<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 15, 1998
------------------
RADYNE CORP.
(Exact name of registrant as specified in its charter)
-------------------------------------------------------
NEW YORK 0-11685-NY 11-2569467
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification)
3138 EAST ELWOOD STREET, PHOENIX, ARIZONA 85034
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 602-437-9620
-------------
5225 SOUTH 37TH STREET, PHOENIX, ARIZONA 85040
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 28, 1998, Radyne Corp. (the "Company") signed a definitive
agreement to acquire ComStream Holdings, Inc. ("Comstream") from Spar Aerospace
Limited ("Spar"). On October 15, 1998 (the "Closing Date"), the Company acquired
Comstream (the "Acquisition"), with Comstream becoming a wholly owned subsidiary
of the Company.
On the Closing Date, the Company purchased all of the outstanding shares of
common stock of Comstream for an aggregate purchase price of $17,000,000, of
which $10 million was paid in cash at the closing, using funds borrowed from its
controlling shareholder, and $7 million will be payable up to nine months
thereafter pursuant to a note (the "Note") which is convertible into the
Company's common stock, par value $.002 per share (the "Common Stock"), under
certain circumstances. The Company and Spar will also enter into a registration
rights agreement providing Spar with piggyback and demand registration rights,
in the event that the Note is converted into Common Stock.
The Acquisition will be accounted for under the purchase method and is
expected to result in a one-time charge of approximately $4.2 million, which
represents the value assigned to purchased in-process research and
development.
The Company intends to finance the Acquisition and its ongoing working
capital needs through (i) a rights offering pursuant to which it will offer
Common Stock to its existing shareholders and (ii) the extension and
enhancement of an existing bank line of credit. Stetsys Pte Ltd, the
Company's controlling shareholder has committed to purchase approximately
$16,040,000 of Common Stock pursuant to the rights offering at a price of
$3.73 per share. This is also the conversion price of the Note provided to
Spar as part of the consideration for the Acquisition. In addition, the
Company's other shareholders will be offered approximately $1,660,000 of
shares of Common Stock at the same price per share, in amounts proportionate
to their shareholdings. This offering will be made strictly by means of a
prospectus which will be distributed to shareholders of record at a date
selected at the time of the Company's filing a registration statement for
such offering with the Securities and Exchange Commission.
The Company, with headquarters in Phoenix, Arizona and operations in San
Diego, California, designs, manufactures and sells satellite modems and earth
stations including digital video and high speed modems, and ancillary
products, as well as digital data, audio and video satellite broadcast
receivers, into primarily international markets.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
a. Financial Statements of Businesses Acquired
Audited consolidated balance sheets of Comstream as of December 31, 1997
and 1996 and the related consolidated statements of operations, stockholder's
equity (deficit) and cash flows for each of the three years in the period
ended December 31, 1997.
Unaudited condensed interim consolidated balance sheet of Comstream as of
September 30, 1998, and the related consolidated statements of operations and
cash flows for each of the nine-month periods ended September 30, 1998 and
September 30, 1997.
b. Pro Forma Financial Information.
The attached unaudited pro forma condensed combined balance sheet for
the nine months ended September 30, 1998 and statement of operations for the
nine months ended September 30, 1998 and year ended December 31, 1997 give
effect to the purchase by the Company of all of the outstanding shares of
common stock of Comstream as of the beginning of the periods presented for
the statements of operations, for an aggregate purchase price of
$17,000,000, of which $10 million was paid in cash at the closing, using
funds borrowed from the Company's controlling shareholder, and $7 million
will be payable up to nine months thereafter pursuant to a note which is
convertible into the Company's Common Stock under certain circumstances.
Accordingly, the acquired assets and liabilities were recorded at their
estimated fair market value at the date of acquisition. The pro forma
condensed combined statements of operations assume that the acquisition took
place at the beginning of each period presented and combine the Company's and
Comstream's results of operations for the year ended December 31, 1997 and
the nine months ended September 30, 1998. The unaudited pro forma condensed
combined balance sheet combines the Company's balance sheet as of September
30, 1998 with Comstream's balance sheet as of September 30, 1998, giving
effect to the Acquisition as if it had occurred on September 30, 1998.
The pro forma condensed combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred had the Acquisition been
consummated at the beginning of the periods presented, nor is it necessarily
indicative of future operating results or financial position.
The pro forma condensed combined financial information should be read in
conjunction with the audited historical consolidated financial statements and
the related notes thereto of Radyne and the audited financial statements and
notes thereto of Comstream included herein.
c. Exhibits
4.1 Convertible Promissory Note between Spar and the Company dated
October 15, 1998, with the form of Registration Rights Agreement
included as Appendix A thereto.
23.0 Consent of Independent Auditors.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 21, 1998
RADYNE CORPORATION
-------------------
(Registrant)
By: /S/ Robert C. Fitting
----------------------
Its: President and CEO
<PAGE>
ComStream Holdings, Inc.
Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
Contents
<TABLE>
<S> <C>
Report of Independent Auditors..................................................F-1
Consolidated Financial Statements
Consolidated Balance Sheets.....................................................F-2
Consolidated Statements of Operations...........................................F-3
Consolidated Statements of Stockholder's Equity (Deficit).......................F-4
Consolidated Statements of Cash Flows...........................................F-5
Notes to Consolidated Financial Statements......................................F-6
</TABLE>
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholder
ComStream Holdings, Inc.
We have audited the accompanying consolidated balance sheets of ComStream
Holdings, Inc., a wholly-owned subsidiary of Spar Aerospace Limited, as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholder's equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1997. 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 the
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ComStream
Holdings, Inc., at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
San Diego, California
February 16, 1998,
except for Note 11, as to which the date is
April 16, 1998
F-1
<PAGE>
ComStream Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash $ 729 $ 2,377
Accounts receivable, net 9,558 7,021
Inventories 6,162 8,351
Due from affiliated companies 1,249 1,750
Prepaid expenses and other current assets 2,143 1,472
Net assets of discontinued operations -- 26,099
-------- --------
Total current assets 19,841 47,070
Property and equipment 13,129 13,101
Accumulated depreciation (6,192) (3,340)
-------- --------
6,937 9,761
-------- --------
Intangible assets, net 4,561 5,485
Other assets 504 714
-------- --------
-------- --------
Total assets $ 31,843 $ 63,030
-------- --------
-------- --------
Liabilities and stockholder's deficit
Current liabilities:
Accounts payable $ 4,429 $ 4,568
Accrued liabilities 6,466 4,694
Due to affiliated companies 4,337 4,775
Income taxes payable 574 998
Customer advances 602 728
Other current liabilities -- 225
Net liabilities of discontinued operations 15,266 --
-------- --------
Total current liabilities 31,674 15,988
Revolving line of credit from bank 12,000 --
Revolving line of credit from parent company 27,183 60,697
Other liabilities 283 233
-------- --------
Total long-term liabilities 39,466 60,930
Commitments and contingencies
Stockholder's deficit
Preferred stock, $0.001 par value; 8,000,000 shares authorized; 100
shares issued and outstanding in 1997 and 1996 -- --
Common stock, $0.001 par value; 100,000,000 shares authorized;
20,000,000 shares issued and outstanding in 1997 and 1996 20 20
Additional capital 52,608 49,380
Accumulated deficit (91,925) (63,023)
Translation adjustment -- (265)
-------- --------
Total stockholder's deficit (39,297) (13,888)
-------- --------
-------- --------
Total liabilities and stockholder's deficit $ 31,843 $ 63,030
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-2
<PAGE>
ComStream Holdings, Inc.
Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue $ 55,923 $ 60,528 $ 70,214
Cost of revenue 32,624 41,086 44,264
-------- -------- --------
Gross profit 23,299 19,442 25,950
Operating expenses:
Selling and marketing 7,133 8,761 9,596
Research and development 8,267 7,054 4,767
General and administrative 7,487 6,081 8,961
Amortization of intangible assets 836 858 5,502
Restructuring costs 3,500 -- --
-------- -------- --------
Total operating expenses 27,223 22,754 28,826
Operating loss (3,924) (3,312) (2,876)
Interest expense (primarily with parent company) 3,632 3,815 5,020
Other (income) expense, net 98 (346) (144)
-------- -------- --------
Loss from continuing operations before income taxes
(7,654) (6,781) (7,752)
Provision for income taxes 80 9 3
-------- -------- --------
Loss from continuing operations (7,734) (6,790) (7,755)
Discontinued operations:
(Loss) income from operations of Components
division, net of income taxes of $0 in 1997 and
1996 and $150 in 1995 (6,811) (5,988) 9,811
Gain on disposal of Components division, net of
income taxes of $0 28,956 -- --
Loss from operations of Satellite Global Access
division, net of income taxes of $0 in 1997,
1996 and 1995 (29,013) (5,584) (6,224)
Loss on disposal of Satellite Global Access
division, net of income taxes of $0 (14,300) -- --
-------- -------- --------
Net loss $(28,902) $(18,362) $ (4,168)
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-3
<PAGE>
ComStream Holdings, Inc.
Consolidated Statements of Stockholder's Equity (Deficit)
(In thousands, except share data)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ----------------- Additional Accumulated Translation
Shares Amount Shares Amount Capital Deficit Adjustment Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 100 $ -- 20,000,000 $ 20 $ 24,594 $ (40,493) $ (275) $ (16,154)
Notes payable to parent contributed to
capital -- -- -- -- 25,000 -- -- 25,000
Exercise of stock options -- -- 80,730 -- 392 -- -- 392
Repurchase of common stock -- -- (80,730) -- (436) -- -- (436)
Net loss -- -- -- -- -- (4,168) -- (4,168)
Currency translation adjustments -- -- -- -- -- -- (1) (1)
-------------------------------------------------------------------------------------
Balance at December 31, 1995 100 -- 20,000,000 20 49,550 (44,661) (276) 4,633
Exercise of stock options -- -- 308,788 -- 1,497 -- -- 1,497
Repurchase of common stock -- -- (308,788) -- (1,667) -- -- (1,667)
Net loss -- -- -- -- -- (18,362) -- (18,362)
Currency translation adjustments -- -- -- -- -- -- 11 11
-------------------------------------------------------------------------------------
Balance at December 31, 1996 100 -- 20,000,000 20 49,380 (63,023) (265) (13,888)
Exercise of stock options -- -- 980,106 1 4,755 -- -- 4,756
Repurchase of common stock -- -- (980,106) (1) (4,755) -- -- (4,756)
Sale of ComStream Canada to parent -- -- -- -- 3,228 -- -- 3,228
Net loss -- -- -- -- -- (28,902) -- (28,902)
Currency translation adjustments -- -- -- -- -- -- 265 265
-------------------------------------------------------------------------------------
Balance at December 31, 1997 100 $ -- 20,000,000 $ 20 $ 52,608 $ (91,925) $ -- $ (39,297)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ComStream Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Operating activities
Net loss $ (28,902) $ (18,362) $ (4,168)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss (income) from discontinued operations 35,824 11,572 (3,587)
Gain on disposal of discontinued operations, net (14,656) -- --
Restructuring costs 3,500 -- --
Depreciation and amortization 3,222 2,663 1,949
Amortization of intangible assets 836 858 5,502
Provision for doubtful accounts 577 528 (403)
Increase (decrease) in cash resulting from changes in:
Accounts receivable (3,114) 1,215 1,367
Inventories 2,189 (1,808) 4,418
Due from affiliate companies 501 (808) (382)
Prepaid expenses and other current assets (671) 180 (687)
Accounts payable and accrued liabilities (1,215) 559 (9,338)
Due to affiliated companies (438) 1,768 1,416
Income taxes payable (424) 671 (958)
Customer advances (126) 320 30
Other current liabilities (226) (153) (720)
---------- --------- ----------
Net cash used in continuing operations (3,123) (797) (5,561)
Net cash provided by (used in) discontinued operations (12,320) (9,686) 2,690
---------- --------- ----------
Net cash used by operating activities (15,443) (10,483) (2,871)
---------- --------- ----------
Investing activities
Proceeds from the sale of discontinued operations 37,672 -- --
Acquisition of property and equipment (1,121) (2,183) (2,765)
Capital expenditures of discontinued operations (5,179) (1,998) (3,979)
Other 370 (234) (558)
---------- --------- ----------
Net cash provided by (used in) investing activities 31,742 (4,415) (7,302)
Financing activities
Repayments of revolving line of credit from parent
company (166,734) (71,504) (123,024)
Proceeds from revolving line of credit from parent 136,448 88,684 133,704
company
Repayments of bank indebtedness (27,000) -- --
Proceeds from bank indebtedness 39,000 -- --
Proceeds from exercise of stock options 4,756 1,497 392
Repurchase of common stock (4,756) (1,667) (436)
Other 339 161 (311)
---------- --------- ----------
Net cash provided by (used in) financing activities (17,947) 17,171 10,325
Increase (decrease) in cash (1,648) 2,273 152
Cash at beginning of year 2,377 104 (48)
---------- --------- ----------
Cash at end of year $ 729 $ 2,377 $ 104
---------- --------- ----------
---------- --------- ----------
Supplemental disclosures:
Taxes paid $ 129 $ 2 $ 722
---------- --------- ----------
---------- --------- ----------
Interest paid (primarily to parent company) $ 6,482 $ 1,020 $ 4,250
---------- --------- ----------
---------- --------- ----------
Debt forgiven by parent company $ 3,228 $ -- $ --
---------- --------- ----------
---------- --------- ----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
1. Organization and Significant Accounting Policies
Formation and Basis of Presentation
ComStream Holdings, Inc. (the Company), a wholly-owned subsidiary of Spar
Aerospace Limited (Spar), which is a publicly-held Canadian company, was
incorporated in the state of Delaware in the United States in 1996. The
Company's principal operating subsidiary is ComStream Corporation. In December
1992, Commercial Telecommunications Corporation (Comtel), a wholly-owned US
subsidiary of Spar, purchased ComStream Corporation, a privately-owned
California manufacturer of telecommunications equipment. ComStream Corporation
and Comtel were merged in 1994 and continued operating as ComStream Corporation.
