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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1999
REGISTRATION NO. 333-___
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
RADYNE COMSTREAM INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
NEW YORK 3665 11-2569467
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3138 EAST ELWOOD STREET
PHOENIX, ARIZONA 85034
(602) 437-9620
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ROBERT C. FITTING, CHIEF EXECUTIVE OFFICER
RADYNE COMSTREAM INC.
3138 EAST ELWOOD STREET
PHOENIX, ARIZONA 85034
(602) 437-9620
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------
COPIES TO:
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<S> <C>
JOHN B. WADE, III, ESQ. ROBERT S. KANT, ESQ.
KEVIN T. COLLINS, ESQ. JERE M. FRIEDMAN, ESQ.
Dorsey & Whitney LLP Greenberg Traurig
250 Park Avenue One East Camelback Road, Suite 1100
New York, New York 10177 Phoenix, Arizona 85012
(212) 415-9200 (602) 263-2300
</TABLE>
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, or a complete and legible
facsimile thereof, pursuant to item 11(a)(1) of this form, check the following
box: [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PRICE (1) PRICE(1) REGISTRATION FEE
- ----------------------------------------- -------------------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
Units, each consisting of one share of 1,725,000 Units (2) $4.25 per $7,331,250 $2,038
Common Stock, $.002 par value, and one Unit
Common Stock Purchase Warrant
Common Stock, $.002 par value, 1,725,000 Shares (3) (3) (3)
constituting part of the Units
Common Stock Purchase Warrants, 1,725,000 Warrants (3) (3) (3)
constituting part of the Units
Common Stock, $.002 par value, 1,725,000 Shares $5.31 per $9,159,750 $2,546
underlying Common Stock Purchase Share
Warrants
Representative's Purchase Option, to 150,000 Options $.00067 per $100.00 $0
purchase up to 150,000 shares of Common Option
Stock (4)
Common Stock, $.002 par value, issuable 150,000 Shares $5.31 per $796,500 $221
upon exercise of the Representative's Share
Purchase Option (5)
Total (6) $4,805
</TABLE>
- --------------------
(1) Estimated in accordance with Rule 457 solely for the purpose of calculating
the registration fee.
(2) Including 225,000 Units that may be purchased by the underwriters to cover
over-allotments.
(3) In accordance with rule 457, no separate registration fee is required.
(4) To be issued to the representative of the underwriters in this offering.
(5) Issuable upon exercise of the representative's purchase option at a price
of 125% of the initial public offering price.
(6) Pursuant to Rule 416, this registration statement also covers such
indeterminable additional shares as may become issuable as a result of
anti-dilution adjustments in accordance with the terms of the warrants and
the representative's purchase option. Total registration fee is rounded up
to the nearest whole dollar.
WE HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL WE SHALL FILE A FURTHER AMENDMENT
WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER
BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933
OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed without
notice, HD Brous & Co., Inc. may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities, and Radyne
Comstream Inc. is not soliciting offers to buy these securities, in any
jurisdiction where the offer or sale of these securities is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1999
PROSPECTUS
1,500,000 UNITS
[LOGO]
RADYNE COMSTREAM INC.
Radyne ComStream Inc. is offering 1,500,000 units, each consisting of one
share of its common stock and one warrant to purchase one share of common stock
at a price of $______ per share, subject to adjustment in certain circumstances.
The warrants will be exercisable at any time after they become separately
transferable, until five years from the date of this prospectus. The common
stock and warrants included in the units will not be separately transferable
until 180 days after the date of the prospectus or such earlier date as HD Brous
& Co., Inc. may determine. We may redeem the warrants for $0.01 per warrant upon
not less than 30 days' nor more than 60 days' notice mailed within five days
after the closing sales price of the common stock has equaled or exceeded $_____
for each of 20 consecutive trading days.
On November 8, 1999, our common stock closed at $3.50 per share on the OTC
Bulletin Board. Prior to this offering, there has been no market for the units
or warrants. We will apply to have the common stock, units, and warrants traded
on the Nasdaq SmallCap Market. We currently anticipate that the public offering
price of the units will be $4.25 per unit.
