<CAPTION>
VSAT GOV'T DATA
COMPETITOR INTELSAT DIGITAL VIDEO NETWORKS EQUIPMENT
- ------------------------------------------------------------------- ----------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
EFData............................................................. 35% 5% 25% 35%
Comstream/Spar..................................................... 10 30 20 0
Hughes Network..................................................... 10 0 0 0
NEC................................................................ 10 10 0 0
SSE/Fairchild...................................................... 10 0 15 0
Comquest........................................................... 0 0 0 20
Radyne............................................................. 5 25 15 1
</TABLE>
The Company does not believe that any other single competitor has a greater
than 10% market share for any of these product classes. However, the foregoing
market share figures represent estimates based on the limited information
available to the Company, and there can be no assurance of precision.
The Company believes that it has been able to compete by concentrating its
sales efforts in the international market, utilizing the resources of local
distributors, and by emphasizing product features. However, most of the
Company's competitors offer products which have one or more features or
functions similar to those offered by the Company. The Company believes that the
quality, performance and capabilities of its products, its ability to customize
certain network functions and the relatively lower overall cost of its products,
as compared to the costs generally offered by the Company's major competitors,
have contributed to Radyne's ability to compete successfully. However, the
Company's major competitors have the resources available to develop products
with features and functions competitive with or superior to those offered by the
Company. There can be no assurance that such competitors will not successfully
develop such products or that the Company will be able to maintain a lower cost
advantage for
44
<PAGE>
its products. Moreover, there can be no assurance that the Company will not
experience increased competition in the future from these or other competitors
currently unknown.
TECHNOLOGY
The Company believes that improvement of existing products, reliance upon
trade secrets, copyrights and unpatented proprietary know-how and the
development of new products are generally as important as patent protection in
establishing and maintaining a competitive advantage. Because patents often
provide only narrow protection which may not provide a competitive advantage in
areas of rapid technological change and because patent applications require
public disclosure of information which may otherwise be subject to trade secret
protection, Radyne has not obtained, and has no present intention to obtain,
patents on existing products. However, there can be no assurance that the
Company's technology will not be found to infringe upon the intellectual
property of others. If the Company's technology should be found to impermissibly
utilize the intellectual property of others, the Company's ability to utilize
the technology could be materially restricted or prohibited. In such event, the
Company might be required to obtain licenses from third parties to utilize the
patents or proprietary rights of others. No assurance can be given that any
licenses required could be obtained on terms acceptable to the Company or at
all. In addition, in such event, the Company could incur substantial costs in
defending itself against infringement claims made by third parties or in
enforcing its own intellectual property rights.
The Company's practice is to comply with all federal laws governing export
licensing and the dissemination, export or foreign ownership of technology or
equipment and other products having national security implications. In like
manner, Singapore Technologies Pte Ltd and its affiliates submitted their
acquisition of control over Radyne for review by the federal Committee on
Foreign Investment in the United States pursuant to Section 721 of the Defense
Production Act of 1950, as amended, which determined that there was no national
security issue warranting action on the Committee's part. Radyne's products are
made for commercial usage and meet standard industry specifications. None of the
Company's products have a strictly military application.
FACILITIES
The Company's sole office and production facility consists of a 16,337
square foot facility in Phoenix, Arizona. This facility is leased at an annual
cost of approximately $88,000. The lease expires on March 30, 1998, subject to a
two-year renewal option. The Company believes this facility is adequate for its
present needs and that alternative space should be available as required.
EMPLOYEES
As of March 12, 1997, the Company had 60 full time employees, including two
executive officers, 43 in engineering, manufacturing and marketing operations,
and 5 in administration. None of the Company's employees are represented by a
union or governed by a collective bargaining agreement, and the Company believes
that its relations with its employees are satisfactory.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
45
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors and executive officers of the Company, their positions held
with the Company, and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Lim Ming Seong............................. 49 Director, Chairman of the Board
Chan Wee Piak.............................. 41 Director
Lee Yip Loi................................ 53 Director
Robert A. Grimes........................... 44 Director
Robert C. Fitting.......................... 61 Director and President
Steven W. Eymann........................... 44 Vice President
</TABLE>
Each director is elected for a period of one year at the Company's annual
meeting of stockholders and serves until the next meeting and until his
successor is duly elected and qualified. Officers are elected by, and serve at
the discretion of, the Board of Directors.
The following is a brief summary of the background of each director,
executive officer and certain key employees of the Company:
DIRECTORS AND EXECUTIVE OFFICERS:
LIM MING SEONG has a been a Director and Chairman of the Board of the
Company since August 13, 1996 and is chairman of its Compensation Committee. He
is the Chairman of ST and of Vertex Management, Inc., a member of the ST group,
and he has been Group Director of Singapore Technologies Pte Ltd, an indirect
parent of ST since February of 1995. From March 1992 until February 1995, he was
Executive Director of Singapore Technologies Ventures Pte Ltd and from February
1990 to March 1992, he was Group President of Singapore Technologies Holdings
Pte Ltd. Prior to that time he held various corporate and government positions,
including Deputy Secretary in the Singapore Ministry of Defense from 1979 to
1986.
LEE YIP LOI has been a Director of the Company since August 13, 1996 and is
chairman of the Audit Committee and a member of the Compensation Committee of
the Board. Mr. Lee is also a director of ST. He has been Regional Director
(America) of Singapore Technologies Pte Ltd since March 1994. Prior to that time
he held a number of managerial positions with such corporations as Morgan
Guaranty Trust and Singapore Technologies Pte Ltd and government positions with
the Singapore Ministries of Education, Defense, Culture and Home Affairs.
CHAN WEE PIAK has been a Director since August 13, 1996 and is a member of
the Compensation Committee of the Board. He is a director of ST and has been
General Manager of Agilis Communication Technologies Pte Ltd, also a member of
the Singapore Technologies group, since January 1992. From November 1989 to
February 1992, he was General Manager of Chartered Microwave Pte Ltd. Prior to
that time, he held various managerial positions in the Singapore Ministry of
Defense and with Singapore Electronic and Engineering.
ROBERT A. GRIMES, who is a member of the Audit and Compensation Committees
of the Board, has served as a member of the Board of Directors since December,
1994. For the past seven years Mr. Grimes has also served as the President and a
member of the Board of Engineering and Technical Services, Inc. He is also the
President of ST.
ROBERT C. FITTING has been President of the Company since February, 1995,
became a Director of the Company in March, 1995 and is a member of the Audit
Committee of the Board. Mr. Fitting has a Master
46
<PAGE>
of Electrical Engineering degree from New York University and a Bachelors with
distinction from Penn State University. His professional career began at Bell
Laboratories in 1962 where he spent six years developing innovative
communication technologies. Mr. Fitting then joined the Motorola Government
Electronics Division where he was an engineering manager. He published more than
a dozen technical papers and was awarded a number of patents. He left Motorola
in 1978 to build a new company under an agreement with Comtech
Telecommunications. The new company was named Comtech Data Corporation,
currently known as Fairchild Data Corporation. Mr. Fitting was the General
Manager and President of Comtech Data Corporation from 1978 to 1984. He left
Comtech to start a new company called EFData Corporation. As co-founder, CEO and
President of EFData Corporation, Mr. Fitting built the company into a worldwide
market leader in satellite communications equipment. While at EFData, Mr.
Fitting won the Arizona Entrepreneur award in 1993 in the manufacturing/high
technology category.
STEVEN EYMANN has been Executive Vice President of the Company since
February, 1995. Mr. Eymann graduated with honors and a Bachelor of Science in
Electrical Engineering from the University of Nebraska. His professional career
began at the Motorola Government Electronics Division where he was a design
engineer, task leader and finally a project leader for the DSU-23/29B fuse
development program. As project leader, he was responsible for project
management, budgets, schedules, design and testing of the fuse. He designed the
computer-controlled automatic test set for factory testing based on an HP 9825
computer. The DSU-23/29B is an L-Band PN radar for accurate, low-cost altitude
direction. In June of 1981, Mr. Eymann joined Comtech Data Corporation where he
was Director of Product Development. He was responsible for budget, schedule and
technical aspects of all new product development within Comtech. Prior to
becoming the Director of Product Development, he served as a senior engineer
with program and technical design responsibility. He left Comtech in 1984 to
begin a new company called EFData Corporation. As co-founder and Vice President
of EFData, Mr. Eymann was responsible for new product development and
engineering management in the design and manufacture of high technology,
military and commercial communications equipment.
CERTAIN KEY EMPLOYEES:
GARRY KLINE, Secretary, Controller and Acting CFO, joined the Company in
September of 1995. From 1987 through 1995, Mr. Kline served as CFO and
Controller of EFData Corporation. Prior to 1987, Mr. Kline served in various
positions, including Vice President of Finance for Megatronics Inc., a publicly
held printed circuit board manufacturer, Vice President of Operations for Vernal
Lodging Associates, a hospitality management company, and General Partner of Tax
and Accounting Computer Service, an accounting firm.
PETER WEISSKOPF has been the President of the Microwave Products Division at
Radyne since June, 1995. At Radyne, he is responsible for the operation of the
microwave products division. His duties include marketing, design and
manufacture of existing and new microwave products as well as the administration
of the division. Mr. Weisskopf has a Bachelor of Science in Computer and
Electrical Engineering from George Mason University. He has worked as an
engineer for several companies during his professional career, including
Magnavox Data Systems, M/A-COM Linkabit and M/A-COM Active Assemblies Division.
From 1990 to 1992, Mr. Weisskopf was an engineer at EFData Corporation, where he
designed synthesized frequency converters for use in satellite communications.
In 1992, Mr. Weisskopf founded Merit Microwave, Inc. As founder and President of
this start-up firm, Mr. Weisskopf designed and marketed various microwave
components and systems, including a complete line of satellite loopback test
translators.