In 1994, Spar also incorporated the net assets of its Canadian
telecommunications division and contributed the stock of the new subsidiary
(ComStream Canada Inc.) and the stock of ComStream Corporation to ComStream
Inc., a newly formed Canadian holding company; as part of this reorganization
Spar also forgave certain intercompany debt and assumed certain liabilities of
its former Canadian telecommunications division aggregating $2,005,000. During
1996 and 1997, Spar implemented a reorganization of the ComStream companies in
which ComStream Inc. adopted a plan of liquidation and the shares of ComStream
Canada Inc. and ComStream Corporation were transferred to Spar and subsequently
contributed by Spar to ComStream Holdings, Inc. The combination of the Spar
businesses were accounted for in a manner similar to the pooling of interests
during the periods presented.
On September 30,1997, ComStream Corporation purchased certain long-term
contracts from ComStream Canada Inc. All the shares of ComStream Canada Inc.
were then acquired by Spar. As part of this transaction, Spar forgave
intercompany debt of $3,228,000 which has been reflected as a capital
contribution in the accompanying consolidated financial statements.
The Company has incurred significant losses from operations and has a
stockholder's deficit of $39.3 million at December 31, 1997. These matters raise
doubt about the Company's ability to continue as a going concern. However, the
Company has taken the following actions, partially mitigating these matters. In
May 1997, the Components division, which incurred significant operating losses
in 1996 and 1997, was divested for cash of $37.7 million. During the fourth
quarter of 1997, the Company implemented a corporate restructuring and cost
cutting initiative whereby 80 technical, sales and administrative positions were
eliminated and certain facilities were consolidated. Also in the fourth quarter
of 1997, the Company decided to divest or otherwise discontinue its
F-6
<PAGE>
1. Organization and Significant Accounting Policies (continued)
Satellite Global Access (SGA) division which had been negatively impacted by
unfavorable economic conditions in its key market areas and had incurred
operating losses since its inception in 1994. On April 16, 1998, the Company
completed a definitive agreement to sell the SGA business to NSI Network
Sciences International Ltd. for cash proceeds of $3,050,000 subject to certain
adjustments. This transaction is expected to close in June 1998 (Note 11). These
restructuring and divestiture actions were taken to position the remaining
business segments to achieve a profitable level of operations. However, no
assurances can be provided that the Company will be able to achieve profitable
operating results. The Company's cash requirements, not internally funded by
operations, have been funded by a revolving line of credit arrangement with its
parent company, Spar. Spar has expressed its intent to continue funding the
Company's results of operations through at least December 31, 1998. Therefore,
the accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern and as a wholly-owned
subsidiary of Spar.
The Company now operates primarily in North America (the United States and
Canada) in two business segments in the satellite communications industry. The
Satellite Products Division (SPD) designs, markets and manufactures
satellite-based interactive modems and earth stations. In addition, SPD offers a
family of products which provide one-way broadcast transmission of data, audio
and video. The Broadband Products Division (BPD) manufactures and markets
full-transponder satellite digital audio receivers for music providers and has
designed and developed a PC broadband satellite receiver card which is an
Internet and high-speed data networking product, which is expected to be
marketed and manufactured beginning in 1998.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all significant intercompany
accounts and transactions.
Revenue Recognition
Revenue from product sales is generally recognized when products are shipped.
Revenue related to the performance of nonrecurring engineering services is
recognized as costs are incurred, consistent with the performance requirements
of the related agreements.
F-7
<PAGE>
1. Organization and Significant Accounting Policies (continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risks consist primarily of trade receivables. The Company sells its
products and services to a diverse group of customers throughout the world,
primarily in the satellite communications industry. At December 31, 1997, no
customer accounted for greater than 10% of trade accounts receivable. To reduce
risk, the Company performs ongoing evaluations of its customers' credit
worthiness and may require guarantees under letters of credit.
Major Customers
Two SPD customers each accounted for 11% of 1997 revenues, no customers
represented greater than 10% of 1996 revenues and two SPD customers accounted
for 19% and 12%, respectively, of 1995 revenues.
Export Revenues
Export revenues from North America as a percentage of total revenues follow:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------
<S> <C> <C> <C>
Asia 29% 42% 24%
Europe 27 26 30
Latin and South America 11 4 7
-----------------
67% 72% 61%
-----------------
-----------------
</TABLE>
Inventories
Inventories are stated at the lower of standard cost (which approximates actual
cost), or market, using the first-in, first-out method.
F-8
<PAGE>
1. Organization and Significant Accounting Policies (continued)
Warranty Costs
The Company provides limited warranties on certain of its products and systems
for periods generally not exceeding two years. The Company accrues estimated
warranty costs for potential product liability and warranty claims based on the
Company's claim experience. Such costs are accrued as cost of sales at the time
revenue is recognized.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided on the
straight-line basis over the estimated useful lives of the property, ranging
from three to ten years. Leasehold improvements are amortized on a straight-line
basis over the shorter of the life of the lease or the life of the improvements.
Intangible Assets
Intangible assets include costs of technology and goodwill arising from the 1992
purchase of ComStream Corporation and costs of acquired patents and licenses.
Purchased technology and patents and licenses are amortized over the estimated
useful lives of the related products, ranging from three to seven years;
goodwill is amortized over 15 years.
Asset Impairment
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (SFAS 121), which requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. SFAS 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. There was no effect on the consolidated financial statements from the
adoption of SFAS 121.
Employee Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations in
accounting for its employee stock options and to adopt the "disclosure only"
alternative
F-9
<PAGE>
1. Organization and Significant Accounting Policies (continued)
treatment under Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123). SFAS 123 requires the use of fair value
option valuation models that were not developed for use in valuing employee
stock options. Under SFAS No. 123, deferred compensation is recorded for the
excess of the fair value of the stock on the date of the option grant, over the
exercise price of the option. The deferred compensation is amortized over the
vesting period of the option.
Stock Split
In June 1997, the Company issued a 2-for-1 stock split. All shares and per share
data in the accompanying consolidated financial statements have been adjusted to
reflect the stock split.
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 the disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates. The industry in which the
Company operates is characterized by rapid technological change and short
product life cycles. As a result, estimates are required to provide for product
obsolescence and warranty returns as well as other matters. Historically, actual
amounts incurred for these matters have not varied significantly from estimated
amounts.
Foreign Currency Translation
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses, gains and losses. Where the local currency is the functional currency,
translation adjustments are recorded as a separate component of stockholder's
equity (deficit). Where the U.S. dollar is the functional currency, translation
adjustments are recorded in income.
Reclassification
Certain prior year amounts have been reclassified to conform with the current
year presentation.
F-10
<PAGE>
1. Organization and Significant Accounting Policies (continued)
New Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS 130,
Reporting Comprehensive Income, effective for fiscal years beginning after
December 15, 1997. SFAS 130 requires that all components of comprehensive
income, including net income, be reported in the financial statements in the
period in which they are recognized. The Company's comprehensive loss will not
be materially different than net loss as reported.
In June 1997, the FASB issued SFAS 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS 131 establishes standards for the way
in which publicly held companies report financial and descriptive information
about its operating segments in the financial statements for both interim and
annual periods. The statement also requires additional disclosures with respect
to products and services, geographic areas of operation and major customers.
SFAS 131 is effective for fiscal years beginning after December 15, 1997. The
Company's adoption of SFAS 131 will have no impact on the Company's consolidated
results of operations, cash flows or financial position but may increase the
level of disclosure of segment information.
Impact of Year 2000 (Unaudited)
The "Year 2000 Issue" addresses the problems created by the fact that most
computer software programs have been written using two digits, rather that four,
to represent a specific year (e.g., "97" would represent 1997). Such
date-sensitive software programs may recognize a date using "00" as the year
1900 rather than the year 2000, which might result in system failures or
miscalculations causing a disruption in operations, including among others,
temporary inability to process normal accounting transactions, send invoices or
engage in similar normal business activities. In addition, to the extent a
company distributes products containing date-sensitive computer programs, a
company may incur substantial costs and time creating or modifying existing
software programs, inventory and returned products.
The Company completed an assessment of the impact of the Year 2000 Issue on its
internal and external operations, and determined that it may be required to
upgrade certain software programs it employs in the normal course of business
and further may need to provide upgrades to products previously distributed to
customers. The total cost of the Year 2000 Issue project is estimated to be less
than $1.5 million, which includes items to be charged to operating expenses and
items to be capitalized and amortized, and is estimated to be completed in 1999.
The Company believes that the Year 2000 Issue will not have a material adverse
effect on its operations or business.
F-11
<PAGE>
1. Organization and Significant Accounting Policies (continued)
The cost of the Year 2000 Issue project and the date on which the Company
believes it will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
2. Composition of Certain Balance Sheet Accounts
<TABLE>
<CAPTION>
December 31,
1997 1996
--------------------
(in thousands)
<S> <C> <C>
Accounts receivable:
Trade accounts receivable $ 10,440 $ 7,326
Less allowance for doubtful accounts (882) (305)
--------------------
$ 9,558 $ 7,021
--------------------
--------------------
</TABLE>
<TABLE>
<CAPTION>
December 31,
1997 1996
--------------------
(in thousands)
<S> <C> <C>
Inventories:
Purchased parts and components $ 3,044 $ 3,099
Work-in-process 2,757 4,125
Finished goods 361 1,127
$ 6,162 $ 8,351
--------------------
--------------------
</TABLE>
<TABLE>
<CAPTION>
December 31,
1997 1996
--------------------
(in thousands)
<S> <C> <C>
Property and equipment:
Machinery and equipment $ 11,039 $ 10,710
Furniture and fixtures 724 1,338
Leasehold improvements 1,366 1,053
--------------------
13,129 13,101
Less accumulated depreciation and amortization (6,192) (3,340)
--------------------
$ 6,937 $ 9,761
--------------------
--------------------
</TABLE>
F-12
<PAGE>
2. Composition of Certain Balance Sheet Accounts (continued)
<TABLE>
<CAPTION>
December 31,
1997 1996
--------------------
(in thousands)
<S> <C> <C>
Intangible assets:
Purchased technology $ 17,439 $ 17,439
Goodwill 5,076 5,076
Patents and licenses 116 204
--------------------
22,631 22,719
Less accumulated amortization (18,070) (17,234)
--------------------
$ 4,561 $ 5,485
--------------------
--------------------
</TABLE>
<TABLE>
<CAPTION>
December 31,
1997 1996
-------------------
(in thousands)
<S> <C> <C>
Accounts payable and accrued liabilities:
Accounts payable $ 4,429 $ 4,568
Accrued compensation 3,718 3,145
Accrued warranty 390 500
Accrued other 2,358 1,049
-------------------
$10,895 $ 9,262
-------------------
-------------------
</TABLE>
3. Income Taxes
The provision for income taxes from continuing operations is based on income
(loss) from continuing operations before income taxes as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------
<S> <C> <C> <C>
U.S. $(8,483) $(3,612) $(6,687)
Foreign 829 (3,169) (1,065)
------------------------------
$(7,654) $(6,781) $(7,752)
------------------------------
------------------------------
</TABLE>
F-13
<PAGE>
3. Income Taxes (continued)
Components of the provision for income taxes from continuing operations are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------
<S> <C> <C> <C>
Current provision:
State $80 $ 2 $--
Foreign -- 7 3
----------------------
Total provision for income taxes from continuing
operations $80 $ 9 $ 3
----------------------
----------------------
</TABLE>
The following is a reconciliation from the expected statutory federal income tax
provision (benefit) to the Company's actual income tax provision (benefit) (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
US Federal corporate statutory rate 35% 35% 35%
--------------------------------
--------------------------------
Continuing operations:
Expected tax benefit $(2,679) $(2,373) $(2,713)
State taxes, net of federal benefit (372) (84) (280)
Increase in valuation allowance on deferred tax
assets 3,537 2,518 2,373
Other (406) (52) 623
--------------------------------
Actual tax provision $ 80 $ 9 $ 3
--------------------------------
--------------------------------
Effective income tax rate (1)% 0% 0%
--------------------------------
--------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Discontinued operations:
Expected tax provision (benefit) $(7,409) $(4,050) $ 1,255
State taxes, net of federal benefit (1,029) (154) 119
Increase in valuation allowance on deferred tax
assets 9,783 4,253 (1,480)
Other (1,345) (49) 256
-------------------------------
Actual tax provision (benefit) -- -- $ 150
-------------------------------
-------------------------------
Effective income tax rate 0% 0% 5%
-------------------------------
-------------------------------
</TABLE>
F-14
<PAGE>
3. Income Taxes (continued)
The components of the Company's total deferred taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
--------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 7,927 $ 5,492
Reserves 18,731 7,120
Accrued expenses and other 556 2,436
--------------------
Total deferred tax assets 27,214 15,048
Valuation allowance (26,345) (13,816)
--------------------
Net deferred tax assets 869 1,232
Deferred tax liabilities:
Depreciation and other (443) (609)
Acquired intangibles (426) (623)
--------------------
Total deferred tax liabilities (869) (1,232)
--------------------
--------------------
Net deferred taxes $ -- $ --
--------------------
--------------------
</TABLE>
At December 31, 1997, the Company had federal and California net operating loss
(NOL) carryforwards in the amount of $22.3 million and $2.2 million,
respectively, which may be used to offset future taxable income. Federal and
California NOLs will begin to expire in 2004 and 2001, respectively, unless
previously utilized. The Company also had credit carryforwards available to
offset federal tax liabilities in the amount of $317,000. These credits will
begin to expire in 2000 unless previously utilized. The use of such losses and
credits is currently subject to certain limitations. Additional annual
limitations may be applicable in the event of certain future stock ownership
changes.