INVESTING IN THE UNITS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF
THIS PROSPECTUS.
--------------------
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PER UNIT TOTAL
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Public Offering Price................................
Underwriting Discount................................
Proceeds, before expenses, to Radyne ComStream.......
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriters an option to purchase up to an additional
225,000 units at the public offering price, less the underwriting discount, to
cover over-allotments. The underwriters may exercise this option at any time
within 45 days of the date of this prospectus. We expect that the units of
common stock and warrants will be ready for delivery in New York, New York on or
about _____________, ____.
<PAGE>
--------------------
HD BROUS & CO., INC.
--------------------
The date of this prospectus is ___________, 1999
<PAGE>
[Color picture consisting of four samples
of our print advertising, including depictions of our products.]
TRADEMARKS
Each trademark, trade name or service mark appearing in this prospectus
belongs to its respective holder. Our trademarks include ComStream'TM',
MediaCast'TM', IP Sat'TM' and IntelliCast'TM'.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully. All references to "we," "us,"
the "company," and "Radyne ComStream" mean Radyne ComStream Inc., including
subsidiaries and predecessors, except where it is clear that the term refers
only to Radyne ComStream Inc. Unless otherwise indicated, all information
contained in this prospectus assumes that the underwriters will not exercise
their over-allotment option and that none of the warrants included in the units
and no other outstanding options or rights, including the unexercised rights
offered in our rights offering, will be exercised. This prospectus contains
forward-looking statements, which involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this prospectus.
RADYNE COMSTREAM INC.
We design, manufacture, and sell equipment used in the ground-based portion
of satellite communication systems to receive data from, and transmit data to,
satellites. We also design, manufacture, and sell equipment used in cable
television systems. Our products are used in applications for telephone, data,
video and audio broadcast communications, private and corporate data networks,
Internet applications, and digital cable television. We serve customers in over
80 countries, including customers in the television broadcast, international
telecommunications, Internet service provider, and private communication
networks industries, as well as the U.S. government.
Our products have been utilized in major communications systems worldwide,
including the following:
The world's highest capacity domestic, digital satellite telephone network
- PT Telkom, Indonesia.
Italy's first digital telephone/data network - Telespacio, Italian
Railways.
Colombia's first alternate telecommunications network - Americatel.
Earth stations for the first international satellite links in China, India,
Pakistan, Brazil, Haiti, and Zambia.
The world's largest private satellite broadcast network - Reuters.
International Cablecasting Technologies - utilizing 40,000 digital audio
broadcast receivers.
We believe that the demand for the types of products that we sell will
increase as factors such as worldwide economic development, governmental
policies aimed at improving the telecommunications infrastructure in developing
countries, and the globalization of commerce contribute to an increased
worldwide requirement for communications services. We believe these factors will
continue to drive demand for communication systems, including those based on
satellite technology.
We also believe we are well-positioned to capitalize on this increased
demand for satellite communication systems as a result of our ability to
leverage our competitive advantages, which include the following:
Our experienced management group, which has extensive technological and
engineering expertise and excellent customer relationships. The members of
our management team have an average of over 20 years of experience in the
satellite communications industry.
Our expansive line of well-known, well-respected, off-the-shelf,
state-of-the-art equipment that enables us to meet our customers'
requirements.
-1-
<PAGE>
Our ability to custom design products for our customers' special
applications and to provide a one-stop shopping option to our customers.
Our ability to meet the complex satellite ground communications systems
requirements of our customers in diverse political, economic, and
regulatory environments in various locations around the world.
Our worldwide sales and service organization with the expertise to
successfully conduct business internationally through sales and service
offices staffed by our employees in most of our major markets throughout
the world, including Beijing, Singapore, London, Jakarta, and Amsterdam.
Our October 1998 acquisition of a significant competitor, ComStream
Holdings Inc. which:
significantly expanded our product line,
enhanced our sales force,
increased our market share, and
increased our profitability.