ROBERT NOBIS has been the Director of Sales for the Company since April
1995. Mr. Nobis has a Master of Science degree in Electronics Engineering from
North Dakota State University. Prior to joining the Company he spent most of his
professional career working for Motorola, Inc. beginning in 1971 as a
communications project engineer. He joined the Motorola Integrated Circuits
Division in 1973 where he
47
<PAGE>
was a microcomputer systems engineer and was a member of the original
development team for the MC6806 MPU family. From 1976 through 1989, Mr. Nobis
held several international marketing positions for Motorola including Strategic
Marketing Manager for Asia-Pacific, Director of Market Development in Tokyo,
Japan, Strategic Marketing Manager, Technology Marketing Manager and Technology
Sales Manager in Phoenix, Arizona. In 1989, Mr. Nobis formed and organized Data
Integrity Services International to provide international marketing consulting
services to small businesses in Arizona. In 1991, he joined Fairchild Data
Corporation, as Regional Marketing Director for Asia-Pacific. At Fairchild, he
was responsible for the marketing and sales of satellite communications products
in the Asia-Pacific Region.
ALAN POTTER has been the Vice President of Marketing for the Company since
December 1995. His duties at Radyne include market research, neoteric product
concepts, new corporate alliances and distribution systems in Europe and the
Middle East. He joined Radyne after ten years with EFData as Sales Manager. Mr.
Potter graduated from the University of Houston with honors, holding a Bachelor
of Arts in Communications. After postgraduate studies at the University of
Massachusetts, Amherst, he began his professional career as an Associate
Professor of Communications at the University of Texas at Houston. While there,
in 1973, he developed and operated the first practical bi-directional coaxial
cable network to simultaneously carry voice, data and video communications. He
then designed, developed and managed a series of broadband cable television and
data networks for Columbia Cable Television, Michelson Media and Cox Cable
Communications. Mr. Potter joined Comtech Data in 1984 and, two years later, he
followed Messrs. Fitting and Eymann to initiate the Sales and Marketing
Department at EFData. He is currently an MBA candidate at the University of
Phoenix.
DAVE KOBLINSKI has been the Vice President of Operations for the Company
since March, 1995. Mr. Koblinski has a Bachelor of Science in Business
Administration from Arizona State University. He also holds a degree in
Electronics Technology from Mesa Community College. His professional career
began in 1982 at Comtech Data Corporation where he held the position of Customer
Service Representative. He was responsible for repairs, field and telephone
support of satellite data modems. From 1985 to 1995, Mr. Koblinski was the
Senior Product Manager for EFData Corporation. His general responsibilities at
EFData included relating customer requests and concerns to the factory. His
direct responsibilities included the customer service, technical publication and
order entry departments.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Compensation Committee which
currently consists of Messrs. Lim, Chan, Lee and Grimes. The Compensation
Committee reviews and recommends to the Board the compensation and benefits for
all officers of the Company and reviews general policy relating to compensation
and benefits of the employees.
The Board of Directors has also established an Audit Committee consisting of
Messrs. Lee, Grimes and Fitting. This committee recommends the selection of the
Company's independent public accountants to the Board of Directors, evaluates
the independent public accountants and consults with them as to the Company's
internal accounting controls.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Lim, Chan, Lee and Grimes. As
the Committee was organized in January of 1997, the Company did not have a
Compensation Committee during the year ended December 31, 1996. Mr. Fitting,
President of the Company during the last fiscal year, participated in
deliberations of the Company's Board of Directors concerning executive officer
compensation. There were no interlocking relationships between the Company and
other entities that might affect the determination of the compensation of the
executive officers of the Company.
48
<PAGE>
DIRECTOR COMPENSATION
The Company's policy is to pay no compensation to directors for acting as
such. Non-employee directors will receive the following ST Rights: Lee Yip
Loi--10,000; Chan Wee Piak--10,000; and Robert A. Grimes--40,000.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for services in all
capacities to the Company for the period from the commencement of his employment
on March 1, 1995 through December 31, 1996 of the Company's President. No other
executive officer or employee received total annual salary and bonus of more
than $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL YEAR ALL OTHER
POSITION ENDED(1) SALARY OPTIONS (#) COMPENSATION(2)
- ------------------------------ --------- --------- ----------- ---------------------------
<S> <C> <C> <C> <C>
Robert C. Fitting............. 12/31/96 $ 40,000 279,085 $ 435
President..................... 06/30/96 $ 80,000 0 $ 738
06/30/95 $ 29,231 0 0
</TABLE>
- ------------------------
(1) Mr. Fitting's employment with the Company commenced on March 1, 1995, so the
figures shown for the fiscal year ended June 30, 1995 reflect a four-month
period. The Company's fiscal year has been changed to the calendar year, so
the figures shown for the year ended December 31, 1996 reflect a period of
six months.
(2) Matching 401(k) plan contributions.
DIRECTORS' LIMITATION OF LIABILITY
The Company's Certificate of Incorporation and By-Laws include provisions to
(a) eliminate the personal liability of directors for monetary damages resulting
from breaches of their fiduciary duty (except for liability for acts or
omissions in bad faith or which involve intentional misconduct or a knowing
violation of law, violations under Section 719 of the New York Business
Corporation Law or any transaction from which the director derived a personal
benefit to which he was not legally entitled) and (b) indemnify the directors
and officers to the fullest extent permitted by Article 7 of the New York
Business Corporation Law, including circumstances under which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
The Company carries directors and officers liability insurance in the amount
of $2 million.
STOCK OPTION PLAN
On November 13, 1996, the Board of Directors of the Company adopted the 1996
Incentive Stock Option Plan (the "Plan"). On January 8, 1997, the stockholders
of the Company approved the Plan. The Plan provides for the grant of options to
purchase up to 1,282,042 shares of Common Stock to employees of the Company.
Options may be either "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended, or non-qualified options.
The Plan will be administered by the Compensation Committee, which is
composed of "disinterested members" of the Board of Directors (as defined by
Rule 16b-3 under the Exchange Act), who determine, among other things, the
individuals who shall receive options, the time period during which the options
may be partially or fully exercised, the number of shares of Common Stock
issuable upon the exercise of each option, and the option exercise price.
49
<PAGE>
The exercise price per share of Common Stock subject to an option granted
under the Plan may not be less than the fair market value per share of Common
Stock on the date the option is granted. The aggregate fair market value
(determined as of the date the option is granted) of Common Stock for which any
person may be granted incentive stock options which first become exercisable in
any calendar year may not exceed $100,000, although in the case of Messrs.
Fitting and Eymann, the excess will be treated as non-qualified stock options.
No person who owns, directly or indirectly, at the time of the granting of an
option to such person, 10% or more of the total combined voting power of all
classes of stock of the Company (a "10% Stockholder") shall be eligible to
receive any stock options under the Plan unless the exercise price is at least
110% of the fair market value of the shares of Common Stock subject to the
option, determined on the date of grant.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution, and, during the lifetime of an optionee, the
option will be exercisable only by the optionee. In the event of termination of
employment other than by death or disability, the optionee will have no more
than three months after such termination during which the optionee shall be
entitled to exercise the option, unless otherwise determined by the Board of
Directors. Upon termination of employment of an optionee by reason of permanent
and total disability, such optionee's options remain exercisable for one year
thereafter to the extent such options were exercisable on the date of such
termination. Upon termination by reason of death, such period shall be as
determined by the Board of Directors.
Options under the Plan must be issued within ten years from the effective
date of the Plan. The effective date of the Plan is November 13, 1996. Options
granted under the Plan cannot be exercised more than ten years from the date of
grant. Stock options issued to a 10% Stockholder are limited to five year terms.
Options granted under the Plan generally provide for the payment of the exercise
price in cash and may provide for the payment of the exercise price by delivery
to the Company of shares of Common Stock already owned by the optionee having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of such methods. Therefore, if so provided in an optionee's
options, such optionee may be able to tender shares of Common Stock to purchase
additional shares of Common Stock and may theoretically exercise all of his
stock options with no additional investment other than the purchase of his
original shares.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan.
At April 30, 1996, options to acquire 977,395 shares of Common Stock were
outstanding under the Plan. Such options are exercisable at a price of $2.50 per
share. (For information regarding the establishment of the exercise price, see
"Purpose of the Rights Offering and Use of Proceeds".) 280,000 of these options
are Rights Options which have been granted to Radyne employees as a counterpart
to participation in the Rights Offering; accordingly such options are presently
exercisable, but may not be exercised after May 30, 1997. Another 29,000 options
will become exercisable at the rate of 25% on each of the first four
anniversaries of their respective grant dates (various dates between November
13, 1996 and April 30, 1997) and expire on the tenth anniversary of their grant
date.
The remaining 668,395 options were allocated among a group of 30 key
employees with the intent of giving them the opportunity to purchase and retain
up to 10% of the fully diluted common equity of the Company (after giving effect
to the Reverse Split and the Rights Offering), if certain earnings milestones
(described below) are reached. These options also carry the right to a cash
bonus of approximately $1.72 per purchased share, payable upon exercise. Because
the Company's shares are so thinly traded at present, the grantees of these
options will be accorded the right to cause the Company to purchase at an
appraisal price any shares acquired upon exercise of these options if, as of the
end of the calendar quarter when such options become exercisable (or December
31, 1998, if later), ST and its affiliates continue to own more than 80% of the
Common Stock. Moreover, if the Company sells additional shares of Common Stock
in the future (other than pursuant to the Rights Offering or employee stock
options), these same optionees
50
<PAGE>
will be granted additional options (which may or may not constitute incentive
stock options, in the discretion of the Board of Directors) to acquire a
sufficient number of Common Shares, at the then offering price, so that their
unexercised options will maintain their proportionate fully diluted common
equity. One-third of the 668,395 options will become exercisable, if and when
the Company's earnings before interest and taxes (calculated without regard to
any compensation under the Plan) for a period of four calendar quarters
("Adjusted EBIT") exceeds $1,000,000. Another one-third of these options will
become exercisable if and when Adjusted EBIT exceeds $2,500,000. The remaining
one-third will become exercisable if and when Adjusted EBIT exceeds $6,000,000.