4. Employee Stock Option Plans
1994 Non-Qualified Share Option Plan
In December 1994, the Board of Directors of ComStream Inc. adopted the 1994
Non-Qualified Share Option Plan (1994 Option Plan). Under the 1994 Option Plan,
the Board of Directors was authorized to grant options to officers and key
employees to purchase up to 5,000,000 shares of ComStream Inc. common stock, at
a price equal to the fair market value of the stock at the date of grant.
Generally, options vest at 25% annually and are exercisable for up to ten years
from the grant date. In 1995, the Board granted options for 993,000 shares at
prices ranging from $4.85 to $5.40 per share. No options were granted in 1996 or
1997. Certain of the option agreements provide for the acceleration of vesting
in the event of a change of control of the Company, as defined in the option
F-15
<PAGE>
4. Employee Stock Option Plans (continued)
agreement. As a result of such provisions, an additional 101,250 of the options
outstanding at December 31, 1997 would become exercisable in the event of a
change of control of the Company. In March 1997, all outstanding options granted
under the 1994 Option Plan were exchanged for options to purchase common stock
of ComStream Holdings, Inc. No further grants will be made under the 1994 Option
Plan. In December 1997, all options outstanding under the Plan were canceled and
reissued at $3.75 per share. At December 31, 1997, 540,876 options were
outstanding, of which 355,662 were exercisable.
1995 Equity Incentive Plan
Under the terms of the 1995 Equity Incentive Plan (1995 Equity Plan) adopted by
the Board of Directors of ComStream Corporation in October 1995, the Board was
authorized to grant stock awards to employees, directors or consultants to
purchase up to 2,000,000 shares of common stock of ComStream Corporation. The
stock awards could be in the form of incentive stock options, nonstatutory stock
options, stock bonuses or rights to purchase restricted stock or stock
appreciation rights. The grants could be at a price not less than the fair
market value of the stock at the date of grant for incentive stock options and
not less than 85% of the fair market value at the date of grant for nonstatutory
stock options. Generally, options vest at 25% per year (in no event less than
20% per year) and are exercisable for up to ten years from the grant date. In
1995 and 1996, the Board granted non-qualified options for 1,153,130 and 226,000
shares, respectively, at a price of $5.40 per share. In March 1997, all
outstanding options granted under the 1995 Equity Plan were exchanged for
options to purchase common stock of ComStream Holdings, Inc. There were no new
grants made under the Plan during 1997. No further grants will be made under the
1995 Equity Plan. In December 1997, all options outstanding under the Plan were
canceled and reissued at $3.75 per share. At December 31, 1997, 390,126 options
were outstanding, of which 187,062 were exercisable.
1996 Equity Incentive Plan
In January 1996, the Board of Directors of ComStream Holdings, Inc. adopted the
1996 Equity Incentive Plan. Stock awards may be granted to employees, directors
or consultants of the Company in the form of incentive stock options,
nonstatutory stock options, stock bonuses, rights to purchase restricted stock,
and stock appreciation rights.
F-16
<PAGE>
4. Employee Stock Option Plans (continued)
The awards may be granted at prices not less than 85% of the fair market value
of the stock at the time of the grant, except awards of incentive stock options
which must be granted at 100% of fair market value. Options vest in periodic
installments, but in no event less than 20% per year. All options are
exercisable up to ten years from the date of grant. The Board granted
non-qualified options for 1,350,818 and 191,650 shares in 1997 and 1996,
respectively, at a price of $5.40 per share. In December 1997, all options
outstanding under the Plan were canceled and reissued at $3.75 per share. At
December 31, 1997, 1,264,818 options were outstanding, of which, 131,121 options
were exercisable.
1996 Non-Qualified Stock Option Plan
In October 1996, the Board of Directors of ComStream Holdings, Inc. adopted the
1996 Non-Qualified Stock Option Plan. The Board may grant options to officers
and key employees of the Company at the fair market value of the stock on the
date of grant. Generally options vest at 25% per year and are exercisable up to
ten years from the date of grant. The Board granted options for 400,000 and
750,000 shares in 1997 and 1996, respectively, at a price of $5.40 per share.
The terms of the options granted under the 1996 Non-Qualified Plan provide for
the acceleration of vesting in the event of a change of control of the Company,
as defined in the option agreement. As a result of such provisions, all of the
280,000 options outstanding at December 31, 1997 would become exercisable in the
event of a change in control of the Company. In December 1997, all options
outstanding under the Plan were canceled and reissued at $3.75 per share. At
December 31, 1997, 280,000 options were outstanding, of which, 5,000 were
exercisable.
F-17
<PAGE>
4. Employee Stock Option Plans (continued)
A summary of stock option activity under all the plans follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Options Outstanding
----------------------
Options
Available for Number of Average
Grant Shares Price Per
Share
--------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1994 2,475 2,525 $ 4.85
Additional reserved 2,000 -- --
Granted (2,146) 2,146 $ 5.31
Canceled 439 (439) $ 4.85
Exercised -- (81) $ 4.85
--------------------------------------
Balance at December 31, 1995 2,768 4,151 $ 5.09
Additional reserved 4,500 -- --
Granted (1,366) 1,366 $ 5.40
Canceled 779 (779) $ 5.20
Exercised -- (309) $ 4.85
-------------------------------------
Balance at December 31, 1996 6,681 4,429 $ 5.18
Granted* (4,308) 4,308 $ 4.44
Canceled* 5,281 (5,281) $ 5.34
Exercised -- (980) $ 4.85
--------------------------------------
Balance at December 31, 1997 7,654 2,476 $ 3.75
--------------------------------------
--------------------------------------
</TABLE>
- ----------
* options granted and canceled in 1997 include 2,507 options originally
granted at prices ranging from $4.85 to $5.40 per share which were reissued
at $3.75 per share.
At December 31, 1997, there were 10,130,000 shares of common stock reserved for
future issuance pursuant to the terms of the various stock option plans. Under
the various stock option plans, the Company, in circumstances as defined, has
the right of first refusal to repurchase the options granted and the right to
repurchase any shares issued pursuant to the options. In connection with the
foregoing, during 1997, 1996 and 1995 the Company repurchased 980,106, 308,788
and 80,730 shares, respectively, of common stock of the Company from certain
former employees.
The weighted average remaining contractual life of the options outstanding was
9.1 years at December 31, 1997.
F-18
<PAGE>
4. Employee Stock Option Plans (continued)
Stock-Based Compensation
As permitted under FASB Statement No. 123, Accounting for Stock-Based
Compensation (SFAS 123), the Company has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) in
accounting for stock-based awards to employees. Under APB 25, the Company
generally recognizes no compensation expense with respect to such awards.
Pro forma information regarding net income and earnings per share is required by
SFAS 123 for awards granted after December 31, 1994 as if the Company had
accounted for its stock-based awards to employees under the fair value method of
SFAS 123. The fair value of the Company's stock-based awards to employees was
estimated using a minimum value option pricing model. Because the Company's
stock-based awards to employees have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair value
of the Company's stock-based awards to employees was estimated assuming no
expected dividends and the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------
<S> <C> <C> <C>
Expected life (years) 5.0 5.0 5.0
Risk-free interest rate 6.0% 6.0% 6.0%
Annual dividend yield -- -- --
</TABLE>
For pro forma purposes, the estimated fair value of the Company's stock-based
awards to employees is amortized over the options' vesting period. The Company's
pro forma information follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------
<S> <C> <C> <C> <C>
Net loss As reported $(28,902) $(18,362) $(4,168)
Pro forma $(30,318) $(19,265) $(4,302)
</TABLE>
Because SFAS 123 is applicable only to awards granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until approximately 1999.
The weighted-average fair value of options granted during 1997, 1996 and 1995
was $.97, $1.43 and $1.31 per share, respectively.
F-19
<PAGE>
4. Employee Stock Option Plans (continued)
Incentive Phantom Stock Plan
Under the Incentive Phantom Stock Plan (Phantom Plan), which was adopted by the
Board of Directors of ComStream Inc. in December 1994, the Board of Directors
was authorized to grant up to 5,000,000 Phantom Stock Rights (PSRS) to key
employees. Each PSR entitles employees to receive cash compensation in an amount
equivalent to the excess of the market value of the stock at a future date over
the grant price, subject to certain limits. In the event of an initial public
offering (IPO), (i) the market value used to compute the increase in value from
the grant date cannot exceed the IPO price; and (ii) vested amounts will become
payable. The PSRs generally vest at 25% annually and become exercisable at the
earlier of the completion of an IPO of the Company's common stock, the sixth
anniversary of the grant date or termination of employment. In 1995, the Board
granted 153,200 PSRs, respectively, at a price of $4.85 each. No PSRs were
granted in 1996 and 1997. ComStream Holdings, Inc. has assumed the obligations
of ComStream Inc. with respect to the Phantom Plan. No further grants will be
made under the Phantom Plan. At December 31, 1997, 123,250 PSRs were
outstanding, of which 83,436 were exercisable.
ComStream Shares to Appreciate and Reward Plan
The Company also has the Shares to Appreciate and Reward Plan (STAR), a stock
appreciation rights plan for non-officer employees with at least three months of
service who have not been granted options under any of the option plans or the
Phantom Plan described above. New grants are made on January 2 and July 1 of
each year. Each eligible employee receives 1,000 Phantom Stock Units (PSUs);
each PSU gives the employee the right to receive cash compensation in an amount
equivalent to the excess of the market value of the stock at a future date over
the grant date. Such compensation is limited to one month of the employee's
salary at the grant date. The PSUs vest at 25% annually and become exercisable
at the earlier of the completion of an IPO of the Company's common stock, the
sixth anniversary of the grant date or termination of employment. At December
31, 1997, a total of 217,500 PSUs were outstanding at price of $3.75 per share
of which 88,000 were exercisable. The Company intends to terminate the STAR plan
in the event of an IPO, although all rights granted prior to such date would
continue.
Compensation expense which may accrue to employees under the Phantom Plan and
the STAR Plan is initially measured at the grant date based on the fair value of
the common stock, with adjustments made quarterly for fair value fluctuations.
In 1997, 1996 and 1995 compensation expense of $0, $28,000 and $215,000,
respectively, was recorded in the accompanying consolidated financial statements
related to these plans.
F-20
<PAGE>
5. Employee Savings and Profit Sharing Plans
The 401(k) Savings Plan for ComStream Employees (Savings Plan) covers all
full-time employees with 30 days of continuous service. Participating employees
can contribute up to 15% of their compensation, subject to legal limits. The
Company matches 35% of the participants' contributions, up to the first 7% of
compensation. Employer matching contributions vest to the participants beginning
in the second year at 40% and 20% per year thereafter.
Total matching contributions made under the plans were $388,000, $368,000 and
$351,000 during 1997, 1996 and 1995, respectively.
6. Transactions with Parent Company and Affiliated Companies
Spar provides the Company with various financial and administrative functions
and services, including cash management, treasury, legal, tax, insurance, and
general management services. The Company is charged associated direct costs and
expenses for such functions. In addition, the Company, along with other
companies affiliated with Spar, receives an allocation of certain management
fees and indirect administrative costs. Management fees and indirect
administrative costs charged to the Company by Spar totaled $570,000, $707,000
and $615,000 in 1997, 1996 and 1995, respectively. Such amounts are included in
general and administrative expenses in the accompanying statement of operations.
Also included in general and administrative expenses are certain costs allocated
to the Company by Spar, primarily insurance, in the amounts of $260,000,
$315,000 and $428,000 in 1997, 1996 and 1995, respectively.
On September 30,1997, ComStream Corporation purchased certain long-term
contracts from ComStream Canada, Inc. All the shares of ComStream Canada Inc.
were then acquired by Spar. As part of this transaction, Spar forgave
intercompany debts of $3,228,000 which amounts have been reflected as a capital
contribution in the accompanying consolidated financial statements.
In December 1993, Comtel declared and recorded a $25 million dividend payable to
Spar. Notes payable to Spar were issued as payment of the dividend; the
principal was due and payable December 31, 1995, with interest payable quarterly
at prime plus 2%. Interest expense on the notes totaled $2,649,000 and
$2,314,000 in 1995 and 1994, respectively. In December 1995, the notes payable
to Spar were contributed to the Company's equity.
From time to time, the Company contracts with various companies affiliated with
Spar on terms comparable to those with third parties.
F-21
<PAGE>
7. Credit Agreements
The Company's cash needs, not internally funded by operations, have been funded
by a revolving line of credit arrangement from Spar. Outstanding advances bear
interest at LIBOR plus 7/8% (7.3% at December 31, 1997); interest is due
quarterly. Because the borrowings under this revolving loan with Spar have no
defined maturity terms, the balance is classified as a long-term liability in
the accompanying consolidated balance sheets. Interest expense on the revolving
loan from Spar was $3,173,000, $3,705,000 and $2,167,000 in 1997, 1996 and 1995,
respectively.