Our net sales increased to $21.1 million in the year ended December 31,
1998 from $13.4 million in the year ended December 31, 1997 and to $39.3 million
in the nine months ended September 30, 1999 from $10 million in the nine months
ended September 30, 1998. We had net income of approximately $914,000 in the
nine months ended September 30, 1999 compared to a net loss of $2.8 million in
the nine months ended September 30, 1998. These increases in sales and net
income resulted in large part from our acquisition of ComStream and our ability
to significantly reduce ComStream's operating expenses.
We are conducting a rights offering to our shareholders to purchase an
aggregate of 4,745,076 shares of our common stock. These rights are exercisable
at a purchase price of $3.73 per share. Through October 31, 1999, our
shareholders have purchased approximately 4,301,315 shares of common stock in
this rights offering at an aggregate purchase price of $16,043,904. Our
controlling shareholder, Singapore Technologies Pte Ltd through its
wholly-owned subsidiary, Stetsys Pte Ltd and Stetsys Pte Ltd's wholly-owned
subsidiary, Stetsys US, Inc. (Stetsys Pte and Stetsys US, collectively, ST),
purchased 4,300,800 shares of common stock issued in the rights offering at an
aggregate purchase price of approximately $16,000,000. As a result, ST now
owns approximately 94% of our outstanding common stock. We used the proceeds of
the rights offering to retire approximately $15,600,000 in short-term debt we
owed to ST.
MARKET OPPORTUNITY AND STRATEGY
We believe that growth in demand for ground-based satellite system
equipment is being driven by the growth of satellite-delivered communications
services. According to the Satellite Industry Indicators Survey: Selected 1998
Survey Results conducted by the Satellite Industry Association and Futron
Corporation, total revenues for providers of satellite communications services
grew at an 18% compound annual growth rate to $26.2 billion in 1998, from $21.2
billion in 1997 and $15.9 billion in 1996. The Satellite Industry Association
estimates that the global market for satellite ground equipment and integration
services was $15.2 billion in 1998.
We currently address a niche of the ground-based satellite equipment market
that our management estimates currently generates worldwide revenues of $800
million. We intend to expand our share in this market by:
targeting providers of broadcast communications services worldwide,
exploiting new applications for our existing satellite technology,
developing new products to exploit new market opportunities,
providing high-margin customized products to niche markets, and
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<PAGE>
pursuing future acquisitions of competitive or complementary companies.
We will use a significant portion of the net proceeds of this offering to
fund our research and development program so that we can develop new products
for satellite communication systems, including products designed to address
transmission requirements for the Internet and digital television industries.
Our corporate headquarters are located at 3138 E. Elwood Street, Phoenix,
Arizona 85034. Our telephone number is (602) 437-9620. We maintain an Internet
Website at www.radynecomstream.com. Information contained at our Website is not
a part of this prospectus.
THE OFFERING
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Securities offered by Radyne ComStream......................... 1,500,000 units, each unit consisting of one share of
common stock and one five-year common stock purchase
warrant.
Exercise of warrants .......................................... Each warrant is exercisable to purchase one share of
common stock at a price of $___, subject to adjustment
in certain circumstances, at any time after the
warrants become separately transferable, until five
years from the date of this prospectus. The common
stock and warrants included in the units will not be
separately transferable until 180 days after the date
of this prospectus or such earlier date as HD Brous &
Co. Inc. may determine.
Redemption of warrants ........................................ We may redeem the warrants for $0.01 per warrant upon
no less than 30 nor more than 60 days notice mailed
within five days after the closing sales price of the
common stock has equaled or exceeded $______ for each
of 20 consecutive trading days.
Common stock outstanding prior to this offering ............... 10,151,026 shares (1)
Securities to be outstanding after this offering .............. 11,651,026 shares of common stock and 1,500,000 warrants (1)
Use of proceeds ............................................... We intend to use the net proceeds of this offering to
fund our research and development program as a part of
our growth strategy, and for working capital. See "Use
of Proceeds."