STOCK OPTIONS
The following table provides information with respect to stock option grants
to Robert C. Fitting during the fiscal year ended December 31, 1996 under the
Company's 1996 Incentive Stock Option Plan. These options were granted subject
to, and were in no event exercisable prior to, shareholder approval of the Plan.
The Plan was approved by the shareholders of the Company on January 8, 1997. The
Company does not have a stock appreciation rights plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF TOTAL
OPTIONS GRANTED
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION GRANT DATE
NAME GRANTED IN FISCAL YEAR PRICE DATE PRESENT VALUE
- ------------------------------------------- --------- ------------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Robert C. Fitting.......................... 215,085(1) 22.3% $ 2.50 Nov. 2006 $ 168,483(2)
64,000 6.6% $ 2.50 May 1997 $ 0(3)
</TABLE>
- ------------------------
(1) One-third of these options will become exercisable if the Company's earnings
before interest and taxes, calculated without regard to any compensation
under the Plan, for any period of four calendar quarters ("Adjusted EBIT")
exceeds $1,000,000. An additional one-third will become exercisable if
Adjusted EBIT exceeds $2,500,000. The final one-third will become
exercisable if Adjusted EBIT exceeds $6,000,000. A cash bonus of
approximately $1.72 per purchased share will be payable at the time of
exercise. If the Company sells additional shares of its Common Stock (other
than pursuant to the Rights Offering or employee stock options), the grantee
will be granted the option to maintain the fully diluted equity percentage
represented by the then outstanding portion of this grant, at the price then
offered. When these options become exercisable (or, if later, December 31,
1998), if ST and its affiliates continue to own more than 80% of the
Company's Common Stock, the grantee will have the right to sell shares
acquired on exercise back to the Company at an appraised value. If Mr.
Fitting were to voluntarily leave the Company before the earlier of August
16, 2001 or Adjusted EBIT having exceeded $6,000,000, he would forfeit 25%
of these options. See "Stock Option Plan" above.
(2) Based on the Black-Scholes option pricing model, assuming that one-third of
the options will become exercisable for a five year period, no dividend
yield, expected volatility of 132%, a risk-free interest rate of 6.035%, and
a vesting period of two years.
(3) Based on the maximum exercisability period of 45 days.
AGGREGATE OPTION EXERCISES IN 1996 AND HOLDINGS AT YEAR END
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1996 with respect to
Robert C. Fitting, the President of the Company.
51
<PAGE>
AGGREGATE OPTIONS EXERCISED IN THE
LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED,
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT OPTIONS AT
NUMBER OF DECEMBER 31, 1996 DECEMBER 31, 1996(2)
SHARES ACQUIRED VALUE ---------------------------- ------------------------------
NAME ON EXERCISE REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ------------------- --------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Fitting......... 0.00 $ 0.00 0.00 279,085 $ 0.00 $ 0.00
</TABLE>
- ------------------------
(1) Based on the fair market value of the Common Stock on the exercise date,
less the per share exercise price.
(2) Based on the fair market value of the Common Stock of $2.50 per share, as
determined by the Company's Board of Directors, less the per share exercise
price.
EMPLOYMENT AGREEMENTS
Under the employment agreement between the Company and Mr. Fitting, he will
serve as President of the Company until the earlier of June 30, 2000 or such
time as the stock options described in the above table become fully exercisable.
Pursuant to the agreement, the Company paid Mr. Fitting an annual salary of
$80,000 through April 30, 1997, and has granted him the 10-year stock options
described in the above table. Mr. Fitting has also agreed that if he exercises
any of the 10-year stock options, he will not engage in any business which
competes with the Company until after the second anniversary of his termination
of employment with the Company, except in the case of involuntary termination
without cause. Effective May 1, 1997, Mr. Fitting's salary has been increased to
$130,000 annually.
52
<PAGE>
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth, as of the date hereof, the ownership of the
Common Stock by (i) each person who is known by the Company to own of record or
beneficially more than 5% of the outstanding Common Stock, (ii) each of the
Company's directors and its President, and (iii) all directors and executive
officers of the Company as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
<TABLE>
<CAPTION>
NUMBER
OF PERCENTAGE
NAME AND ADDRESS SHARES(1) OF CLASS
- ---------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Stetsys US, Inc......................................................................... 3,400,000 90.4%
c/o Singapore Technologies Pte Ltd
83 Science Park Drive
#01-01/02 The Curie Singapore Science Park
Singapore 118258
Stetsys Pte Ltd......................................................................... 5,366,000(2) 93.7%
c/o Singapore Technologies Pte Ltd
83 Science Park Drive
#01-01/02 The Curie Singapore Science Park
Singapore 118258
Robert C. Fitting....................................................................... 64,000(3) 1.7%
5225 S. 37th Street
Phoenix, Arizona 85040
Robert A. Grimes........................................................................ 40,000(3) 1.1%
5225 S. 37th Street
Phoenix, Arizona 85040
Lee Yip Loi............................................................................. 10,000(3) *
c/o Singapore Technologies Pte Ltd
83 Science Park Drive
#01-01/02 The Curie Singapore Science Park
Singapore 118258
Chan Wee Piak........................................................................... 10,000(3) *
c/o Singapore Technologies Pte Ltd
83 Science Park Drive
#01-01/02 The Curie Singapore Science Park
Singapore 118258
Lim Ming Seong.......................................................................... -- --
c/o Singapore Technologies Pte Ltd
83 Science Park Drive
#01-01/02 The Curie Singapore Science Park
Singapore 118258
All directors and executive officers of the Company as a group (6 persons).............. 182,000(3) 4.6%
</TABLE>
- ------------------------
* Less than one percent.
(1) Adjusted for the Reverse Split.
(2) Includes 1,966,000 Rights Shares underlying ST Rights received pursuant to
the Rights Offering. The Shares reported as owned by Stetsys Pte Ltd include
the shares reported as beneficially owned by Stetsys US, Inc., of which
Stetsys Pte Ltd is sole shareholder. No adjustment has been made for the
possibility that as many as 280,000 of such ST Rights will not become
exercisable or the effect of the exercise of Rights and Rights Options held
by others. 100% of the stock of Stetsys US, Inc. and Stetsys Pte Ltd is
ultimately owned by the Minister for Finance (Incorporated) of Singapore.
(3) Consists entirely of Rights Shares underlying Rights received pursuant to
the Rights Offering and/or shares underlying Rights Options.
53
<PAGE>
CERTAIN TRANSACTIONS
In 1995, the Company acquired certain assets of Merit Microwave, Inc.
("Merit"), as well as the manufacturing rights to the Merit line of microwave
products, which include translators and frequency converters. The purchase price
was allocated to inventory, machinery and equipment, and designs and drawings,
and was paid by the issuance of 30,000 shares of the Company's Common Stock
(after adjustment by the Reverse Split), cash of $60,000, and the assumption of
a trade payable of $20,000. Under the terms of the agreement, Peter Weisskopf,
the principal shareholder and chief operating officer of Merit entered into a
one-year agreement with the Company to serve as president of the newly created
Radyne Microwave Products Division for annual compensation of $75,000. As long
as he remains in this position, the Company is committed to pay royalties to
Merit of 5-10% of sales of Merit products. Through December 31, 1996, the
Company has paid approximately $4,600 in royalties pursuant to this arrangement.
In July of 1995, the Company's manufacturing operations were transferred to
ETS, then the beneficial owner of 90.67% of the Company's common stock, pending
the Company's relocation to Phoenix. At that time, $115,155 of machinery and
equipment and $726,345 of inventory was exchanged for a reduction in the
Company's indebtedness to ETS. During the quarter ended September 30, 1996, in
recognition of the completion of the move to Phoenix and increase in staffing,
the Board determined that the Company should resume direct manufacturing. To
this end, the Company repurchased $22,100 of machinery and equipment from ETS
during the quarter and purchased $348,000 of inventory from ETS, which ETS had
acquired and/or processed primarily in the ordinary course of fulfilling
purchase orders from the Company. However, as the Company's product line was
undergoing constant improvement, the Company considered it necessary to treat
$70,000 of such inventory as obsolete and another $20,000 thereof as slow-moving
during this quarter. Ongoing product development rendered another $90,000 of
this inventory obsolete during the subsequent quarter.
Additional inventory of $457,000 and $2,461,500 was purchased from ETS
during the six month period ended December 31, 1996 and the year ended June 30,
1996, respectively. Sales to ETS for the six month period ended December 31,
1996, the year ended June 30, 1996, the six and one-half period ended June 30,
1995 and the ten and one-half month period ended December 16, 1994 were
$307,300, $311,600, $159,700 and $421,100, respectively.
Prior to January 1, 1997, ETS provided management services to Radyne, for
which ETS charged Radyne $60,000, $120,000 and $65,000 for the six month period
ended December 31, 1996, the year ended June 30, 1996 and the six and
one-half-month period ended June 30, 1995, respectively.
One of the Company's Directors, Robert A. Grimes, is President and a
Director of ETS. ETS is a wholly owned subsidiary of ST.
The Company has an informal marketing arrangement with Agilis Communication
Technologies Pte Ltd, an affiliate of ST. Agilis acts as a sales agent for
Radyne products in a number of Asian countries. Sales generated as a result of
this arrangement amounted to $375,000 and $118,900 for the six month period
ended December 31, 1996 and the year ended June 30, 1996, respectively. The
General Manager of Agilis, Chan Wee Piak, is a Director of the Company.