In April 1997, Spar finalized a three-year term credit facility with a syndicate
of Canadian chartered banks ("the Syndicate"), which was amended in early 1998,
for borrowings up to $52.5 million with the Company as a co-borrower under this
facility. This credit facility is subject to compliance with certain financial
covenants by Spar. Borrowings under the facility are available at U.S. base
rates and U.S. LIBOR rates plus the applicable grid pricing percentage (6.3% at
December 31, 1997). In addition, through the Syndicate, the Company and Spar
have a $28 million facility available for letters of credit or letters of
guarantee. Borrowings under the credit facilities are secured by substantially
all of the assets of the Company and Spar. As of December 31, 1997, the Company
had borrowed $12 million under this facility. The proceeds were used to reduce
the borrowings outstanding under the revolving line of credit with Spar. In
connection with this term credit facility, certain financing fees amounting to
$930,000 were allocated by Spar to the Company of which $287,000 has been
charged to interest expense as of December 31, 1997.
8. Commitments and Contingencies
Lease Obligations
The Company leases its facilities and certain equipment under noncancelable
operating leases. Rent expense is recognized on a straight-line basis over the
life of the related leases and totaled $1,955,000, $1,625,000 and $1,365,000 for
1997, 1996 and 1995, respectively. In April 1997, the Company signed a
build-to-suit lease for new corporate headquarters for occupancy in early 1998.
The minimum payments pursuant to this seven year operating lease are included
below. The Company has the option to extend the new lease beyond the initial
seven-year term.
F-22
<PAGE>
8. Commitments and Contingencies (continued)
Following is a schedule of future minimum payments under non-cancelable
operating leases as of December 31, 1997 (in thousands):
<TABLE>
<S> <C>
1998 $ 2,508
1999 3,883
2000 2,945
2001 2,773
2002 2,912
Thereafter 6,545
--------
$21,566
--------
--------
</TABLE>
The Company is attempting to secure sublease arrangements for facilities
representing approximately $7.0 million of the noncancelable operating lease
commitments identified in the table above. No assurance can be provided that the
Company will be able to consummate such sublease arrangements.
Litigation
In August 1997, subsequent to the resolution of a dispute pursuant to which a
customer of the Company's discontinued SGA Division signed a final acceptance
certificate and a general release of all claims against the Company, such
customer filed a civil lawsuit against the Company claiming damages in excess of
$5 million. The Company believes that this case has no merit, intends to
vigorously defend the action, and believes that the ultimate resolution of this
matter will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
The Company is also party to various legal proceedings arising in the normal
course of business. In management's opinion, the outcome of these proceedings
will not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
The Company has entered into several agreements which may require payment of
certain royalties and/or license fees on revenues from the future use or sale of
the technology developed under such agreements.
F-23
<PAGE>
8. Commitments and Contingencies (continued)
Purchase Obligations
The Company generally has commitments with certain suppliers and subcontract
manufacturers to purchase certain components and estimates its non-cancelable
obligations to be approximately $5.0 to $8.0 million at any given time.
In addition, the Company was committed to capital expenditures of approximately
$2.2 million as of December 31, 1997 in connection with plans to relocate to new
corporate headquarters.
Letters of Credit
The Company is contingently liable under letters of credit in the amount of
approximately $2.5 million to guarantee liabilities accrued in the accounts.
9. Business Segment Information
The Company's continuing operations have been classified into two business
segments previously described in Note 1: the Satellite Products Division
(satellite modems and earth stations), and the Broadband Products Division
(broadband products).
F-24
<PAGE>
9. Business Segment Information (continued)
Summarized financial information by business segment is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Revenue:
SPD $50,124 $49,449 $64,356
BPD 5,799 11,079 5,858
----------------------------------------------------
$55,923 $60,528 $70,214
----------------------------------------------------
----------------------------------------------------
Operating income (loss):
SPD $ 6,633 $ 2,653 $ (3,692)
BPD (7,057) (5,965) 816
Restructuring costs (3,500) -- --
----------------------------------------------------
$ (3,924) $ (3,312) $ (2,876)
----------------------------------------------------
----------------------------------------------------
Depreciation and amortization:
SPD $ 3,658 $ 3,276 $ 7,428
BPD 400 245 23
----------------------------------------------------
$ 4,058 $ 3,521 $ 7,451
----------------------------------------------------
----------------------------------------------------
Capital expenditures:
SPD $ 753 $ 1,637 2,091
BPD 368 546 674
----------------------------------------------------
$ 1,121 $ 2,183 $ 2,765
----------------------------------------------------
----------------------------------------------------
Total assets:
SPD $19,907 $21,146 $21,728
BPD 2,699 3,616 3,519
Net assets of discontinued operations -- 26,099 28,140
Corporate 9,237 12,169 7,671
----------------------------------------------------
$31,843 $63,030 $61,058
----------------------------------------------------
----------------------------------------------------
</TABLE>
Certain corporate administrative expenses are allocated to segments based upon
the nature of the expense.
F-25
<PAGE>
10. Restructuring Costs (continued)
In November 1997, the Company announced a corporate restructuring and cost
cutting initiative, and provided a restructuring charge of $3,500,000. Included
in this restructuring charge was approximately $2,454,000 in termination
benefits for 80 individuals in the technical, sales and administrative staff.
The remaining balance of the charge was comprised of the remaining lease
commitment of $625,000 and equipment to be disposed of with a net book value of
$421,000. As of December 31, 1997, the remaining balance in the restructure
accrual approximates $2,486,000 which comprises remaining termination benefits,
lease commitments and equipment to be disposed of.
11. Discontinued Operations
Components Division
On May 23, 1997, the Company completed the sale of certain assets and
liabilities of its broadband components ("Components") business for cash
proceeds of $37.7 million and contingent proceeds of $11.5 million to be based
upon the fiscal 1998 and 1999 revenue of the business sold. The Company sold
certain inventory, equipment and intellectual property and the purchaser assumed
certain employee related liabilities and warranty commitments. The net book
value of assets transferred to the purchaser was approximately $4.3 million. The
results of the Components business have been classified as discontinued
operations in the accompanying financial statements. Components revenue
accounted for $6.8 million, $37.9 million and $90.2 million in 1997, 1996 and
1995, respectively. Operating expenses of the discontinued operations include
specifically identifiable research and development and sales and marketing
expenses and certain allocated general and administrative expenses, including a
portion of management salaries and related costs, which are not expected to be
incurred subsequent to the discontinuance. Such allocated general and
administrative expenses aggregated approximately $172,000, $1,700,000 and
$2,000,000 in 1997, 1996 and 1995, respectively.
The proceeds received in connection with this transaction were used to reduce
$36.4 million of the revolving line of credit from the parent company.
SGA Division
In December 1997, the Company's Board of Directors approved a strategic plan
which included the divestiture of the SGA division. The results of the SGA
division have been classified as discontinued operations in the accompanying
financial statements. SGA revenue accounted for $29.8, $47.4 million and $23.6
million in 1997, 1996 and 1995, respectively. Operating expenses of the
discontinued operations include specifically identifiable research and
development and sales and marketing expenses and certain
F-26
<PAGE>
11. Discontinued Operations (continued)
allocated general and administrative expenses, including a portion of management
salaries and related costs, which are not expected to be incurred subsequent to
discontinuance. Such allocated general and administrative expenses aggregated
approximately $4,461,000, $3,282,000 and $1,384,000 in 1997, 1996 and 1995,
respectively.
On April 16, 1998, the Company completed a definitive agreement to sell the SGA
business to NSI Network Sciences International Ltd. (NSI) for cash proceeds of
$3,050,000, subject to certain adjustments. This agreement provides that the
effective date of the transaction is to be April 1, 1998 and is expected to
close in June 1998. NSI will acquire substantially all of the assets,
principally trade accounts receivable, inventory and equipment, and certain
liabilities of the SGA business. The carrying amount of the net assets to be
acquired by NSI as of March 31, 1998 approximates $4.8 million (unaudited). The
loss on disposal of the SGA division is comprised principally of three
components: (i) obligations of the SGA division not assumed by NSI aggregating
approximately $8.0 million; (ii) operating losses of the SGA division for the
period from the measurement date to the estimated date of closing aggregating
approximately $5.0 million; and (iii) the estimated difference between the net
proceeds of the sale and the carrying value of the SGA division assets as of the
closing date of the sale. It is at least reasonably possible that the NSI
transaction may not ultimately be consummated and, in that event, the Company
may incur additional costs up to $2.0 million with respect to the discontinuance
of the SGA division.
The net assets and liabilities related to discontinued operations consist of:
<TABLE>
<CAPTION>
December 31,
1997 1996
----------------------------------
<S> <C> <C>
Accounts receivable, net $ 3,618 $30,016
Inventory 5,121 11,244
Property and equipment, net 445 3,439
Other assets 338 786
Accounts payable and accrued liabilities (10,488) (19,386)
Loss on disposal of the SGA division (14,300) --
----------------------------------
Total $(15,266) $26,099
----------------------------------
----------------------------------
</TABLE>
F-27
<PAGE>
ComStream Holdings, Inc.
Unaudited Condensed Interim Consolidated Financial Statements
Nine-month periods ended September 30, 1998 and 1997
Contents
<TABLE>
<CAPTION>
<S> <C>
Unaudited Condensed Interim Consolidated Financial Statements
Consolidated Balance Sheet....................................................................................F-29
Consolidated Statements of Operations.........................................................................F-30
Consolidated Statements of Cash Flows.........................................................................F-31
Notes to Unaudited Condensed Interim Consolidated Financial Statements........................................F-32
</TABLE>
F-28
<PAGE>
ComStream Holdings, Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
September 30,
1998
-------------
<S> <C>
Current Assets:
Cash & cash equivalents....................................... $ 344
Accounts receivable, net...................................... 5,336
Inventories................................................... 5,926
Prepaids and other current assets............................. 565
------------
Total current assets....................................... 12,171
------------
Property and equipment--net..................................... 6,493
Other Assets:
Goodwill...................................................... 3,701
Other assets.................................................. 416
------------
Total other assets......................................... 4,117
------------
Total assets............................................... $ 22,781
------------
------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable--trade....................................... $ 4,141
Accrued liabilities........................................... 4,868
Net liabilities and discontinued operations................... 1,275
Taxes payable................................................. 546
------------
Total current liabilities................................. 10,830
------------
Obligations under capital leases-LT Portion..................... 83
------------
Total liabilities......................................... 10,913
------------
Stockholders' Equity:
Common stock and additional capital........................... 115,737
Accumulated deficit........................................... (103,869)
------------
Total stockholders' equity................................ 11,868
------------
Total liabilities and stockholders' equity................ $ 22,781
------------
------------
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
interim consolidated financial statements.
F-29
<PAGE>
ComStream Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, September 30,
1998 1997
------------------ -----------------
<S> <C> <C>
Revenue .............................................. $ 29,851 $ 41,196
Cost of revenue ...................................... 21,382 24,487
------------------ -----------------
Gross Profit ......................................... 8,469 16,709
Operating Expenses:
Selling and marketing .............................. 5,350 5,055
Research and development ........................... 7,227 6,054
General and administrative ......................... 3,877 5,437
Amortization of intangible assets .................. 645 642
------------------ -----------------
Total Operating Expenses ............................. 17,099 17,188
------------------ -----------------
Operating loss ....................................... (8,630) (479)
Interest expense (primarily with parent company) ..... 3,240 2,805
------------------ -----------------
Loss from continuing operations before income taxes .. (11,870) (3,284)
Provision for income taxes ........................... (76) (66)
------------------ -----------------
Loss from continuing operations ...................... (11,946) (3,350)
------------------ -----------------
Discontinued operations:
Loss from operations of Components division, net
of income taxes of $0 .......................... (6,811)
Gain on disposal of Components division, net of
income taxes of $0 ............................. 28,956
Loss from operations of Satellite Global Access
division, net of income taxes of $0 ............ (7,459)
------------------ -----------------
-- 14,686
------------------ -----------------
Net income (loss)..................................... $(11,946) $ 11,336
------------------ -----------------
------------------ -----------------
</TABLE>
The accompanying notes are an integral part of these unaudited condensed interim
consolidated financial statements.
F-30
<PAGE>
ComStream Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, September 30,
1998 1997
-------------------- ------------------
<S> <C> <C>
Operating activities
Net income (loss)........................................... $ (11,946) $ 11,336
Adjustments to reconcile net income to net cash
used in operating activities:
Discontinued operations .............................. -- (14,686)
Depreciation and amortization ........................ 2,309 2,416
Amortization of intangible assets .................... 645 642
Increase (decrease) in cash resulting from changes in:
Accounts receivable .............................. 4,222 (3,373)
Inventories ...................................... 236 2,654
Due from affiliate companies ..................... 1,249 585
Prepaid expenses and other current assets ........ 1,578 (1,415)
Accounts payable and accrued liabilities ......... (2,488) (696)
Due to affiliate companies ....................... (4,337) (554)
Income taxes payable ............................. (28) (59)
-------------------- ------------------
Net cash used in continuing operations ..................... (8,560) (3,150)
Net cash used in discontinued operations ................... (17,041) (3,163)
-------------------- ------------------
Net cash used in operating activities ...................... (25,601) (6,313)
-------------------- ------------------
Investing activities
Proceeds from the sale of discontinued operations .......... 3,050 37,672
Acquisition of property and equipment ...................... (1,615) (841)
Capital expenditures of discontinued operations ............ (250) (3,884)
Other ...................................................... 105 375
-------------------- ------------------
Net cash provided by investing activties ................... 1,290 33,322
-------------------- ------------------
Financing activties
Proceeds from revolving line of credit from parent company . 80,319 125,050
Repayment of revolving line of credit from parent company .. (64,393) (151,138)
Proceeds from bank indebtedness ............................ -- 27,000
Repayment of bank indebtedness ............................. (12,000) (27,000)
Contribution of additional capital from parent company ..... 20,000 --
-------------------- ------------------
Net cash provided by (used in) financing activties ......... 23,926 (26,088)
-------------------- ------------------
-------------------- ------------------
Increase (decrease) in cash ................................ (385) 921
Cash at beginning of period ................................ 729 2,377
-------------------- ------------------
-------------------- ------------------
Cash at end of period ...................................... $ 344 $ 3,298
-------------------- ------------------
-------------------- ------------------
</TABLE>
The accompanying notes are an integral part of these unaudited condensed interim
consolidated financial statements.