Proposed Nasdaq SmallCap Market symbols:
Common Stock.............................................. "RADN"
Warrants.................................................. "RADNW"
</TABLE>
3
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Units..................................................... "RADNU"
</TABLE>
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(1) Based on 10,151,026 shares outstanding on September 30, 1999, the number of
shares to be outstanding after the offering excludes the following:
1,500,000 shares of common stock reserved for issuance upon the
exercise of the 1,500,000 warrants included in the units;
1,845,145 shares of common stock reserved for issuance under our 1996
Incentive Stock Option Plan;
1,000,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan; and
557,871 shares of common stock reserved for issuance upon the exercise
of rights granted in the rights offering (not including rights
exercised through September 30, 1999).
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the restated consolidated financial statements and the related
notes included elsewhere in this prospectus.
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
----------------- --------------- ----------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
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<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues................................ $13,447 $21,112 $9,974 $39,262
Gross profit.................................. 5,425 5,303 2,269 18,171
Selling, general and administrative expense... 4,242 5,531 2,544 9,139
Research and development expenses............. 2,262 4,296 1,945 6,730
Total operating expenses...................... 6,504 18,665 4,489 15,869
Operating income (loss) ...................... (1,080) (13,362) (2,220) 2,302
Net income (loss) before extraordinary income (1,757) (14,538) (2,789) 914
and taxes ....................................
EBITDA before extraordinary income(1)(2)...... (625) (12,298) (1,824) 4,115
Basic net income (loss) per share............. (0.35) (2.45) (0.47) 0.15
Diluted net income (loss) per share........... (0.35) (2.45) (0.47) 0.14
Shares used in computing income (loss) per
common share:(3)(4)
Basic.................................... 5,012,664 5,931,346 5,931,340 5,961,937
Diluted.................................. 5,012,664 5,931,346 5,931,340 6,401,161
</TABLE>
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(1) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation and amortization. It is a measure commonly used to assist
in understanding our operating results. However, it is not intended
to represent cash flow or results of operations in accordance with
generally accepted accounting principles.
4
<PAGE>
(2) Net income figures for the year ended December 31, 1998 include a loss of
$3,909,000 related to expenses for in-process research and development
costs included in the ComStream acquisition.
(3) See note 13 of the notes to the restated consolidated financial statements
for a determination of the number of shares used in computing basic and
diluted net income per share and note 1 of the notes to the restated
consolidated financial statements for an explanation of the effect of the
acquisition of ComStream Holdings Inc. on the consolidated financial
statements.
(4) Per share data and shares outstanding reflect an adjustment for the effects
of the 1-for-5 reverse split of our common stock, which became effective on
January 9, 1997.
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<CAPTION>
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
------------------------------------------------------------------
PRO FORMA AS
ADJUSTED FOR PRO FORMA AS ADJUSTED
COMPLETION OF FOR RIGHTS OFFERING AND
ACTUAL(1) RIGHTS OFFERING(2) THIS OFFERING(3)
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and investments............... $ 1,622 $3,404 $8,774
Working capital (deficiency)......................... (5,649) (3,867) 1,502
Total assets......................................... 24,968 26,750 32,119
Total shareholders' equity (capital deficiency)...... 1,015 2,797 8,166
</TABLE>
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(1) Includes our sale of 4,187,205 shares of common stock and our receipt
of net proceeds of $15,618,274 in the rights offering through
September 30, 1999.
(2) Gives effect to our sale of the remaining 557,871 shares of common stock
offered in the rights offering and not sold as of September 30, 1999, and
our receipt of net proceeds of $2,080,859 from the sale of such shares.
(3) Reflects our sale of 1,500,000 units (not including the shares underlying
the warrants included in the units) offered by this prospectus at an
assumed public offering price of $4.25 per unit, after deducting the
underwriting discount and the estimated offering expenses that we will pay.
See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
A purchase of units involves a high degree of risk. You should consider
carefully the following risk factors, in addition to the other information
contained in this prospectus, before purchasing any units.
WE HAVE A HISTORY OF OPERATING LOSSES, ONLY RECENTLY BECAME PROFITABLE, AND
COULD SUFFER FURTHER LOSSES IN THE FUTURE.