On August 12, 1996, Stetsys US, Inc. ("ST"), a member of the Singapore
Technologies Pte Ltd ("STPL") group, acquired 100% of the outstanding common
stock of ETS. (ST is a wholly owned Delaware subsidiary of Stetsys Pte Ltd,
which is a wholly owned subsidiary of STPL. STPL is an indirect wholly owned
subsidiary of Temasek Holdings (Private) Limited, which is in turn wholly owned
by the Minister for Finance (Incorporated) of Singapore). Messrs. Lim Ming
Seong, Lee Yip Loi, Chan Wee Piak and Robert A. Grimes are all both Directors of
the Company and officers of other corporations in the STPL group. On October 22,
1996, Radyne Florida was merged into ETS and the shares of the Company that had
been owned by Radyne Florida were received by ETS and subsequently distributed
by ETS to ST.
54
<PAGE>
On August 12, 1996, Singapore Technologies Electronics Pte Ltd ("STE"),
another member of the STPL group, made an unsecured loan of $4,500,000 to the
Company, the proceeds from which were used to pay down the loan payable to ETS.
This loan, which bore interest at 8%, was repaid on February 10, 1997 from the
proceeds of loans provided by Citibank NA and ST. Between November 8 and
December 18, 1996, ST made loans to the Company in the aggregate principal
amount of $2,100,000, with interest at 8% per annum and maturing in March, 1997.
At or about maturity, the accrued interest on these loans was paid by the
Company and the principal amounts were repaid with the proceeds of new loans
maturing on April 30, 1997, later extended to July 31, 1997, bearing interest at
6.625% per annum.
The purpose of these advances by STE and ST was to provide Radyne with
working capital pending the arrangement of suitable commercial credit lines and
completion of the Rights Offering. A $2,000,000 line of credit from Bank of
America NT & SA, which had been guaranteed by STPL, has recently been expanded
to $5,000,000 (of which $3,000,000 had been drawn down as of March 24, 1997);
the guarantee has been replaced by a nonbinding letter of awareness from STPL.
The Company also has a $5,500,000 line of credit from Citibank NA (of which
$3,800,000 had been drawn down as of April 9, 1997) with respect to which STPL
has issued a nonbinding letter of awareness and in effect agreed that Stetsys
Pte Ltd will exercise its ST Rights. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The following summary description of the Common Stock is qualified in its
entirety by reference to the Company's Certificate of Incorporation.
The Company is authorized to issue up to 20,000,000 shares of Common Stock,
par value $.002 per share, of which 3,759,721 shares are outstanding as of the
date hereof (after adjustment by the Reverse Split). Holders of Common Stock are
entitled to one vote for each share held of record on each matter submitted to a
vote of stockholders. There is no cumulative voting for election of directors.
Holders of Common Stock are entitled to receive ratably dividends when, as and
if declared by the Board of Directors out of funds legally available therefor
and, upon the liquidation, dissolution or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities.
Holders of Common Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities. The outstanding Common Stock is
validly authorized and issued, fully paid and nonassessable.
TRANSFER AGENT
The Company has appointed Continental Stock Transfer & Trust Company as
transfer agent for the Common Stock.
CONCURRENT SALE BY SELLING STOCKHOLDER
The Registration Statement, of which this Prospectus forms a part, also
includes a separate prospectus relating to the offering and resale by Merit
Microwave, Inc. (a corporation controlled by Peter Weisskopf, the president of
the Company's Microwave Products Division) of 30,000 shares of Common Stock
issued thereto in exchange for business assets.
Sales of such shares of Common Stock, or even the potential of such sales,
could have an adverse effect on the market price of the Common Stock. As a
result of the registration of the resale of such shares of Common Stock, the
freely tradeable Common Stock will be increased by 30,000 shares.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The sale, or availability for sale, of a substantial number of shares of
Common Stock in the public market subsequent to this offering pursuant to Rule
144 under the Securities Act ("Rule 144") or otherwise could materially
adversely affect the market price of the Common Stock and could impair the
Company's ability to raise additional capital through the sale of its equity
securities or debt financing. Upon completion of the Rights Offering, if all
Rights and Rights Options are fully exercised, there would be approximately
6,015,554 shares of Common Stock issued and outstanding. Of these shares, the
Company believes that approximately 905,554 would be freely transferable
immediately due to the present or prior registration or the present availability
of a Rule 144 exemption from the requirement of registration. The remaining
approximately 5,110,000 shares would be "restricted securities" for purposes of
the Securities Act and would be eligible for resale at various times in the
future, in each case subject to the volume and manner of sale limitations of
Rule 144 under the Securities Act. Of these restricted shares, 3,400,000 shares
are owned by ST and it is estimated that 1,680,000 shares would be owned by SPL.
Over 91% of the presently outstanding shares of Common Stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act and, if held
for at least one year, would be eligible for sale in the public market in
reliance upon, and in accordance with, the provisions of Rule 144 following the
expiration of such one-year period. In general, under Rule 144 as currently in
effect, a person or persons whose shares are aggregated, including a person who
may be deemed to be an "affiliate" of the Company as that term is defined under
the Securities Act, would be entitled to sell within any three month period a
number of shares beneficially owned for at least one year that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock, or (ii)
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice, and the availability of current
public information about the Company. However, a person who is not deemed to
have been an affiliate of the Company during the 90 days preceding a sale by
such person and who has beneficially owned such shares of Common Stock for at
least two years may sell such shares without regard to the volume, manner of
sale, or notice requirements of Rule 144.
Prior to this offering, there has been no established public market for the
Company's securities as trading in the Common Stock has been infrequent.
Following this offering, the Company cannot predict the effect, if any, that
sales of shares of Common Stock pursuant to Rule 144 or otherwise, or the
availability of such shares for sale, will have on the market price from time to
time. Nevertheless, sales by the current stockholders of a substantial number of
shares of Common Stock in the public market could materially adversely affect
market prices for the Common Stock. In addition, the availability for sale of a
substantial number of shares of Common Stock acquired through the exercise of
Rights or outstanding options under the Plan could materially adversely affect
market prices for the Common Stock.
Up to an aggregate of 280,000 shares of Common Stock may be purchased by the
holders of currently exercisable options outstanding under the Plan.
In addition, the Registration Statement, of which this Prospectus forms a
part, includes a separate prospectus relating to the offering and resale by one
shareholder of 30,000 shares of Common Stock. See "Concurrent Sale by Selling
Stockholder."
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Brock,
Fensterstock, Silverstein, McAuliffe & Wade, LLC, New York, New York, special
counsel.
56
<PAGE>
EXPERTS
The financial statements included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein (which expresses an unqualified opinion and includes an explanatory
paragraph relating to the United States Bankruptcy Court for the Eastern
District of New York entering an order confirming the Company's plan of
reorganization which became effective at the close of business on December 16,
1994), and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Prospectus Summary and under the captions "Risk
Factors," "Purpose of the Rights Offering and Use of Proceeds", "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following general economic and business conditions: the loss of, or the failure
to replace, any significant customers; changes in business strategy or
development plans; the timing and success of new product introductions; the
quality of management; the availability, terms and deployment of capital; the
business abilities and judgments of personnel; the availability of qualified
personnel; and other factors referenced in this Prospectus. These
forward-looking statements speak only as of the date of this Prospectus. The
Company expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
57
<PAGE>
GLOSSARY
ACQUISITION
The process of a satellite demodulator synchronizing and properly decoding a
received satellite signal.
ALGORITHM
Formula used in digital signal processing.
ATM
Asynchronous Transfer Mode--Standard for asynchronous transmission/reception
of high speed digital signals on an asynchronous basis.
C-BAND
Standard satellite communications channel at 4 and 6 GHz (GigaHertz).
COMPRESSED DIGITAL VIDEO
The digitization and bandwidth reduction of a video signal.
DAMA
Demand Assigned Multiple Access--A control protocol and access method used
in satellite communications.
DATA RATE
The rate at which digital information is transmitted or received.
EARTH STATION
The facility containing all the necessary equipment for the transmission and
reception of satellite signals.
FREQUENCY CONVERTER
Converts an intermediate frequency signal to the high frequency signal used
by the satellite, and vice versa.
FREQUENCY TRANSLATOR
Translates or converts one satellite frequency to another.
IBS
Internation Business Services--A standard specification for the transmission
of digital infomation at data rates below 2.048 Mbps.
IDR
Intermediate Data Rate--A standard specification for transmission of digital
information over the satellite at data rates above 1.544 Mbps.
58
<PAGE>
KU-BAND
Standard satellite communications channels at 11 and 14 GHz.
MODEM
Modulator and demodulator--A device that converts signals produced by one
type of device (such as a satellite transponder) to a form compatible with
another (such as a computer).
MUX
Multiplexer--Digitally combines multiple digital data streams.
OPEN NETWORK
Satellite networks where all equipment meets the IBS or IDR specifications.
Allows use of equipment from any supplier, guaranteeing that all equipment will
be interoperable.
VOICE COMPRESSION
Digitization and bandwidth reduction of a voice signal.
59
<PAGE>
October 25, 1996
<TABLE>
<CAPTION>
<S> <C>
CORPORATE CAPITAL
CONSULTANTS INC.
1185 AVENUE OF THE AMERICAS
Board of Directors 18th FLOOR
Radyne Corp. NEW YORK, NEW YORK 10036-2601
5225 South 37th Street TEL: (212) 843-0352
Phoenix, Arizona 85040 FAX: (212) 843-0574
</TABLE>
ATTN: Mr. Robert C. Fitting, President
Dear Sirs:
You have asked our opinion as to the value of issued and outstanding common
stock (18,748,635 shares as of the date hereof, before giving effect to an
additional 50,000 to be issued in connection with a recent acquisition and
before giving effect to the exercise of options to be issued on 10% of the
number outstanding after giving effect to such issuance and exercise) of Radyne
Corp. ("Radyne"). It is understood that our opinion as to such value will be
considered by the Board of Directors of Radyne in connection with a rights
offering to existing stockholders to subscribe for common stock intended to
raise approximately $5 million of equity capital and in connection with the
issuance of the aforesaid and additional incentive stock options.