F-31
<PAGE>
ComStream Holdings, Inc.
Notes To Unaudited Condensed Interim Consolidated Financial Statements
1. Basis of Presentation
The unaudited condensed interim consolidated financial statements of ComStream
Holdings, Inc. ("Comstream" or the "Company") should be read in conjunction with
the Company's audited financial statements as of December 31, 1997 and 1996 and
the related consolidated statements of operations, stockholder's equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. Comstream was a wholly owned subsidiary of Spar Aerospace
Limited ("Spar").
2. Discontinued Operations
[a] Components Division
On May 23, 1997, the Company completed the sale of certain assets and
liabilities of its broadband components ("Components") business for cash
proceeds of $37.7 million and contingent proceeds of $11.5 million to be
based upon the fiscal 1998 and 1999 revenue of the business sold. The Company
sold certain inventory, equipment and intellectual property and the purchaser
assumed certain employee related liabilities and warranty commitments. The
results of the Components business have been classified as discontinued
operations in the accompanying consolidated financial statements. The
proceeds received in connection with this transaction were used to reduce
$36.4 million of the revolving line of credit from Spar.
[b] SGA Division
On June 26, 1998 the Company completed a definitive agreement to sell the
Satellite Global Access ("SGA") business to NSI Network Sciences
International Ltd. (NSI) for cash proceeds of $3,050,000, subject to certain
adjustments. NSI acquired substantially all of the assets, principally trade
accounts receivable, inventory and equipment, and the purchaser assumed
certain liabilities of the SGA business. The results of the SGA division have
been classified as discontinued operations in the accompanying consolidated
financial statements
3. Contribution of Additional Capital
In August 1998, Spar contributed $20.0 million of additional capital to the
Company. The Company used these funds to repay bank indebtedness and to
repay, in part, advances from Spar under a revolving line of credit
arrangement. Approximately $43.1 million of the revolving line of credit from
Spar could not be repaid and this amount has been forgiven by Spar. The
extinguishment of debt with Spar has been reflected as a contribution of
additional capital in these interim consolidated financial statements.
4. Subsequent Event
On October 15, 1998, Radyne Corp. completed the acquisition of all of the
outstanding shares of common stock of Comstream from Spar for an aggregate
purchase price of $17.0 million consisting of $10.0 million in cash and a $7.0
million convertible promissory note.
F-32
<PAGE>
Radyne Corp.
Pro Forma Condensed Combined Financial Statements (Unaudited)
The attached unaudited pro forma condensed combined balance sheet for
the nine months ended September 30, 1998 and statement of operations for the
nine months ended September 30, 1998 and year ended December 31, 1997 give
effect to the purchase by the Company of all of the outstanding shares of
common stock of Comstream as of the beginning of the periods presented, for
an aggregate purchase price of $17,000,000, of which $10 million was paid in
cash at the closing, using funds borrowed from the Company's controlling
shareholder, and $7 million will be payable up to nine months thereafter
pursuant to a note which is convertible into the Company's Common Stock,
under certain circumstances. Accordingly, the acquired assets and liabilities
were recorded at their estimated fair market value at the date of
acquisition. The pro forma condensed combined statements of operations
assume that the acquisition took place at the beginning of each period
presented and combine the Company's and Comstream's results of operations for
the year ended December 31, 1997 and the nine months ended September 30,
1998. The unaudited pro forma condensed combined balance sheet combines the
Company's balance sheet as of September 30, 1998 with Comstream's balance
sheet as of September 30, 1998, giving effect to the Acquisition as if it had
occurred on September 30, 1998.
Contents
<TABLE>
<S> <C>
Pro Forma Condensed Combined Balance Sheet as of September 30, 1998............................................F-34
Pro Forma Condensed Combined Statement of Operations for the Nine Month Period Ended September 30, 1998........F-35
Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 1997......................F-36
Notes to Pro Forma Condensed Combined Financial Statements.....................................................F-37
</TABLE>
F-33
<PAGE>
Radyne Corp.
Pro Forma Condensed Combined Balance Sheet
September 30, 1998 (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Radyne Comstream Pro Forma
Unaudited Unaudited Adjustments Notes Combined
--------- --------- ----------- ----- ----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash & Cash Equivalents $ 776 $ 344 $ -- $ 1,120
Restricted Cash 10,000 -- (10,000) a --
Accounts Receivable, net 2,198 5,336 7,534
Inventories 4,269 5,926 10,195
Prepaids and Other Current Assets 453 565 1,018
-----------------------------------------------------------------------
Total Current Assets 17,696 12,171 (10,000) 19,867
-----------------------------------------------------------------------
Property and Equipment - Net 1,488 6,493 (1,150) b 6,831
Other Assets:
Goodwill 3,701 (3,701) b 2,508
2,508 b
Purchased Technology 2,500 b 2,500
Other Assets 351 416 767
-----------------------------------------------------------------------
Total Other Assets 351 4,117 1,307 5,775
-----------------------------------------------------------------------
Total Assets $ 19,535 $ 22,781 $ (9,843) $ 32,473
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Liabilities and Stockholders'
Capital Deficiency
Current liabilities:
Notes payable under lines of credit $ 5,500 $ -- $ -- $ 5,500
Notes payable to affiliates-Current 15,618 15,618
Convertible promissory note payable to 7,000 a 7,000
Spar
Obligations under capital
leases-Current Portion 78 78
Accounts Payable - trade 1,022 4,141 300 b 5,463
Accrued Liabilities 1,124 4,868 (1,400) a 6,192
1,600 b --
Net liabilities of discontinued operations 1,275 (1,275) a --
Taxes payable 54 546 600
-----------------------------------------------------------------------
Total Current Liabilities 23,396 10,830 6,225 40,451
-----------------------------------------------------------------------
Obligations under capital leases-LT 38 83 121
-----------------------------------------------------------------------
Portion
Total Liabilities 23,434 10,913 6,225 40,572
-----------------------------------------------------------------------
Stockholders' Capital Deficiency:
Common Stock & Additional Paid-In 5,706 115,737 (115,737) a 5,706
Capital
Accumulated Deficit (9,605) (103,869) 103,869 a (13,805)
(4,200) c
-----------------------------------------------------------------------
Total Stockholders' Capital Deficiency (3,899) 11,868 (16,068) (8,099)
-----------------------------------------------------------------------
Total Liabilities and Stockholders' $ 19,535 $ 22,781 $ (9,843) $ 32,473
Capital Deficiency -----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
F-34
<PAGE>
RADYNE CORPORATION
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the nine month period ended September 30, 1998 (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Radyne Comstream Adjustments Notes Combined
------ --------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
Sales $ 9,974 $ 29,851 $ -- $ 39,825
Cost of sales 7,705 21,382 29,087
Gross Profit 2,269 8,469 -- 10,738
Operating Expenses:
Selling, general and administrative 2,373 9,227 11,600
Research and development 1,945 7,227 9,172
Amortization of intangible assets 171 645 (645) d 572
401 d
------------- ------------- ------------- -------------
Total Operating Expenses 4,489 17,099 (244) 21,344
------------- ------------- ------------- -------------
Operating income (loss) (2,220) (8,630) 244 (10,606)
Interest expense 569 3,240 (3,240) e 1,580
1,011 e
------------- ------------- ------------- -------------
Income (loss) from continuing operations
before income taxes $ (2,789) $ (11,870) $ 2,473 $ (12,186)
------------- ---------- ----------- -------------
------------- ---------- ----------- -------------
Loss per share $ (0.47) $ (2.05)
------------- -------------
------------- -------------
Weighted average number of common shares 5,931,346 5,931,346
outstanding ------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
F-35
<PAGE>
RADYNE CORP.
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1997 (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Radyne Comstream Adjustments Notes Combined
------ --------- ----------- ----- ---------
Audited Audited
------ -------
<S> <C> <C> <C> <C> <C>
Sales $ 13,446 $ 55,923 $ -- $ 69,369
Cost of sales 8,022 32,624 40,646
Gross Profit 5,424 23,299 -- 28,723
Operating Expenses:
Selling, general & administrative 4,242 14,620 18,862
Research and development 2,262 8,267 10,529
Amortization of intangible assets 836 (836) d --
535 d 535
Restructuring costs 3,500 3,500
------------- ------------ ------------ -------------
Total Operating Expenses 6,504 27,223 (301) 33,426
------------- ------------ ------------ -------------
Operating income (loss) (1,080) (3,924) 301 (4,703)
Interest expense 677 3,632 (3,632) e 2,025
1,348 e
Other Expense 98 98
------------- ------------ ------------ -------------
Income (loss) from continuing operations
before income taxes $ (1,757) $ (7,654) $ 2,585 $ (6,826)
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Loss per share $ (0.35) $ (1.36)
------------- -------------
------------- -------------
Weighted average number of common shares
outstanding 5,012,664 5,012,664
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
F-36
<PAGE>
Radyne Corp.
Notes To Unaudited Pro Forma Condensed Combined Financial Statements
(1) Basis of Accounting
On October 15, 1998, Radyne Corp. ("Radyne") completed the acquisition of all of
the outstanding shares of common stock of ComStream Holdings, Inc. ("Comstream")
from Spar Aerospace Limited ("Spar") for an aggregate purchase price of $17.0
million consisting of $10.0 million in cash and a $7.0 million convertible
promissory note.
The pro forma unaudited condensed combined balance sheet gives effect to the
acquisition as if the transaction had taken place on September 30, 1998 and
combines Radyne unaudited September 30, 1998 balance sheet amounts with
Comstream September 30, 1998 unaudited consolidated balance sheet amounts.
The pro forma unaudited condensed combined statement of operations for the year
ended December 31, 1997 is presented using the Radyne audited statement of
operations for the year ended December 31, 1997 combined with the Comstream
audited year ended December 31, 1997 consolidated statement of operations, as if
the transaction had taken place on January 1, 1997.
The pro forma unaudited condensed combined statement of operations for the nine
months ended September 30, 1998 is presented using the Radyne unaudited
statement of operations for the nine months ended September 30, 1998 combined
with the Comstream unaudited consolidated statement of operations for the nine
months ended September 30, 1998, as if the transaction had taken place on
January 1, 1998.
The pro forma condensed combined financial statements should be read in
conjunction with the audited financial statements and notes thereto of Radyne
and with the audited consolidated financial statements and notes thereto of
Comstream.
The pro forma combined statements of operations are not necessarily indicative
of the future results of operations of Radyne or the results of operations which
would have resulted had Radyne and Comstream been combined during the periods
presented. In addition, the pro forma results are not intended to be a
projection of future results.
(2) Pro Forma Condensed Combined Balance Sheet and Pro Forma Condensed
Combined Statement of Operations
The accompanying pro forma adjustments reflect adjustments for the following
items:
a) Reduction of Radyne's Restricted Cash balance of $10,000,000 for the
cash remitted to Spar and recognition of the $7,000,000 convertible
promissory note. This note is convertible to common shares of the
Company at the rate of $3.73 per common share. Accrued liabilities and
net liabilities of discontinued operations were reduced by $1,400,000
and $1,275,000 respectively as Spar has provided Radyne with an
indemnity related to certain liabilities previously recorded in the
accounts of Comstream. The common stock and additional paid-in capital
and retained earnings of Comstream were eliminated in their entirety
as a result of using the "purchase method" of accounting.
b) Radyne Corp. paid a total of $17,000,000 for assets with a fair value
of $14,492,000 resulting in an excess of the purchase price over the
fair value of the net assets acquired (goodwill) of $2,508,000. The
fair value of the purchased technology and the in-process research and
development has been determined through an independent valuation
utilizing the Discounted
F-37
<PAGE>
Cash Flow method within the Income approach. This valuation considered
the commercial profits and growth prospects of the existing product
lines of Comstream and of the products in development for which
technological feasibility had not been attained as of the transaction
date. A summary of the allocation of fair values is as follows:
<TABLE>
<CAPTION>
Description Fair Value
----------- ----------
<S> <C>
Cash $ 344,000
---------------------------------------------------------------------------------
Accounts receivable 5,336,000
---------------------------------------------------------------------------------
Inventory 5,926,000
---------------------------------------------------------------------------------
Prepaids and other current assets 565,000
---------------------------------------------------------------------------------
Property and equipment 5,343,000
---------------------------------------------------------------------------------
Other assets 416,000
---------------------------------------------------------------------------------
Purchased technology 2,500,000
---------------------------------------------------------------------------------
In-process research and development 4,200,000
---------------------------------------------------------------------------------
Assumed liabilities (8,538,000)
---------------------------------------------------------------------------------
Accrued severance costs (1,600,000)
--------------
---------------------------------------------------------------------------------
Total fair value 14,492,000
---------------------------------------------------------------------------------
Consideration exchanged 17,000,000
--------------
---------------------------------------------------------------------------------
Excess of purchase price over fair value of assets $ 2,508,000
acquired --------------
--------------
---------------------------------------------------------------------------------
</TABLE>
c) The fair value of acquired in-process research and development of
$4,200,000 is expected to be expensed in the period in which the
acquisition is completed. This amount is shown as an increase in the
accumulated deficit in the accompanying pro forma condensed combined
balance sheet. It has not been shown as an expense in the
accompanying pro forma condensed combined statements of operations.
d) Amortization expense related to goodwill on Comstream's balance sheet
has been eliminated. Amortization of purchased technology and goodwill
related to the Comstream acquisition has been recorded based on
estimated useful lives of 6.25 years and 15 years, respectively.
e) Interest expense incurred by Comstream, primarily related to
borrowings pursuant to a revolving line of credit arrangement with
Spar has been eliminated. Interest expense has been recorded as if the
companies had been combined during the same periods after giving
effect to the $7,000,000, 8% convertible promissory note due to Spar
and the $10,000,000, 6.375% note payable to Stetsys US, Inc. Interest
expense has also been adjusted to reflect the 1.0% facility fee
payable to Citibank, N.A. in connection with the increase in the
uncommitted line of credit facility with Citibank, N.A. credit from
$5,500,000 to $20,500,000.