We have incurred significant operating losses since our inception. Although
we generated operating income of $2,302,000 for the nine months ended September
30, 1999, we incurred operating losses of $13,362,000 during the year ended
December 31, 1998, $1,080,000 during the year ended December 31, 1997,
$1,814,000 during the six months ended December 31, 1996 and $2,368,000 during
the 12 months ended June 30, 1996. Our predecessor, Radyne Corp., emerged from
Chapter 11 bankruptcy protection in December 1994. Although the rights offering
that we expect to complete in December 1999 has eliminated our shareholders'
deficit at September 30, 1999, our consolidated financial statements for the
year ended December 31, 1998 included a note stating that our operating losses,
working capital deficit, and SHAREHOLDER's deficit at that time raised doubts
about our ability to operate as a going concern. Accordingly, you should
consider the likelihood of our future success in light of our bankruptcy in
1994, the losses we have incurred since our bankruptcy, and the possibility that
we may incur future operating losses. Our ability to expand our ground-based
satellite systems market, penetrate new markets, such as Internet-related
products, and generate additional revenues and future positive operating and
net income depends, in large part, on our ability to sell our products to
existing and new customers and the profitability of such sales. There can be
no assurance that we will generate significant additional revenue or report
positive quarterly or annual operating results. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity
and Capital Resources."
WE HAVE DEPENDED ON OUR CONTROLLING SHAREHOLDER FOR CAPITAL, AND WE HAVE
SIGNIFICANT DEMAND LOANS THAT COULD LEAD TO A CASH SHORTAGE.
To meet our working capital requirements, we have depended on a succession
of short-term loans and guarantees from, and purchases of our common stock by,
ST and its affiliates since we emerged from Chapter 11 protection on December
16, 1994. Prior to its acquisition by us, ComStream depended on borrowings
facilitated by its parent company, Spar Aerospace Limited.
We have a $20,500,000 uncommitted bank line of credit on which we owed
approximately $12,920,000 as of September 30, 1999. All loans pursuant to the
bank line of credit are demand loans. The bank could demand repayment at any
time, in which case we might have to use the proceeds of this offering and seek
additional sources of financing to repay our line of credit. The use of the
proceeds of this offering to repay our bank debt instead of funding our research
and development program would adversely affect our growth strategy. If we are
required to seek additional sources of financing to repay our line of credit,
such financing may not be available on terms that we consider acceptable or may
not be available in sufficient amounts to enable us to repay our obligations to
the bank. Any of these circumstances would have a material and adverse impact on
our business, financial condition, and results of operations.
We believe the bank's willingness to provide us with this line of
credit is based in part on the bank's relationship with ST. ST has provided the
bank with a letter of awareness of our debt in which ST states it (1) will
endeavor to ensure that we utilize sound financial and business practices in our
operations and (2) will give the bank at least 60 days' prior written notice of
any divestment of our shares held by ST. ST has not, however, guaranteed our
indebtedness to the bank and is under no obligation to do so or to otherwise
satisfy our debts if we fail to repay them when due. Additionally, ST has no
obligation to
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and may not continue indefinitely to provide assurances to our lender or
otherwise assist us in maintaining such financing.
The availability of additional borrowings under the written credit
agreement with our bank expired on September 29, 1999 and we are currently
operating under an oral extension until the renewal agreement is executed. We
cannot assure you that a renewal agreement will be executed. If the renewal
agreement is not executed the bank is likely to demand repayment of our loan. If
we are required to repay the loan it would have a material adverse impact on our
financial condition.
Since December 31, 1998, we have not been in compliance with the covenant
in our loan agreement with the bank that requires us to limit our indebtedness
to no more than twice our tangible net worth. Our failure to comply with this
covenant or any other covenant contained in our loan agreement with the bank
could cause the bank to demand repayment of our loan. The bank has provided us
with a temporary waiver of our non-compliance with this covenant. We cannot
assure you that the bank will continue to provide this waiver. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
WE DEPEND ON INTERNATIONAL SALES, WHICH COULD CAUSE OUR SALES LEVELS TO BE
VOLATILE.