In forming our opinion we reviewed and considered the following:
1) We examined publicly available information concerning Radyne, including
its filings with the Securities & Exchange Commission (together with Exhibits
thereto), and its draft Form 10-KSB for the year ended June 30, 1996 (including
audited financial statements for that period).
2) We reviewed Radyne's business plan, including projections of results of
operations through the fiscal year ending June 30, 2001, and discussed its
implementation with the management of Radyne. Such review included a visit to
Radyne's facilities in Phoenix, Arizona.
3) We reviewed publicly available information on approximately twelve
publicly traded companies regarded by us as comparable in nature of business to
Radyne (as indicated by their respective Standard Industrial Classification
codes and descriptions of their respective businesses). It should be noted that
approximately half these companies showed deficits in results of operations for
at least their most recent reported twelve months of operations and about
one-third reported deficits in results of operations before interest and taxes
for such periods (as did Radyne). In connection with such review, we examined
the market prices of the common stock of such compared companies in relation to
their earnings, book values and revenues.
4) We reviewed the terms of the approximately twelve acquisitions (most
completed, but several pending) of companies regarded by us as comparable in
nature of business to Radyne announced since January 1, 1995 with respect to
which publicly available information existed. In examining the terms of such
acquisitions in relation to the earnings (about one-third of the acquired
companies showed deficits), book values and revenues of the acquired companies,
we made adjustments for the premiums typically paid in such acquisitions over
the market prices of the acquired companies that prevailed about a month before
announcement of the acquisition.
5) We reviewed the terms of the acquisition in August 1996 by the current
controlling stockholder of Radyne of the entire capital stock of a then parent
of Radyne for approximately $5.75 million.
<PAGE>
Board of Directors
Radyne Corp.
6) In view of the recent history of Radyne, which included emergence from
bankruptcy in December 1994, losses for the fiscal year ended June 30, 1996 and
for the six-and-a-half month period ended June 30, 1995, and a negative net
worth and $4.6 million of debt as of June 30, 1996, we estimated the present
value at 30% to 40% discount rates (target compounded rates of return) of the
amount that a prudent venture investor would pay at the end of June 30, 2001 for
a company that achieved at that time Radyne's projected revenues, earnings and
net assets.
7) We reviewed the history since early 1996 of the limited trading activity
in the common stock of Radyne.
On the basis of the foregoing reviews and considerations, it is our opinion
that the value per share of common stock of Radyne is $.35 to $.65, or, in terms
of a single figure appropriate for a rights offering price and an exercise price
of incentive stock options, $.50 per share.
Although this value is significantly below the prices at which the common
stock has traded in recent weeks (ranging from 7/8 to 2, the latter being one
trade of 700 shares on October 15, after which the price declined), the latter
prices must be considered in light of infrequent trading, a limited market and
wide spreads between the bid and asked prices of the respective traders in the
OTC Bulletin Board (typically 1/2 or 3/4).
Corporate Capital Consultants, Inc. ("CCC") is a specialty investment
banking firm, which, since its inception in 1974, has performed services in the
areas of financial consulting, corporate valuations, fairness opinions and
mergers and acquisitions. In the valuation area, CCC has provided valuations of
corporate securities in connection with pending purchase offers, plans to sell,
recapitalizations, going-private transactions, tender offers, the purchase of
minority interests, employee stock purchase plans and public offerings, for both
publicly and privately held companies in a broad range of industries.
Very truly yours,
<TABLE>
<S> <C>
CORPORATE CAPITAL CONSULTANTS, INC.
/s/ SIDNEY M. SPIELVOGEL
- ---------------------------------------------
Sidney M. Spielvogel
MANAGING DIRECTOR
</TABLE>
SMS:evk
2
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-2
Balance Sheets as at December 31, 1996 and June 30, 1996............................. F-3
Statements of Operations for the Six Month Period Ended December 31, 1996, the Year
Ended June 30, 1996, the Six and One-Half Month Period Ended June 30, 1995 and the
Ten and One-Half Month Period Ended December 16, 1994.............................. F-4
Statements of Stockholders' Capital Deficiency for the Six Month Period Ended
December 31, 1996, the Year Ended June 30, 1996 and the Six and One-Half Month
Period Ended June 30, 1995 and the Ten and One-Half Month Period Ended December 16,
1994............................................................................... F-5
Statements of Cash Flows for the Six Month Period Ended December 31, 1996, the Year
Ended June 30, 1996 and the Six and One-Half Month Period Ended June 30, 1995 and
the Ten and One-Half Month Period Ended December 16, 1994.......................... F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Radyne Corp.
Phoenix, Arizona
We have audited the accompanying balance sheets of Radyne Corp. (the
"Company" or "Radyne") as of December 31, 1996 and June 30, 1996, and the
related statements of operations, stockholders' capital deficiency and cash
flows for the six month period ended December 31, 1996, the year ended June 30,
1996, the six and one-half month period ended June 30, 1995 and the ten and
one-half month period ended December 16, 1994 (Predecessor Company). 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.
As discussed in Notes 1, 2 and 3 to the accompanying financial statements,
on December 16, 1994, the United States Bankruptcy Court for the Eastern
District of New York entered an order confirming the plan of reorganization
which became effective at the close of business on December 16, 1994.
Accordingly, the accompanying financial statements for the six and one-half
month period ended June 30, 1995, are the initial financial statements of the
post-bankruptcy Company, and have been prepared in conformity with AICPA
Statement of Position 90-7, FINANCIAL REPORTING FOR ENTITIES IN REORGANIZATION
UNDER THE BANKRUPTCY CODE.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and June
30, 1996, and the results of its operations and its cash flows for the six month
period ended December 31, 1996, the year ended June 30, 1996, the six and one-
half month period ended June 30, 1995 and the ten and one-half month period
ended December 16, 1994 (Predecessor Company) in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 7, 1997, except as to certain information in Note 7, the date of which
is March 2, 1997.
F-2
<PAGE>
RADYNE CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 186,488 $ 971
Accounts receivable--trade, net of allowance for doubtful accounts of $13,000....... 2,733,902 283,871
Inventories (Note 4)................................................................ 1,991,360 1,150,669
Prepaid expenses.................................................................... 19,280 20,426
Deferred offering costs............................................................. 75,018
------------ -----------
Total current assets.............................................................. 5,006,048 1,455,937
------------ -----------
PROPERTY AND EQUIPMENT--Net (Notes 5 and 9)........................................... 849,564 571,927
------------ -----------
OTHER ASSETS:
Designs and drawings--net of accumulated amortization of $475,696 (December 31) and
$361,529 (June 30)................................................................ 701,643 1,236,810
Deposits............................................................................ 15,662 8,012
------------ -----------
Total other assets................................................................ 717,305 1,244,822
------------ -----------
TOTAL................................................................................. $6,572,917 $ 3,272,686
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
CURRENT LIABILITIES:
Note payable under line of credit (Note 8).......................................... $1,993,820
Notes payable to affiliates (Note 7)................................................ 6,600,000 $ 4,594,696
Obligations under capital leases (Note 9)........................................... 53,042 26,820
Accounts payable--trade............................................................. 805,279 465,431
Accounts payable--affiliate......................................................... 436,362
Accrued expenses (Note 6)........................................................... 926,956 400,966
Taxes payable (Note 2).............................................................. 42,116 51,011
------------ -----------
Total current liabilities......................................................... 10,857,575 5,538,924
OBLIGATIONS UNDER CAPITAL LEASES (Note 9)............................................. 81,016 34,304
TAXES PAYABLE (Note 2)................................................................ 80,952 96,110
------------ -----------
Total liabilities................................................................. 11,019,543 5,669,338
------------ -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 8, 9, 10 and 13)
STOCKHOLDERS' CAPITAL DEFICIENCY (Notes 2, 3 and 14):
Common stock, $.002 par value--authorized, 20,000,000 shares; issued and
outstanding, 3,759,721 shares (December 31) and 3,749,721 shares (June 30)........ 7,519 7,499
Additional paid-in capital.......................................................... 605,782 585,802
Accumulated deficit................................................................. (5,059,927) (2,989,953)
------------ -----------
Total stockholders' capital deficiency............................................ (4,446,626) (2,396,652)
------------ -----------
TOTAL................................................................................. $6,572,917 $ 3,272,686
------------ -----------
------------ -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
RADYNE CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
----------------------------------------------------- -------------------
SIX MONTH PERIOD SIX AND ONE-HALF TEN AND ONE-HALF
ENDED DECEMBER YEAR ENDED MONTH PERIOD ENDED MONTH PERIOD ENDED
31, 1996 JUNE 30, 1996 JUNE 30, 1995 DECEMBER 16, 1994
----------------- ------------- ------------------- -------------------
<S> <C> <C> <C> <C>
NET SALES (Notes 7 and 12)................... $ 4,905,059 $ 3,829,523 $ 1,861,262 $ 2,569,396
COST OF SALES (Note 7)....................... 4,052,433 2,559,350 1,228,747 2,229,329
----------------- ------------- ------------------- -------------------
Gross profit........................... 852,626 1,270,173 632,515 340,067
----------------- ------------- ------------------- -------------------
OPERATING EXPENSES:
Selling, general and administrative (Note
7)....................................... 1,437,971 1,843,576 961,162 1,658,388
Asset impairment charge (Note 1)........... 421,000
Professional fees related to
reorganization........................... 600,198
Research and development................... 808,025 1,794,823
----------------- ------------- ------------------- -------------------
TOTAL OPERATING EXPENSES..................... 2,666,996 3,638,399 961,162 2,258,586
----------------- ------------- ------------------- -------------------
LOSS FROM OPERATIONS BEFORE FRESH START
ADJUSTMENTS, INTEREST EXPENSE AND
EXTRAORDINARY ITEMS........................ (1,814,370) (2,368,226) (328,647) (1,918,519)
FRESH START ADJUSTMENTS (Note 3)............. 1,598,841
INTEREST EXPENSE--Net........................ 255,604 256,871 36,209 118,235
LOSS BEFORE EXTRAORDINARY ITEMS.............. (2,069,974) (2,625,097) (364,856) (437,913)
EXTRAORDINARY ITEMS (Note 2):
Gain on exchange of debt for common
stock.................................... 1,062,667
Gain on debt forgiveness................... 1,636,489
----------------- ------------- ------------------- -------------------
TOTAL EXTRAORDINARY ITEMS.................... 2,699,156
----------------- ------------- ------------------- -------------------
NET (LOSS) INCOME BEFORE INCOME TAXES........ (2,069,974) (2,625,097) (364,856) 2,261,243
INCOME TAXES (Note 11)
----------------- ------------- ------------------- -------------------
NET (LOSS) INCOME............................ $ (2,069,974) $ (2,625,097) $ (364,856) $ 2,261,243
----------------- ------------- ------------------- -------------------
----------------- ------------- ------------------- -------------------
PER COMMON SHARE DATA (Note 1):
Loss before extra ordinary items........... $ (.55) $ (.70) $ (.10) $ (1.33)
Extraordinary items........................ 8.20
----------------- ------------- ------------------- -------------------
NET (LOSS) INCOME PER COMMON SHARE........... $ (.55) $ (.70) $ (.10) $ 6.87
----------------- ------------- ------------------- -------------------
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING.............. 3,750,699 3,742,227 3,729,721 329,020
----------------- ------------- ------------------- -------------------
----------------- ------------- ------------------- -------------------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
RADYNE CORP.