F-38
<PAGE>
Exhibit 4.1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, TRANSFERRED PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS SO REGISTERED OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE.
RADYNE CORP.
CONVERTIBLE PROMISSORY NOTE
$7,000,000.00 Irvine, California
October 15, 1998
RADYNE CORP., a New York corporation (the "Company"), for value received
hereby promises to pay to SPAR AEROSPACE LIMITED, or its registered assigns,
the sum of Seven Million Dollars ($7,000,000.00), or such lesser amount as
shall then equal the outstanding principal amount hereof and any unpaid
accrued interest hereon, as set forth below. Unless sooner paid, such
amounts shall be due and payable on the Maturity Date, which shall be the
earlier to occur of (i) July 15, 1999, (ii) the consummation of a public or
private equity or debt offering by the Company, excluding bank debt,
affiliate debt, employee stock option grants and exercises and the offering
described in Section 7(e) Company (an "Equity Offering") (PROVIDED that in
the event the Equity Offering is in an amount less than the full principal
and interest then outstanding hereunder, the debt shall mature in an amount
no greater than the net amount of the Equity Offering) or (iii) when declared
due and payable by the Holder upon the occurrence of an Event of Default (as
defined below). Payment of all amounts due hereunder shall be made by wire
transfer to a bank account designated in writing by the Holder at least three
business days prior to payment. This Note is issued pursuant to the
provisions of Section 2.3 of that certain Stock Purchase Agreement, dated as
of August 28, 1998, by and between the Company and Spar Aerospace Limited
(the "Stock Purchase Agreement").
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees.
1. DEFINITIONS. As used in this Note, the following terms, unless the
context otherwise requires, have the following meanings:
(a) "Company" includes any corporation which shall succeed to or
assume the obligations of the Company under this Note.
(b) "Holder," when the context refers to a holder of this Note, shall
mean any person who shall at the time be the registered holder of this
Note. As of the date hereof the Holder is Spar Aerospace Limited
<PAGE>
2. INTEREST. The principal amount of this Note shall bear simple
interest, payable on the Maturity Date, at 8% per annum on the principal of this
Note outstanding (the "Note Rate") during the period beginning on the date of
issuance of this Note and ending on the date that the principal amount hereof is
paid in full. In the event of a partial or full conversion of the Note,
interest shall accrue on the converted amount through the date of the
conversion. Following the occurrence of an Event of Default (as defined below),
the Note Rate shall increase to and shall thereafter be 12%. Interest shall be
computed daily at the Note Rate on the basis of the actual number of days in
which all or any portion of the principal amount hereof is outstanding computed
on the basis of a 360 day year.
3. EVENTS OF DEFAULT. If any of the events specified in this Section 3
shall occur (herein individually referred to as an "Event of Default"), the
Holder of the Note may, so long as such condition exists, declare the entire
principal and unpaid accrued interest hereon immediately due and payable, by
notice in writing to the Company:
(a) Default in the payment of the principal and unpaid accrued
interest of this Note when due and payable if such default is not cured by
the Company within five (5) days after the Holder has given the Company
written notice of such default;
(b) The institution by the Company of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by it to institution of bankruptcy
or insolvency proceedings against it or the filing by it of a petition or
answer or consent seeking reorganization or release under the federal
Bankruptcy Act, or any other applicable federal or state law, or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee or other similar official of the
Company, or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the taking of corporate
action by the Company in furtherance of any such action;
(c) If, within sixty (60) days after the commencement of an action
against the Company (and service of process in connection therewith on the
Company) seeking any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such action shall not have been resolved in favor of the
Company or all orders or proceedings thereunder affecting the operations or
the business of the Company stayed, or if the stay of any such order or
proceeding shall thereafter be set aside, or if, within sixty (60) days
after the appointment without the consent or acquiescence of the Company of
any trustee, receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company, such appointment shall
not have been vacated;
(d) If the Company merges or consolidates with any person; or sells,
leases (as lessor) or otherwise disposes of all or substantially all of the
consolidated assets of the Company, or sells, leases (as lessor) or
otherwise dispose of assets representing more than 25% of the corporation's
total consolidated assets in any three-month period (other
A-2
<PAGE>
than sales or other dispositions of inventory in the ordinary course of
business); or liquidates or dissolves;
(e) If Stetsys Pte. Ltd. ceases to have the voting power to elect a
majority of the Company's board of directors;
(f) Default in the payment, whether at maturity or otherwise, of any
debt of the Company in an aggregate amount exceeding $3,000,000 and the
lender shall have declared an event of default to be existing under the
relevant loan agreement or agreements.
4. PREPAYMENT. The Company shall have the right, exercisable from time
to time on ten (10) days written notice to the Holder, to call this Note,
without prepayment penalty, and prepay the entirety or any portion of the
outstanding principal amount, together with all accrued interest thereon.
5. CONVERSION. Holder shall have the right (a) at any time to convert
20% of the original principal balance of the Note and (b) at any time after
the Maturity Date, prior to payment in full of the principal balance of this
Note, to convert the then outstanding balance of this Note in accordance with
the provisions of Section 6 hereof, in whole or in part, into shares (the
"Shares") of the Company's common stock, par value $.002 per share (the
"Common Stock"). The number of Shares into which this Note may be converted
shall be determined by dividing the aggregate principal amount and all
accrued but unpaid interest to the date of conversion by $3.73 (the
"Conversion Price"), as such Conversion Price may be adjusted from time to
time in accordance with the terms of Section 7 hereof. Upon conversion of
this Note, the Company shall appoint Spar Representatives to the Board of
Directors of the Company in a number commensurate with Holder's percentage of
ownership of the Company.
6. MECHANICS AND EFFECT OF CONVERSION. No fractional Shares shall be
issued upon conversion of this Note. In lieu of the Company issuing any
fractional shares to the Holder upon the conversion of this Note, the Company
shall pay to the Holder the amount of outstanding principal and interest that is
not so converted. Upon any partial conversion of this Note, the Holder shall
surrender this Note and shall receive a new Note for the remaining principal
amount. Upon the full conversion of this Note, the Holder shall surrender this
Note, duly endorsed, at the principal office of the Company. At its expense,
the Company shall, as soon as practicable thereafter, issue and deliver to such
Holder at such principal office a certificate or certificates for the number of
Shares to which the Holder shall be entitled upon such conversion (bearing such
legends as are required by applicable state and federal securities laws in the
opinion of counsel to the Company), together with any other securities and
property to which the Holder is entitled upon such conversion under the terms of
this Note, including a check payable to the Holder for any cash amounts payable
as described above. Upon conversion of this Note, the Company shall be forever
released from all its obligations and liabilities under this Note, except that
the Company shall be obligated to pay the Holder, within ten (10) days after the
date
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of such conversion, any interest accrued and unpaid or unconverted to and
including the date of such conversion, and no more. Concurrently with the
delivery of the Shares, the Company shall deliver to the Holder an executed
counterpart of the Registration Rights Agreement attached hereto as Exhibit A.
7. ADJUSTMENTS TO CONVERSION PRICE.
(a) If outstanding shares of the Common Stock of the Company shall be
subdivided into a greater number of shares, or a dividend in Common Stock or
other securities of the Company convertible into or exchangeable for Common
Stock (in which latter event the number of shares of Common Stock issuable upon
the conversion or exchange of such securities shall be deemed to have been
distributed) shall be paid in respect to the Common Stock of the Company, the
Conversion Price in effect immediately prior to such subdivision or at the
record date of such dividend shall, simultaneously with the effectiveness of
such subdivision or immediately after the record date of such dividend, be
proportionately reduced, and conversely, if outstanding shares of the Common
Stock of the Company shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall
simultaneously with the effectiveness of such combination, be proportionately
increased.
Any adjustment to the Conversion Price under this Section 7(a)
shall become effective at the close of business on the date the subdivision or
combination referred to herein becomes effective.
(b) In the event the Company at any time, or from time to time, shall
make or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Company other than shares of Common Stock or securities
convertible into or exchangeable for Common Stock, then and in each such event,
provision shall be made so that the Holder shall receive upon conversion of the
Note, in addition to the number of shares of Common Stock receivable thereupon,
the amount and kind of securities of the Company which it would have received
had the Note been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities receivable by them as aforesaid
during such period, giving application to all adjustments called for during such
period under this Section 7 with respect to the rights of the Holder.
(c) In the event of any capital reorganization, any reclassification
of the Common Stock (other than a change in par value or as a result of a stock
dividend, subdivision, split-up or combination of shares), the consolidation or
merger of the Company with or into another person (collectively referred to
hereinafter as "Reorganizations"), the Holder shall thereafter be entitled to
receive, and provision shall be made therefor in any agreement relating to a
Reorganization, upon conversion of the Note, the kind and number of shares of
Common Stock or other securities or property (including cash) of the Company, or
other corporation resulting from such consolidation or surviving such merger, to
which a holder of the number of shares of the Common Stock of the Company which
the Note entitled the Holder to convert to immediately prior to such
Reorganization would have been entitled to receive with respect to
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<PAGE>
such Reorganization; and in any such case appropriate adjustment shall be made
in the application of the provisions herein set forth with respect to the rights
and interests thereafter of the Holder, to the end that the provisions set forth
herein (including the specified changes and other adjustments to the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares, other securities or property thereafter receivable upon
conversion of the Note. The provisions of this Section 7(c) shall similarly
apply to successive Reorganizations.
(d) (i) If at any time or from time to time the Company shall
issue or sell Additional Shares of Common Stock (as hereinafter defined) other
than as a dividend or other distribution on any class of stock as provided in
Section 7(b) above and other than as a subdivision or combination of shares of
Common Stock as provided in Section 7(a) above, for a consideration per share
less than the then existing Conversion Price, then, and in each such case, the
then existing Conversion Price shall be reduced, as of the opening of business
on the date of such issuance or sale, to a price determined by dividing (1) an
amount equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to that issuance or sale (including as outstanding all shares
of Common Stock issuable upon conversion of the portion of the Note for which
the conversion price is being adjusted) multiplied by such Conversion Price then
in effect, and (B) the consideration, if any, received by the Company upon that
issuance or sale, by (2) the total number of shares of Common Stock outstanding
immediately after that issuance or sale (including as outstanding all shares of
Common Stock issuable upon conversion of the portion of the Note for which the
conversion price is being adjusted).
(ii) For the purpose of making any adjustment in the Conversion
Price or number of shares of Common Stock issuable upon conversion of the Note,
as provided above, the consideration received by the Company for any issue or
sale of securities shall:
(A) To the extent it consists of cash, be computed at
the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensations, discounts or concessions
paid or allowed by the Company in connection with such issuance or sale;
(B) To the extent it consists of property other than
cash, the consideration other than cash shall be computed at the fair market
value thereof as determined in good faith by the Board of Directors, at or
about, but as of, the date of the adoption of the resolution specifically
authorizing such issuance or sale, irrespective of any accounting treatment
thereof; and
(C) If Additional Shares of Common Stock, Convertible
Securities (as hereinafter defined) or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued or sold
together with other stock or securities or other assets of the Company for
consideration which covers both, the consideration received for the Additional
Shares of Common Stock, Convertible Securities or rights or options shall be
computed as that portion of the consideration so received which is reasonably
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<PAGE>
determined in good faith by the Board of Directors to be allocable to such
Additional Shares of Common Stock, convertible Securities or rights or options.
(iii) For the purpose of making any adjustment in the Conversion
Price provided in this Section 7(d), if at any time, or from time to time, the
Company issues any stock or other securities convertible into Additional Shares
of Common Stock (such stock or other securities being hereinafter referred to as
"Convertible Securities") or issues any rights or options to purchase Additional
Shares of Common Stock or Convertible Securities (such rights or options being
hereinafter referred to as "Rights"), then, and in each such case, if the
Effective Conversion Price (as hereinafter defined) of such Rights or
Convertible Securities shall be less than the Conversion Price in effect
immediately prior to the issuance of such Rights or Convertible Securities, the
Company shall be deemed to have issued at the time of the issuance of such
Rights or Convertible Securities the maximum number of Additional Shares of
Common Stock issuable upon exercise or conversion thereof and to have received
in consideration for the issuance of such shares an amount equal to the
aggregate Effective Conversion Price of such Rights or Convertible Securities.
For the purposes of this Section 7(d)(iii), "Effective Conversion Price" shall
mean an amount equal to the sum of the consideration, if any, received or
receivable by the Company with respect to each Additional Share of Common Stock
upon issuance of the Rights or Convertible Securities and upon their exercise or
conversion, respectively. No further adjustment of the Conversion Price
adjusted upon the issuance of such Rights or Convertible Securities shall be
made as a result of the actual issuance of Additional Shares of Common Stock on
the exercise of any such Rights or the conversion of any such Convertible
Securities. If any such Rights or the conversion privilege represented by any
such Convertible Securities shall expire without having been exercised, such
Conversion Price as adjusted upon the issuance of such Rights or Convertible
Securities shall be readjusted to the Conversion Price which would have been in
effect had such adjustment been made on the basis that the only Additional
Shares of Common Stock so issued were the Additional Shares of Common Stock, if
any, actually issued or sold on the exercise of such Rights or on the conversion
of such Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by the
Company for the granting of all such Rights, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities.