STATEMENTS OF STOCKHOLDERS' CAPITAL DEFICIENCY
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
--------------------- CAPITAL
SHARES AMOUNT (DEFICIT) DEFICIT TOTAL
---------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1994
(Predecessor Company)........................ 319,034 $ 638 $ 7,227,539 $ (9,486,119) $ (2,257,942)
Shares issued pursuant to plan of
reorganization (Note 2).................... 3,410,687 6,821 543,179 550,000
Loss before extraordinary items.............. (437,913) (437,913)
Exchange of debt for common stock (Note 2)... 1,062,667 1,062,667
Gain on debt forgiveness (Note 2)............ 1,636,489 1,636,489
Elimination of Predecessor Company interest
and deficit (Note 2)....................... (7,224,876) 7,224,876
---------- --------- ------------ ------------- -------------
BALANCE, DECEMBER 16, 1994..................... 3,729,721 7,459 545,842 553,301
Net loss..................................... (364,856) (364,856)
---------- --------- ------------ ------------- -------------
BALANCE, JUNE 30, 1995......................... 3,729,721 7,459 545,842 (364,856) 188,445
Shares issued to Merit Microwave (Note 7).... 20,000 40 39,960 40,000
Net loss..................................... (2,625,097) (2,625,097)
---------- --------- ------------ ------------- -------------
BALANCE, JUNE 30, 1996......................... 3,749,721 7,499 585,802 (2,989,953) (2,396,652)
Additional shares issued to Merit Microwave
(Note 7)................................... 10,000 20 19,980 20,000
Net loss..................................... (2,069,974) (2,069,974)
---------- --------- ------------ ------------- -------------
BALANCE, DECEMBER 31, 1996..................... 3,759,721 $ 7,519 $ 605,782 $ (5,059,927) $ (4,446,626)
---------- --------- ------------ ------------- -------------
---------- --------- ------------ ------------- -------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
RADYNE CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
------------------------------------------ -------------
SIX AND TEN AND
ONE-HALF ONE-HALF
SIX MONTH MONTH PERIOD MONTH PERIOD
PERIOD ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 16,
1996 1996 1995 1994
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income................................................. $ (2,069,974) $ (2,625,097) $ (364,856) $ 2,261,243
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization................................. 177,535 276,913 147,523 25,850
Asset impairment charge....................................... 421,000
Reorganization items:
Fresh start adjustments......................................... (1,598,841)
Gain on exchange of debt for common stock....................... (1,062,667)
Gain on debt forgiveness........................................ (1,636,489)
Changes in operating assets and liabilities:
Accounts receivable............................................. (2,450,031) 251,806 (202,687) 133,929
Bankruptcy claims escrow........................................ 106,613 (106,613)
Prepaids and other current assets............................... (73,872) 73,581 99,534 (9,586)
Employee relocation incentives and advances..................... 112,353 (109,353) 4,890
Inventories..................................................... (840,691) (247,843) (353,686) (80,910)
Deposits........................................................ (7,650) (191,796)
Accounts payable--trade......................................... 339,848 (113,243) 284,495 557,817
Accounts payable--affiliate..................................... 436,362
Accrued expenses................................................ 545,990 (253,337) (348,004) 599,990
Taxes payable................................................... (24,053) (56,063) (6,093) 213,143
------------- ------------- ------------ -------------
Net cash used in operating activities....................... (3,545,536) (2,580,930) (938,310) (698,244)
------------- ------------- ------------ -------------
INVESTING ACTIVITIES--Capital expenditures.......................... (255,118) (388,770) (119,042)
------------- ------------- ------------ -------------
FINANCING ACTIVITIES:
Borrowings from note payable under line of credit................. 1,993,820
Proceeds from notes payable to affiliates......................... 6,600,000 3,052,912 853,206 870,175
Payments on note payable to affiliate............................. (4,594,696)
Principal payments on capital lease obligations................... (12,953) (84,350) (50,143)
------------- ------------- ------------ -------------
Net cash provided by financing activities................... 3,986,171 2,968,562 803,063 870,175
------------- ------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH..................................... 185,517 (1,138) (254,289) 171,931
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................... 971 2,109 256,398 84,467
------------- ------------- ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................ $ 186,488 $ 971 $ 2,109 $ 256,398
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash paid for
interest.......................................................... $ 72,258 $ 3,996 $ 7,059 $ --
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
The Company incurred capital lease obligations of $85,887 for new
machinery and equipment for the six month period ended December
31, 1996
In December 1996, the Company issued an additional 10,000 shares
of common stock in conjunction with the asset purchase from
Merit Microwave, Inc. (Note 7)
</TABLE>
See notes to financial statements.
F-6
<PAGE>
RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Radyne Corp. (the "Company" or "Radyne") is located
in Phoenix, Arizona and designs, manufactures, and sells products, systems, and
software used for the transmission and reception of data over satellite and
cable communication networks. A wholly-owned subsidiary, Satellite Digital
Systems Corp. ("SDSC"), which was inactive and had no material assets and
liabilities, filed a petition for liquidation under Chapter 7 of the United
States Bankruptcy Code with the United States Bankruptcy Court for the Eastern
District of New York on May 17, 1995. This did not have any significant impact
on the financial position or results of operations of the Company since SDSC had
terminated all operations. SDSC received its Final Decree of Bankruptcy on
August 5, 1995, which effectively dissolved SDSC.
Upon emergence from bankruptcy proceedings on December 16, 1994, (Note 2)
the Company became a majority-owned subsidiary of Radyne, Inc., which was a
wholly-owned subsidiary of Engineering and Technical Services, Inc. ("ETS"). On
August 12, 1996, Singapore Technologies Pte Ltd ("STPL") acquired 100% of the
outstanding common stock of ETS through its indirect wholly-owned subsidiary,
Stetsys US, Inc. ("ST"). The purchase price for the ETS stock was $5,756,425.
Subsequent to the acquisition of ETS by ST, Radyne, Inc. was merged into ETS
which in turn distributed all of its Radyne shares to ST. ETS did not push down
any related purchase accounting adjustments since its ownership in the Company
was less than 95%. As a result, the accompanying financial statements continue
to reflect the historical accounts of the Company. The Company changed its
fiscal year-end to December 31 to conform to the year-end of ST.
CHANGE IN FISCAL YEAR--Effective August 12, 1996, the Company changed its
fiscal year-end from June 30 to December 31 to conform to the year-end of ST.
Summarized unaudited financial information for the six months ended December 31,
1995 is as follows:
<TABLE>
<S> <C>
Net sales................................................... $2,397,235
Gross profit................................................ $ 921,951
Net loss before income taxes................................ $(583,887)
Income taxes................................................ $ --
Net loss.................................................... $(583,887)
Net loss per common share................................... $ (.16)
</TABLE>
RIGHTS OFFERING--In November 1996, the Board of Directors approved the
distribution to stockholders (other than ST), subject to the approval of the
1-for-5 reverse stock split of common shares which was effective on January 9,
1997, of subscription rights to purchase up to 215,833 shares of the Company's
common stock at a price of $2.50 per share. The Board of Directors further
approved the distribution of subscription rights to an affiliate of ST to
purchase up to 2,040,000 shares of the Company's common stock at a price of
$2.50 per share. The subscription rights are proposed to expire May 15, 1997. At
December 31, 1996, the Company has recorded $75,018 of deferred offering costs
relating to the registration of these rights. All per share information in these
financial statements has been adjusted to give effect to the 1-for-5 reverse
split of common shares.
CASH EQUIVALENTS--The Company considers all money market accounts with a
maturity of 90 days or less to be cash equivalents.
F-7
<PAGE>
RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION--The Company recognizes revenue upon shipment of
product.
INVENTORIES, consisting of satellite modems and related products, are valued
at the lower of cost (first-in, first-out) or market, including material, direct
labor, and overhead costs.
PROPERTY AND EQUIPMENT is stated at cost. Expenditures for repairs and
maintenance are charged to operations as incurred, and improvements which extend
the useful lives of the assets are capitalized. Depreciation and amortization of
machinery and equipment are computed using the straight-line method over an
estimated useful life of five to seven years.
DESIGNS AND DRAWINGS--The valuation of designs and drawings is the result of
adjustments made by the Company to adopt Fresh Start reporting in accordance
with AICPA Statement of Position ("SOP") 90-7, FINANCIAL REPORTING BY ENTITIES
IN REORGANIZATION UNDER THE BANKRUPTCY CODE, and represents the excess
reorganization value that has been applied to the acquired technology supporting
the Company's products (Note 3). Amortization of designs and drawings is
computed using the straight-line method over an estimated useful life of four to
seven years.
At December 31, 1996, the Company recognized a design and drawing impairment
charge of $421,000, with no associated tax benefit. With the introduction of new
products in October 1996, management determined that a portion of the technology
related to the original designs and drawings would be phased out or modified
with technology used in new products. Impairment was determined by comparing the
amount of undiscounted projected future cash flows attributable to each product
using the related technology to the carrying value of the asset. Projected
future cash flows were estimated for a period approximating the estimated
remaining lives of the long lived assets, based on products' earnings history,
market conditions and assumptions reflected in internal operating plans and
strategies.
RESEARCH AND DEVELOPMENT--The cost of research and development is charged to
expense as incurred.
INCOME TAXES--Radyne files a consolidated federal income tax return with ETS
and ST. Income taxes have been computed as if the Company filed separate income
tax returns for each year.
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future consequences
attributed to differences between the consolidated financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Differences between income for financial and tax reporting purposes arise
primarily from amortization of certain designs and drawings and accruals for
warranty reserves and compensated absences. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
CONCENTRATION OF CREDIT RISK--The Company maintains ongoing credit
evaluations of its customers and generally does not require collateral. The
Company provides reserves for potential credit losses and such losses have not
exceeded management's expectations.
F-8
<PAGE>
RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME (LOSS) PER COMMON SHARE is computed by dividing net income (loss)
by the weighted average number of shares of common stock outstanding during each
of the periods presented. Such amounts have been adjusted to reflect the 1-for-5
reverse stock split that occurred on January 9, 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of accounts receivable,
accounts payable, and accrued expenses approximates the carrying value due to
the short-term nature of these instruments. Management has estimated that the
fair values of the loan payable to affiliates, the demand obligation, capital
lease obligations, and taxes payable approximate the current balances
outstanding, based on currently available rates for debt with similar terms.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the financial statement
date and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. REORGANIZATION
On April 28, 1994, Radyne Corp. (the "Predecessor Company") filed a petition
for relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Eastern District of New York. Under Chapter 11, certain
claims against the Predecessor Company in existence prior to the filing were
stayed while the Predecessor Company continued business operations as
debtor-in-possession. Claims secured against the Predecessor Company's assets
were also stayed, although the holders of such claims had the right to move the
Court for relief from the stay prior to the plan being confirmed. Secured claims
were secured primarily by liens on all of the Predecessor Company's assets.
The Predecessor Company received approval from the Bankruptcy Court to pay
certain of its prepetition obligations, employee wages and benefits. Tax claims
were rescheduled for payment in equal quarterly installments of $9,600, with
interest at 7% through September 2000.
On December 16, 1994, the Bankruptcy Court confirmed the Predecessor
Company's Plan of Reorganization effective at the close of business on December
16, 1994 (Note 3).
3. FRESH START REPORTING
Under the provision of SOP 90-7, the Successor Company was required to adopt
Fresh Start reporting as of the close of business on December 16, 1994, because
the reorganization value of the Predecessor Company was less than the total of
all post-petition liabilities and prepetition allowed claims, and the
preconfirmation stockholders retained less than 50% of the Successor Company's
common stock. Accordingly, the financial statements for the six and one-half
month period ended June 30, 1995 are the initial financial statements of Radyne
Corp., the Successor Company.
F-9
<PAGE>
RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994 (CONTINUED)
4. INVENTORIES
INVENTORIES CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ ------------
<S> <C> <C>
Raw materials and components..................................... $1,108,019 $ 626,525
Work-in-process.................................................. 792,119 307,391
Finished goods................................................... 577,222 293,660
Valuation allowance.............................................. (486,000) (76,907)
------------ ------------
Total............................................................ $1,991,360 $ 1,150,669
------------ ------------
------------ ------------
</TABLE>
5. PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ ----------
<S> <C> <C>
Machinery and equipment............................................ $ 731,778 $ 434,050
Furniture and fixtures............................................. 243,559 200,282
------------ ----------
Total.............................................................. 975,337 634,332
Less accumulated depreciation...................................... 125,773 62,405
------------ ----------
Property and equipment--net........................................ $ 849,564 $ 571,927
------------ ----------
------------ ----------
</TABLE>
6. ACCRUED EXPENSES
ACCRUED EXPENSES CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ ----------
<S> <C> <C>
Wages and related payroll taxes.................................... $ 356,624 $ 173,820
Interest........................................................... 194,492 11,146
Professional fees.................................................. 171,000 77,125
Warranty reserve................................................... 139,775 109,775
Other.............................................................. 65,065 29,100
------------ ----------
Total accrued expenses............................................. $ 926,956 $ 400,966
------------ ----------
------------ ----------
</TABLE>
F-10
<PAGE>
RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994 (CONTINUED)
7. RELATED PARTY TRANSACTIONS
In June 1995, the Company acquired certain assets of Merit Microwave, Inc.,
as well as the manufacturing rights to the Merit line of microwave products,
which include translators and frequency converters. The purchase price of
approximately $120,000 was allocated to inventory and machinery and equipment,
and was paid by the issuance of 30,000 shares of the Company's stock ($40,000),
cash of $60,000, and the assumption of a payable of $20,000. Under the terms of
the agreement, the principal stockholder and chief operating officer of Merit
entered into a one-year agreement with the Company to serve as president of the
newly created Radyne Microwave Products Division for annual compensation of
$75,000. In addition, the Company is required to pay royalties to Merit of 5-10%
on certain sales of microwave products. From June 1995 to December 31, 1996, the
Company paid royalties of $4,600.
In July 1995, the Company's manufacturing operations were moved to ETS
pending the Company's relocation to Phoenix. As a result, the Company
transferred $726,345 of inventory and $115,155 of machinery and equipment to ETS
in exchange for an equal reduction in the loan payable to ETS, to facilitate the
commencement of subcontract manufacturing by ETS. During September 1996, in
recognition of the completion of the move to Phoenix and increase in staffing,
the Board of Directors determined that the Company should resume direct
manufacturing. To this end, the Company repurchased $22,100 of machinery and
equipment from ETS and was obligated to purchase $348,000 of inventory from ETS,
which ETS had acquired and or processed in the ordinary course of fulfilling
purchase orders from the Company. However, as the Company's products were
undergoing constant improvement, in September 1996, the Company considered it
necessary to treat $70,000 of such inventory as obsolete and another $20,000
thereof as slow-moving. Ongoing product development rendered another $90,000 of
this inventory obsolete shortly thereafter. Additional inventory of $457,000 and
$2,461,500 was purchased from ETS during the six month period ended December 31,
1996 and the year ended June 30, 1996, respectively. Sales to ETS for the six
month period ended December 31, 1996, the year ended June 30, 1996, the six and
one-half month period ended June 30, 1995 and the ten and one-half month period
ended December 16, 1994 were $307,300, $311,600, $159,700 and $421,100,
respectively.
The Company has an informal marketing arrangement with Agilis Communication
Technologies Pte Ltd, an affiliate of ST, whereby Agilis acts as a sales agent
for Radyne products in a number of Asian countries. Sales generated as a result
of this agreement amounted to $375,000 and $118,900 for the six month period
ended December 31, 1996 and the year ended June 30, 1996, respectively.
ETS provided management services to Radyne, for which ETS charged Radyne
$60,000, $120,000 and $65,000 for the six month period ended December 31, 1996,
the year ended June 30, 1996 and the six and one-half month period ended June
30, 1995, respectively.
F-11
<PAGE>
RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994 (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
At December 31, 1996, notes payable to ST and affiliates were as follows:
<TABLE>
<S> <C>
Note payable plus interest at 8% per annum, principal due
February 10, 1997............................................. $4,500,000
Note payable plus interest at 8% per annum, principal due March
2, 1997....................................................... 400,000
Notes payable, interest at 8% per annum, principal due March 31,
1997.......................................................... 1,700,000
---------
Total........................................................... $6,600,000
---------
---------
</TABLE>
Interest expense on notes payable to affiliates was $205,900 and $248,400
for the six month period ended December 31, 1996 and the year ended June 30,
1996, respectively, of which $152,400 was included in accrued expenses in the
accompanying balance sheet as of December 31, 1996.
During August 1996, an ST affiliate made an unsecured loan of $4,500,000 to
the Company, the proceeds from which were used to pay down the note payable to
ETS which was outstanding as of June 30, 1996. Subsequent to December 31, 1996,
the Company repaid the $4,500,000 note payable with the proceeds from a
$2,000,000 note payable to ST. The note bears interest at 6.625% per annum with
the principal due on April 30, 1997. The interest rate increases to 7.625% if
the principal is not paid on the required due date. The remaining $2,500,000 was
borrowed from the new $5,500,000 credit agreement as discussed in Note 8. In
addition, the maturities on the $400,000 and the $1,700,000 notes payable were
extended to April 30, 1997. In connection with the extension of the maturity
date, the interest rate was adjusted to 6.625% per annum. The interest rate on
this note increases to 7.625% if the principal is not paid on the required due
date. The Company expects to repay the notes payable to ST with the proceeds
from the Rights Offering (Note 1).
8. NOTES PAYABLE
The Company has a note payable under a line of credit agreement with a bank
that permits outstanding borrowings of $2,000,000 with interest payable at LIBOR
(6.275%--6.4% at December 31, 1996). The line of credit agreement expires in
April 1997. Subsequent to December 31, 1996, available borrowings on the line of
credit were increased to $5,000,000.