(e) "Additional Shares of Common Stock" as used in this Section 7
shall mean all shares of Common Stock issued by the Company, whether or not
subsequently reacquired or retired by the Company, other than (i) shares of
Common Stock issued upon the conversion of the Note, (ii) shares of Common Stock
issued in connection with an offering to existing shareholders of the Company
and employees of the Company announced on or before the closing date of the
Stock Purchase Agreement in which Stetsys US, Inc., a Delaware corporation, and
Stetsys Pte. Ltd., a Singapore corporation, will collectively purchase Common
Stock of the Company, (iii) shares of Common Stock issued in connection with an
Equity Offering the proceeds of which are used to repay all outstanding
principal and accrued but unpaid
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<PAGE>
interest on the Note; and (iv) shares issued upon the exercise of employee stock
options or underwriters' warrants.
(f) In each case of an adjustment or readjustment of the Conversion
Price or the number of shares of Common Stock or other securities issuable upon
conversion of the Note, the Company, at its expense, shall cause the Chief
Financial Officer of the Company to compute such adjustment or readjustment in
accordance with the provisions of this Note and prepare a certificate showing
such adjustment or readjustment, and shall mail such certificate, by first-class
mail, postage prepaid, to the registered Holder at the Holder's address as shown
on the Company's stock transfer books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (i) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued or sold,
(ii) the Conversion Price at the time in effect for the Note and (iii) the
number of Additional Shares of Common Stock and the type and amount, if any, of
other property which at the time would be received upon conversion of the Note.
Such notice may be given in advance of such adjustment or readjustment and may
be included as part of a notice required to be given pursuant to Section 7(g)
below.
(g) In the event the Company shall propose to take any action of the
type or types requiring an adjustment to the Conversion Price as set forth
herein, the Company shall give notice to the Holder in the manner set forth in
Section 14 below, which notice shall specify the record date, if any, with
respect to any such action and the date on which such action is to take place.
Such notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Conversion Price and the
number, kind or class of shares or other securities or property which shall be
deliverable upon the occurrence of such action or deliverable upon the
conversion of the Note.
8. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the Note,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect a conversion of the Note, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of the Note, the Company shall promptly seek such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose. In the event of the consolidation or merger of
the Company with another corporation where the Company is not the surviving
corporation, effective provisions shall be made in the certificate or articles
of incorporation, merger or consolidation, or otherwise of the surviving
corporation so that such corporation will at all times reserve and keep
available a sufficient number of shares of Common Stock or other securities or
property to provide for the conversion of the Note in accordance with the
provisions of this Section 8.
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<PAGE>
9. PAYMENT OF TAXES. The Company shall pay all taxes and other
governmental charges (other than any income or other taxes imposed upon the
profits realized by the recipient) that may be imposed in respect of the issue
or delivery of shares of Common Stock or other securities or property upon
conversion of the Note, except any tax or other charge imposed in connection
with any transfer involved in the issue and delivery of shares of Common Stock
or other securities in a name other than that of which the Note was registered.
10. COVENANTS.
(a) The Company shall, concurrently with the mailing thereof
to the Company's shareholders, provide the Holder with copies of all Annual
Reports and reports on Forms 10-K, 10-Q and 8-K prepared by the Company. The
Company shall also provide the Holder with copies of all Registration Statements
and Prospectuses prepared with respect to the Company.
(b) The Company will permit any representative designated by
the Holder upon reasonable notice and during normal business hours, to visit and
inspect any of the properties of the Company, examine the corporate and
financial records of the Company and make copies thereof or extracts therefrom,
and to discuss the affairs, finances and accounts of the Company with the
directors, officers, key employees and independent accountants of the Company
provided that no such representative shall unduly interfere with the normal
business and operations of the Company during such visit or inspection.
(c) The Company will perform and observe all of its
obligations to the Holder set forth in this Agreement, and all of its
obligations to holders of Registrable Securities (as defined in the Registration
Rights Agreement attached hereto as Appendix A) set forth in the Registration
Rights Agreement, as the foregoing may from time to time be amended.
(d) The Holder shall maintain the confidentiality of all
nonpublic information obtained by it from the Company; PROVIDED, that (a) the
Holder may, to the extent required by law, disclose such information in
connection with the sale or transfer of the Note (or the Common Stock issued
upon conversion thereof) if the Holder's transferee agrees in writing to be
bound by the provisions hereof and (b) after reasonable notice to the Company,
the Holder may disclose such information (i) at the request of any applicable
regulatory authority or in connection with an examination of the Company by any
such authority, (ii) pursuant to subpoena or other court process, (iii) when
required to-do so in accordance with the provisions of any applicable law, (iv)
to the Holder's independent auditors and other professional advisors provided
such persons acknowledge and agree to be bound by the Holder's confidentiality
obligations hereunder
(e) The Company shall not amend its certificate of
incorporation in a manner that adversely impacts or may adversely impact the
Holder without the prior written consent of the Holder.
11. ASSIGNMENT. The rights and obligations of the Company and the Holder
of this Note shall be binding upon and benefit the successors, assigns, heirs,
administrators and
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transferees of the parties. Holder agrees not to assign the Note to any direct
competitor of the Company or its affiliates.
12. WAIVER AND AMENDMENT. Any provision of this Note may only be amended,
waived or modified upon the written consent of the Company and the Holder.
13. TREATMENT OF NOTE. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.
14. NOTICE. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if telecopied or mailed by registered or
certified mail, postage prepaid, at the respective addresses of the parties set
forth in the Stock Purchase Agreement. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail or telecopied in the manner set forth in the Stock Purchase Agreement and
shall be deemed to have been received when delivered.
15. DISPUTE RESOLUTION. Any dispute between the Company and the Holder
shall be resolved in accordance with the dispute resolution provisions of the
Stock Purchase Agreement.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, excluding that body of law
relating to conflict of laws.
17. HEADING; REFERENCES. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except where otherwise indicated, all references herein to Sections refer to
Sections hereof.
IN WITNESS WHEREOF, the Company has caused this Note to be issued this
15th day of October, 1998.
RADYNE CORP.
By: /s/ R.C. Fitting
-------------------------------------
Name: R.C. Fitting
-----------------------------------
Its: President
------------------------------------
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<PAGE>
APPENDIX A
TO
CONVERTIBLE PROMISSORY NOTE
RADYNE CORP.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
__________, 199_ by and between RADYNE CORP., a New York corporation (the
"COMPANY"), and [__________] (the "PURCHASER").
RECITALS
A. The Company is the maker of that certain Convertible Promissory Note
dated as of ____________, 1998 (the "Note"), which Note is convertible into
Common Stock, par value $.002, of the Company (the "Common Stock");
B. The Purchaser has exercised its right to convert the Note to Common
Stock and concurrently with the execution of this Agreement the Company is
issuing to the Purchaser [__________] shares of Common Stock (the "Shares").
C. Pursuant to the terms of the Note, the Company is required to execute
and deliver this Agreement with the Shares.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission of the
United States or any other United States federal agency at the time
administering the Securities Act.
"HOLDER" shall mean the Purchaser, and its transferees or assigns as
permitted by SECTION 11 HEREOF, holding Registrable Securities or securities
convertible into or exercisable for Registrable Securities.
"REGISTRABLE SECURITIES" means (i) the Shares and (ii) any shares of
Common Stock issued or issuable in respect of the Shares upon any stock split,
stock dividend, recapitalization, or similar event. Shares shall only be
treated as Registrable Securities if they (A) have not been sold to or through a
broker or dealer or underwriter in a public distribution or a public securities
transaction, or (B) are not able to be sold in a single transaction exempt
pursuant to Rule 144(k) from the registration and prospectus delivery
requirements of the Securities Act
<PAGE>
so that all transfer restrictions and restrictive legends with respect thereto
are removed upon the consummation of such sale.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement by the Commission.
"REGISTRATION EXPENSES" shall mean all expenses, excluding Selling
Expenses (as defined below) except as otherwise stated below, incurred by the
Company in complying with SECTION 2, SECTION 3 and SECTION 4 hereof, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company and
reasonable fees and disbursements of one counsel for the Holder selected by the
Holder and approved by the Company (which consent shall not be unreasonably
withheld), Blue Sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holder. Such expenses shall be borne by the Holder.
2. DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. In the event the Company shall receive
a written request from Holders collectively holding at least twenty five percent
(25%) of the Registrable Securities on or after the maturity date of the Note
then held by all Holders of Registrable Securities at the time of such request
that the Company effect any registration, qualification or compliance with
respect to Registrable Securities having an aggregate proposed selling price of
not less than One Million Dollars ($1,000,000) (a "REGISTRATION NOTICE"), the
Company will, as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable Blue Sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request.
Notwithstanding the foregoing, the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this SECTION 2 (i) prior to the effective date of the Company's first registered
public offering of its stock or (ii) after the Company has effected one
registration pursuant to this SECTION 2 and such registrations have been
declared or ordered effective.
Subject to the foregoing clauses (i) and (ii), the Company shall file
a registration statement covering the Registrable Securities so requested to be
registered as soon as practicable,
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<PAGE>
after receipt of the request or requests of the Holder. Notwithstanding the
foregoing, the Company shall be entitled to defer for a reasonable period of
time, but not in excess of 120 days, the filing of any registration statement
otherwise required to be prepared and filed by it under this SECTION 2 if
(i) (A) the Company is at such time conducting or about to conduct an
underwritten public offering of its securities for its own account and the Board
of Directors of the Company determines in good faith that such offering by the
Company would be materially adversely affected by such registration requested by
the Holder(s), (B) the Company is pursuing an acquisition, merger,
reorganization, disposition or other similar transaction and the Board of
Directors of the Company determines in good faith that the Company's ability to
pursue or consummate such transaction would be materially adversely affected by
such registration requested by the Holder(s), or (C) the Company is in
possession of material nonpublic information concerning it or its business and
affairs and the Board of Directors of the Company determines in good faith that
the prompt public disclosure of such information in such registration requested
by the Holder(s) would have a material adverse effect on the Company; and (ii)
the Company so notifies the requesting Holder(s) within ten (10) days after the
Company's receipt of the Registration Notice from such Holder(s).
(b) UNDERWRITING. In the event that a registration pursuant to this
Section is for a registered public offering involving an underwriting, the
Company shall so advise the Holder as part of the notice given pursuant to
SECTION 2(A). In such event, the right of the Holder to registration pursuant
to this Section shall be conditioned upon the Holder's participation in the
underwriting arrangements required by this Section, and the inclusion of the
Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein. The Holder shall, together with
the Company, enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company, but subject
to the reasonable approval of the Holder. If the Holder disapproves of the
terms of any such underwriting, the Holder may elect to withdraw therefrom by
written notice to the Company and the managing underwriter. Any securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.
3. REGISTRATION ON FORM S-3.
(a) REQUEST FOR REGISTRATION. If at any timeon or after the maturity
date of the Note, or from time to time thereafter, the Holder requests that the
Company file a registration statement on Form S-3 (or any successor form to Form
S-3) for a public offering of Registrable Securities and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Holder may reasonably request. Notwithstanding the foregoing, the Company shall
not be obligated to take any action pursuant to Section 2 and SECTION 3 more
than one (1) time per calendar year.
Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practicable, after receipt of the request or requests of the Holder.
Notwithstanding the foregoing, the Company shall be entitled
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<PAGE>
to defer for a reasonable period of time, but not in excess of 120 days, the
filing or any other actions with respect to any registration statement otherwise
required to be prepared and filed by it under this SECTION 3 if (i) (A) the
Company is at such time conducting or about to conduct an underwritten public
offering of its securities for its own account and the Board of Directors of the
Company determines in good faith that such offering by the Company would be
materially adversely affected by such registration requested by the Holder(s),
(B) the Company is pursuing an acquisition, merger, reorganization, disposition
or other similar transaction and the Board of Directors of the Company
determines in good faith that the Company's ability to pursue or consummate such
transaction would be materially adversely affected by such registration
requested by the Holder(s), or (C) the Company is in possession of material
nonpublic information concerning it or its business and affairs and the Board of
Directors of the Company determines in good faith that the prompt public
disclosure of such information in such registration requested by the Holder(s)
would have a material adverse effect on the Company; and (ii) the Company so
notifies the requesting Holder(s) within ten (10) days after the Company's
receipt of the registration request from such Holder(s).
(b) UNDERWRITING. The substantive provisions of SECTION 2(B) shall
be applicable to each such registration initiated under this Section involving
an underwriting.
4. INCIDENTAL REGISTRATIONS.
(a) NOTICE OF REGISTRATION. If at any time on or after the maturity
date of the Note or from time to time thereafter the Company shall determine to
file a registration statement under the Securities Act for the general
registration of any of its securities to be sold for cash, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to stock option or other employee benefit plans or
(ii) a registration relating solely to a Commission Rule 145 transaction, the
Company will: (A) promptly give the Holders written notice thereof; and (B)
include in such registration (and any related qualification under Blue Sky laws
or other compliance), and in any underwriting involved therein, all the
Registrable Securities specified in a written request or requests, made within
twenty (20) days after receipt of such written notice from the Company, by the
Holder, subject to the terms of SECTION 4(B).