Subsequent to December 31, 1996, the Company entered into a new $5,500,000
credit agreement with a bank that includes $5,000,000 available under an
uncommitted line of credit facility and facilities for bank guarantees and/or
standby letters of credit up to $500,000. STPL has issued a nonbinding letter of
awareness in connection with this credit agreement. Borrowings under the line of
credit bear interest at a fluctuating rate equal to LIBOR or alternative
Citibanks Quoted Rate plus 1% per annum. The credit agreement requires the
Company to capitalize at least $4,100,000 of its notes payable to affiliates not
later than March 31, 1997 and also requires that the Company maintains certain
financial leverage ratios. The availability of additional borrowings under the
credit agreement expires June 30, 1997.
F-12
<PAGE>
RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994 (CONTINUED)
9. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases machinery and equipment under capital leases. The net
book value of the equipment, $146,958 at December 31, 1996 and $75,000 at June
30, 1996, is included in property and equipment in the accompanying balance
sheets and is being depreciated over the estimated useful lives of the machinery
and equipment.
Payments on capital lease obligations at December 31 are due as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 66,731
1998.............................................................. 62,638
1999.............................................................. 26,463
---------
Total minimum lease payments...................................... 155,832
Less amount representing interest................................. 21,774
---------
Present value of minimum lease payments........................... 134,058
Less current portion.............................................. 53,042
---------
Capital lease obligations due after one year...................... $ 81,016
---------
---------
</TABLE>
10. COMMITMENTS
Rent expense was $44,112, $95,000, $57,000 and $62,000 for the six month
period ended December 31, 1996, the year ended June 30, 1996, the six and
one-half month period ended June 30, 1995 and the ten and one-half month period
ended December 16, 1994, respectively. Future minimum rentals under the lease at
December 31 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 88,224
1998.............................................................. 22,056
---------
Total............................................................. $ 110,280
---------
---------
</TABLE>
F-13
<PAGE>
RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994 (CONTINUED)
11. INCOME TAXES
The following summary reconciles taxes (recovery) from operations at the
federal statutory rate with the actual provision (recovery):
<TABLE>
<CAPTION>
SIX SIX AND TEN AND
MONTH ONE-HALF ONE-HALF
PERIOD YEAR MONTH PERIOD MONTH PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 16,
1996 1996 1995 1994
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Income taxes (recovery) at statutory rate............... $ (704,000) $ (893,000) $ (124,000) $ 768,800
Increase (decrease) in income taxes (recovery) resulting
from:
State income tax benefit.............................. (75,000) (95,000)
Change in valuation allowance......................... 775,000 988,000 117,600 (738,000)
Other adjustments..................................... 4,000 -- 6,400 (30,800)
------------ ----------- ------------- -------------
Total............................................... $ -- $ -- $ -- $ --
------------ ----------- ------------- -------------
------------ ----------- ------------- -------------
</TABLE>
Deferred tax assets consisted of the following at December 31, 1996 and June
30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ ------------
<S> <C> <C>
Gross deferred tax assets:
Cumulative tax effect of net operating loss carryforwards.......................... $3,930,000 $ 3,517,000
Tax credits........................................................................ 210,000 210,000
Temporary differences.............................................................. (30,000) (365,000)
Valuation allowance................................................................ (4,110,000) (3,362,000)
------------ ------------
Total............................................................................ $ -- $ --
------------ ------------
------------ ------------
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $10,443,000 expiring in various years through 2012 and general
business credit carryforwards of $210,000 expiring in various years through 2004
for utilization against taxable income/taxes payable of future periods, if any.
Approximately $6,200,000 of the Company's net operating loss and tax credit
carryforwards are subject to an annual limitation under Internal Revenue Code
Section 382, in future years, as a result of changes in ownership of the
Company's stock. The annual limitation is generally equal to the value of the
corporation's equity immediately prior to the change in ownership, times the
federal long-term tax exempt rate published by the federal government.
Management believes that the inability to utilize net operating loss and tax
credit carryforwards to offset future taxable income within the carryforward
periods under existing tax laws and regulations is more likely than not.
Accordingly, a 100% valuation allowance has been recorded against the net
deferred tax asset as of December 31, 1996 and June 30, 1996.
F-14
<PAGE>
RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994 (CONTINUED)
12. SIGNIFICANT CUSTOMERS AND EXPORT SALES
SALES TO SIGNIFICANT CUSTOMERS AS A PERCENTAGE OF NET SALES ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SIX SIX AND TEN AND
MONTH ONE-HALF ONE-HALF
PERIOD YEAR MONTH PERIOD MONTH PERIOD
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 16,
1996 1996 1995 1994
--------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Customer A................................................. 1.6% 6.4% 22.0% 5.8%
Customer B................................................. -- -- 15.3% 12.2%
Customer C................................................. 6.3% 8.1% 14.2% 16.4%
Customer D................................................. 15.6% 12.7% 11.7% 14.0%
Customer E................................................. 18.3% -- -- --
</TABLE>
No other customers represented greater than 10% of net sales during the six
month period ended December 31, 1996, the year ended June 30, 1996, the six and
one-half month period ended June 30, 1995 and the ten and one-half month period
ended December 16, 1994.
Export sales were 66%, 50%, 46% and 45% of net sales for the six month
period ended December 31, 1996, the year ended June 30, 1996, the six and
one-half month period ended June 30, 1995 and the ten and one-half month period
ended December 16, 1994, respectively. Net sales to Asia and Latin America were
46% and 37%, respectively, of total export sales for the six month period ended
December 31, 1996. Net sales to Asia and Europe were 46% and 38%, respectively,
of total export sales for the year ended June 30, 1996.
13. EMPLOYEE BENEFIT PLAN
The Company has a qualified contributory 401(k) plan that covers all
employees who have attained the age of 18 and are employed at the enrollment
date. Matching contributions were $8,576, $11,606 and $1,159 for the six month
period ended December 31, 1996, the year ended June 30, 1996 and the six and
one-half month period ended June 30, 1995, respectively. There was no matching
contribution for the ten and one-half month period ended December 16, 1994. Each
participant may elect to contribute up to 15% of his or her gross compensation
up to the maximum amount allowed by the Internal Revenue Service. The Company
matches up to 1% of the employee's salary.
14. STOCK OPTIONS
In November 1996, the Board of Directors adopted the 1996 Incentive Stock
Option Plan (the "Plan"), which was approved by the stockholders on January 8,
1997. The Plan provides for the grant of options to employees of the Company to
purchase up to 1,282,042 shares of common stock. The option price per share
under the Plan may not be less than the fair market value of the stock (110% of
the fair market value for an optionee who is a 10% stockholder) on the day the
option is granted.
F-15
<PAGE>
RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED DECEMBER 31, 1996,
YEAR ENDED JUNE 30, 1996, SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995 AND TEN AND ONE-HALF MONTH
PERIOD ENDED DECEMBER 16, 1994 (CONTINUED)
14. STOCK OPTIONS (CONTINUED)
At December 31, 1996, the Company had 964,395 options outstanding at an
exercise price of $2.50 per share. 280,000 of these options are Rights Options
granted to employees of the Company in conjunction with the Rights Offering and
will be exercisable during the Rights Offering but no later than May 30, 1997.
Another 16,000 options are exercisable at the rate of 25% on each of the first
four anniversaries of the grant date and expire on the tenth anniversary of the
grant date. The remaining 668,395 options have been allocated among a group of
30 key employees. These options carry the right to a cash bonus of $1.72 per
purchased share, payable upon exercise. One third of these options will become
exercisable, if and when the Company's earnings before interest and taxes
(calculated without regard to any charge for compensation paid or payable under
the Plan) for a period of four calendar quarters ("EBIT") exceeds $1,000,000.
Another one-third of these options will become exercisable if and when EBIT
exceeds $2,500,000 with the remaining one-third becoming exercisable if and when
EBIT exceeds $6,000,000. The options become exercisable if EBIT exceeds the
aforementioned prior to June 30, 2001. All options which become exercisable
expire in November 2006.
The Company applies Accounting Principles Board ("APB") Opinion No. 25 and
related interpretations in accounting for its Plan. The 668,395 options are
considered variable options, as defined by the provisions of APB No. 25 and
related interpretations. The Company should start recognizing compensation cost
on variable arrangements when the future events become probable of occurring.
The accrual of compensation cost under the variable arrangement has not
commenced as it is unlikely that the award will be earned in the near future due
to significant historical losses incurred by the Company. Accordingly, no
compensation cost has been recognized for the fixed or variable portions of the
Plan. Had compensation cost for the Plan been determined consistent with
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the Company's pro forma net loss and loss per common share would
have been $2,115,074 and $.56, respectively. The fair value of options granted
under the Plan was estimated on the date of grant with vesting periods ranging
from two to four years using the Black-Scholes option-pricing model with the
following weighted average assumptions used: no dividend yield, expected
volatility of 132%, risk free interest rate of 6.035%, and expected lives of
five years.
F-16
<PAGE>
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NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE 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 THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 10
Purpose of the Rights Offering and Use of
Proceeds...................................... 16
Capitalization.................................. 20
Dilution........................................ 20
The Rights Offering............................. 21
Certain Federal Income Tax Consequences......... 26
Price Range of Common Stock..................... 28
Dividend Policy................................. 28
Selected Financial Data......................... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 30
Business........................................ 36
Management...................................... 46
Principal and Management Stockholders........... 53
Certain Transactions............................ 54
Description of Capital Stock.................... 55
Concurrent Sale by Selling Stockholder.......... 55
Shares Eligible for Future Sale................. 56
Legal Matters................................... 56
Experts......................................... 57
Special Note Regarding Forward-Looking
Statements.................................... 57
Glossary........................................ 58
Financial Statements............................ F-1
</TABLE>
2,255,833 SHARES
RADYNE CORP.
COMMON STOCK
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PROSPECTUS
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MAY 12, 1997
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