(b) UNDERWRITING. If the registration with respect to which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holder as a part of the written
notice given pursuant to SECTION 4(A). In such event, the right of the Holder
to registration pursuant to this Section shall be conditioned upon the Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. The Holder shall, together
with the Company, enter into an underwriting agreement in customary form with
the managing underwriter selected for such underwriting by the Company. If the
Holder disapproves of the terms of any such underwriting, the Holder may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
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<PAGE>
Notwithstanding any provision contained herein to the contrary, if the
managing underwriter or underwriters of the registration in which the Company
gives notice under this SECTION 4 shall advise the Company in writing that, in
its opinion, the total amount of Registrable Securities that the Holder(s)
request to include in such registration, together with any other securities with
similar incidental or piggyback registration rights (collectively, the
"REQUESTED SECURITIES") would materially reduce the amount of securities to be
offered by the Company or interfere in any material respect with the offer of
the Company's securities, then the amount and kind of Requested Securities to be
offered for the accounts of any Holder whose shares of Requested Securities were
requested to be included in such registration shall be reduced pro rata with
respect to each such Holder to the extent necessary to reduce the total amount
of securities to be included in such registration to the amount recommended by
such managing underwriter or underwriters; PROVIDED, HOWEVER, that such
reduction shall not include the following: (i) if the registration initially
occurs at the insistence of the Company, shares to be issued by the Company; or
(ii) if the registration occurs due to a demand registration right, including
the Demand Registration provided in SECTION 2, shares of the Holder(s) making
that demand.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section prior to the effectiveness of such registration whether or not the
Holder has elected to include Registrable Securities in such registration;
provided, however, if the Holder elects to use its demand registration right
pursuant to SECTION 2, then such registration shall be governed by SECTION 2 and
it shall not be terminated.
5. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date hereof, the Company will not, without the prior written consent of holders
of two-thirds of the Registrable Securities, enter into any agreement with any
holder or prospective holder of any securities of the Company which allows such
holder or prospective holder of any securities of the Company to include such
securities in any registration filed under SECTION 2 hereof, unless, under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not adversely affect the Holder's registration rights pursuant
to such SECTION 2.
6. EXPENSES OF REGISTRATION.
(a) REGISTRATION EXPENSES. The Company shall bear all Registration
Expenses incurred in connection with all registrations pursuant to SECTION 2 or
SECTION 4 hereof, and shall bear all Registration Expenses incurred in
connection with the first registration pursuant to SECTION 3. In the event the
Holder withdraws a Registration Notice, abandons a registration statement or,
following an effective registration pursuant to SECTION 2 hereof, does not sell
Registrable Securities, then all Registration Expenses in respect of such
Registration Notice shall be borne, at the Holder's option, either by the Holder
or by the Company (in which case, if borne by the Company, such withdrawn or
abandoned registration shall be deemed to be an effective registration for
purposes of SECTION 2(A)(II) hereof). The Holder shall bear all Registration
Expenses incurred in connection with the second and any subsequent registration
pursuant to SECTION 3.
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(b) SELLING EXPENSES. Unless otherwise stated, all Selling Expenses
relating to securities registered on behalf of the Holders shall be borne by the
Holders pro rata on the basis of the number of shares so registered.
7. REGISTRATION AND QUALIFICATION. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, the Company will
as promptly as is practicable:
(a) prepare and file with the Commission, as soon as practicable, and
use its best efforts to cause to become effective for a time period not to
exceed 90 days, a registration statement under the Securities Act relating to
the Registrable Securities to be offered on such form as the Holder, or if not
filed pursuant to SECTION 2 or SECTION 3 hereof, the Company, determines and for
which the Company then qualifies;
(b) prepare and file with the Commission such amendments (including
post-effective amendments) to such registration statement and the prospectus and
supplements used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
until the earlier of such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition set forth in
such registration statement or the expiration of ninety (90) days after such
registration statement becomes effective; provided that such ninety (90) day
period shall be extended in the case of a registration pursuant to SECTION 2 or
SECTION 3 hereof for such number of days that equals the number of days elapsing
from (i) the date the written notice contemplated by SECTION 7(F) hereof is
given by the Company to (ii) the date on which the Company delivers to the
Holder the supplement or amendment contemplated by SECTION 7(F) hereof;
(c) furnish to the Holder and to any underwriter of Registrable
Securities such number of conformed copies of such registration statement and of
each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or prospectus, and such
other documents, as the Holder or such underwriter may reasonably request;
(d) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of such registration statement at the
earliest possible moment;
(e) if requested by the Holder, (i) furnish to the Holder an opinion
of counsel for the Company addressed to the Holder and dated the date of the
closing under the underwriting agreement (if any) (or if such offering is not
underwritten, dated the effective date of the registration statement), and (ii)
use its best efforts to furnish to the Holder a "comfort" or "special
procedures" letter addressed to the Holder and signed by the independent public
accountants who have audited the Company's financial statements included in such
registration statement, in each such case covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in
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opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as the Holder may reasonably request and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements;
(f) immediately notify the Holder in writing (i) at any time when a
prospectus relating to a registration hereunder is required to be delivered
under the Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (ii)
of any request by the Commission or any other regulatory body or other body
having jurisdiction for any amendment of or supplement to any registration
statement or other document relating to such offering, and in either such case
(i) or (ii) at the request of the Holder prepare and furnish to the Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein, in light of the
circumstances under which they are made, not misleading;
(g) use its best efforts to list all such Registrable Securities
covered by such registration statement on each securities exchange and
inter-dealer quotation system on which a class of common equity securities of
the Company is then listed, and to pay all fees and expenses in connection
therewith; and
(h) upon the transfer of Shares by the Holder in connection with a
registration hereunder, furnish unlegended certificates representing ownership
of the Registrable Securities being sought in such denominations as shall be
requested by the Holder or the underwriters.
8. INDEMNIFICATION.
(a) BY THE COMPANY. The Company will indemnify the Holders, their
respective officers, directors, partners, legal counsel and accountants, and
each person controlling any Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Agreement, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statementor prospectus, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or any violation by the Company of the Securities Act or any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
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with any such registration, qualification or compliance, and the Company will
reimburse the Holder, its officers, directors and partners, each person
controlling the Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by the
Holder, controlling person or underwriter and stated to be specifically for use
therein. If the Holder is represented by counsel other than counsel for the
Company, the Company will not be obligated under this SECTION 8(A) to reimburse
legal fees and expenses of more than one separate counsel for the Holder.
(b) BY THE HOLDER. The Holder will indemnify the Company, its
directors, officers, legal counsel, accountants, each underwriter, if any, of
the Company's securities covered by such a registration statement, and each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statementor prospectus, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such directors, officers, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement or prospectus in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by the
Holder and stated to be specifically for use therein. Notwithstanding the
foregoing, the liability of the Holder under this subsection (b) shall be
limited in an amount equal to the net proceeds of the shares sold by the Holder,
unless such liability arises out of or is based on willful misconduct by the
Holder.
(c) PROCEDURE FOR INDEMNIFICATION. Each party indemnified under
paragraph (a) or (b) of this SECTION 8 (the "INDEMNIFIED PARTY") shall, promptly
after receipt of notice of any claim or the commencement of any action against
such Indemnified Party in respect of which indemnity may be sought, notify the
party required to provide indemnification (the "INDEMNIFYING PARTY") in writing
of the claim or the commencement thereof; provided that the failure of the
Indemnified Party to notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability which it may have to an Indemnified Party
on account of the indemnity agreement contained in paragraph (a) or (b) of this
SECTION 8, unless the Indemnifying Party was materially prejudiced by such
failure, and in no event shall relieve the Indemnifying Party from any other
liability which it may have to such Indemnified Party. If any such claim or
action shall be brought against an Indemnified Party, it shall notify the
Indemnifying Party thereof and the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After
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notice from the Indemnifying Party to the Indemnified Party of its election to
assume the defense of such claim or action, the Indemnifying Party shall not be
liable (except to the extent the proviso to this sentence is applicable, in
which event it will be so liable) to the Indemnified Party under this SECTION 8
for any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation; provided that each Indemnified Party shall have the right to
employ separate counsel to represent it and assume its defense (in which case,
the Indemnifying Party shall not represent it) if (i) upon the advice of
counsel, the representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them, or
(ii) in the event the Indemnifying Party has not assumed the defense thereof
within ten (10) days of receipt of notice of such claim or commencement of
action, and in which case the fees and expenses of one such separate counsel
shall be paid by the Indemnifying Party. If any Indemnified Party employs such
separate counsel it will not enter into any settlement agreement which is not
approved by the Indemnifying Party, such approval not to be unreasonably
withheld. If the Indemnifying Party so assumes the defense thereof, it may not
agree to any settlement of any such claim or action as the result of which any
remedy or relief, other than monetary damages for which the Indemnifying Party
shall be responsible hereunder, shall be applied to or against the Indemnified
Party, without the prior written consent of the Indemnified Party. In any
action hereunder as to which the Indemnifying Party has assumed the defense
thereof with counsel reasonably satisfactory to the Indemnified Party, the
Indemnified Party shall continue to be entitled to participate in the defense
thereof, with counsel of its own choice, but, except as set forth above, the
Indemnifying Party shall not be obligated hereunder to reimburse the Indemnified
Party for the costs thereof.
If the indemnification provided for in this Section shall for any
reason be unavailable to an Indemnified Party in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each Indemnifying Party shall, in lieu of indemnifying such Indemnified Party,
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and the Indemnified Party on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied by
the Indemnifying Party on the one hand or the Indemnified Party on the other,
the intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission, but not by
reference to any Indemnified Party's stock ownership in the Company. In no
event, however, shall the Holder of Registrable Securities be required to
contribute in excess of the amount of the net proceeds received by the Holder in
connection with the sale of Registrable Securities in the offering which is the
subject of such loss, claim, damage or liability. The amount paid or payable by
an Indemnified Party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this paragraph shall be deemed
to include, for purposes of this paragraph, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. No person guilty of
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fraudulent misrepresentation (within the meaning of Section 12(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
9. INFORMATION FROM THE HOLDERS. Notwithstanding any provision contained
herein to the contrary, it shall be a condition precedent to the obligation of
the Company to take any action pursuant to this Agreement in respect of the
Registrable Securities that are to be registered at the request of any Holder
thereof that (i) such Holder furnish to the Company such information regarding
the Holder as shall be necessary to enable the Company to comply with the
provisions hereof in connection with any registration, qualification or
compliance referred to in this Agreement, and (ii) such Holder deliver and
perform under any underwriting and selling shareholder agreements as may be
reasonably requested by the underwriters.
10. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission that may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT");
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) Furnish to any Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as the Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the Holder
to sell any such securities without registration.
11. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
register securities under SECTION 2, SECTION 3 or SECTION 4 may be assigned in
connection with any transfer or assignment by the Holder of Registrable
Securities provided that: (a) such transfer may otherwise be effected in
accordance with applicable securities laws; (b) such transfer is effected in
compliance with the restrictions on transfer contained in this Agreement and in
any other agreement between the Company and the Holder; and (c) such assignee or
transferee acquires at least 25% of the Registrable Securities then outstanding
and shall execute a counterpart of this Agreement whereby such assignor or
transferee agrees to be bound by the terms of this Agreement and assumes all of
the obligations of the transferring Holder hereunder.
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No transfer or assignment will divest the Holder or any subsequent owner of such
rights and powers unless all Registrable Securities are transferred or assigned.
12. TERMINATION. This Agreement shall terminate at such time as all
Registrable Securities held by the Holders constitute less than one percent (1%)
of the voting securities of the Company (on an as-converted basis) and can be
sold pursuant to Rule 144, other than Rule 144(k), within a consecutive three
(3) month period without compliance with the registration requirements of the
Securities Act. The respective indemnities, representations and warranties of
the Purchaser and the Company shall survive such termination.
13. MARKET STAND-OFF. If requested by an underwriter of securities of the
Company, each Holder of Registrable Securities shall not sell or otherwise
transfer or dispose of any Registrable Securities held by such Holder during the
one-hundred twenty (120) day period following the effective date of a
registration statement; provided, however, that such agreement shall apply only
to the first registration statement covering the offered securities to be sold
on the Company's behalf to the public in an underwritten offering.
14. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the State of New York without given effect to the conflicts
of law principles thereof.
(b) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holder of
at least two-thirds (2/3) of the Registrable Securities, voting as a class. Any
amendment or waiver effected in accordance with this paragraph will be binding
upon the Company, each holder of any securities purchased under this Agreement
at the time outstanding (including securities into which such securities are
convertible), and any transferee of such securities.
(c) SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
invalid, unenforceable or void, this Agreement shall continue in full force and
effect without said provision. In such event, the parties shall negotiate, in
good faith, a legal, valid and binding substitute provision which most nearly
effects the intent of the parties in entering into this Agreement.
(d) NOTICES. All notices and other communications required or
permitted hereunder shall be in writing (or in the form of a telex or telecopy
(confirmed in writing) to be given only during the recipient's normal business
hours unless arrangements have otherwise been made to receive such notice by
telex or telecopy outside of normal business hours) and shall be mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand,
messenger, or telex-or telecopy (as provided above) addressed (a) if to the
Purchaser, at such address as the Purchaser shall have furnished to the Company
in writing or (b) if to the Company, one copy should be sent to its principal
executive offices and addressed to the
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attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to the Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid, or, if
by telex or telecopy pursuant to the above, when received.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
(f) CAPTIONS. The section captions used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RADYNE CORP., a New York corporation
By:
-------------------------------------
Its:
------------------------------------
[ADD PURCHASER]
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Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-23159 and No. 333-67469) pertaining to the 1996 Incentive
Stock Option Plan of Radyne Corp. of our report dated February 16, 1998
(except for Note 11, as to which the date is April 16, 1998) with respect to
the consolidated financial statements of ComStream Holdings, Inc. included in
Radyne Corp.'s Form 8-K/A to be filed on or about December 24, 1998 related
to Radyne Corp.'s acquisition of ComStream Holdings, Inc.
/s/ Ernst & Young LLP
San Diego, California
December 18, 1998