Our export sales were approximately 50% of net sales for the year ended
December 31, 1998. We anticipate that foreign sales will continue to account for
a significant portion of our revenue in the near future. Our foreign sales are
denominated in U.S. dollars. As a result, any decrease in the value of foreign
currencies relative to the U.S. dollar may adversely affect the demand for our
products by increasing their costs in the currency of those countries. For
example, the economic crisis, which has occurred in the Pacific Rim region and
other international markets, decreased our bookings from these regions and
adversely affected our results of operations in the fourth quarter of 1998 and
in the first nine months of 1999. We expect these negative trends to continue in
the near future.
Additional risks in the international marketplace include the following:
changing regulatory requirements,
the availability of export licenses,
political and economic instability,
difficulties in staffing and managing foreign operations,
tariffs and other trade barriers,
complex foreign laws and treaties, and
difficulty of collecting foreign account receivables.
In addition, we are subject to the Foreign Corrupt Practices Act, which
prohibits us from making payments to government officials and others in order to
influence the granting of contracts we may be seeking. Our non-U.S. competitors
are not subject to this law and this may give them a competitive advantage over
us.
A DOWNTURN IN THE RAPIDLY EVOLVING TELECOMMUNICATIONS AND INTERNET INDUSTRIES
COULD HARM OUR BUSINESS.
Our success depends upon the continued growth of the telecommunications
industry, particularly with regard to the Internet. The global
telecommunications and Internet industries are evolving rapidly, and the
potential growth rates or future trends in technology development are
unpredictable. We cannot provide assurance that the deregulation, privatization
and economic globalization of the worldwide telecommunications market that has
resulted in demand for technologies and services will continue in a
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manner favorable to us or our business strategies. In addition, there is no
assurance that the growth in demand for Internet services and the resulting need
for high-speed or enhanced telecommunications products will continue at its
current rate or at all.
WE DEPEND ON DEVELOPING MARKETS AND THEIR UNCERTAIN GROWTH POTENTIAL COULD
RESULT IN LOSSES.
We believe a substantial portion of the growth in demand for our products
will depend upon customers in developing countries. We cannot provide assurance
that such increases in demand will occur or that prospective customers will
accept our products. The degree to which we are able to penetrate potential
markets in developing countries will be affected to a large extent by the speed
with which other competing elements of the communications infrastructure, such
as other satellite-delivered solutions, telephone lines, television cable, and
land-based solutions, are installed in developing countries in which we sell our
products. The failure to increase the sales of our products in developing
countries would have a material adverse effect on our business, financial
condition and results of operations.
THE LOSS OF THE SERVICES OF ANY MEMBER OF OUR SENIOR MANAGEMENT OR THE INABILITY
TO ATTRACT OR RETAIN ADDITIONAL TECHNICAL PERSONNEL COULD IMPAIR OUR ABILITY TO
CONDUCT AND EXPAND OUR BUSINESS.
Our future performance depends significantly on Robert C. Fitting, our
President and Chief Executive Officer, and Steve Eymann, our Executive Vice
President and Chief Technical Officer. The loss of either of these key employees
would adversely affect our operations.
Our continued ability to attract and retain highly skilled personnel also
is critical to the operation and expansion of our business. The market for
skilled engineers and other technical personnel is extremely competitive, and
recruitment and retention costs are high. Although we have been able to attract
and retain the personnel necessary to operate our business, we may not be able
to do so in the future, particularly as we expand our business into
Internet-related products and other markets. The failure to attract and retain
personnel with the necessary skills when needed could materially adversely
affect our business and expansion plans.
COMPETITION IN OUR INDUSTRY IS INTENSE AND CAN LEAD TO REDUCED SALES AND MARKET
SHARE.
The markets for ground segment systems are highly competitive. We have a
number of major competitors in the satellite communications equipment field.
These include large companies, such as Hughes Network Systems, Inc., NEC, and
Adaptive Broadband Corp. (formerly California Microwave), which have
significantly larger and more diversified operations and greater financial,
marketing, personnel and other resources than we possess. As a result, these
competitors may develop and expand their products more quickly, adapt more
quickly to new or emerging technologies and changes in customer requirements,
take advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products than we can.
We believe that the quality, performance and capabilities of our products,
our ability to customize certain network functions, and the relatively lower
overall cost of our products, as compared to the costs of the products generally
offered by our major competitors, have contributed to our ability to compete.
Most of our competitors offer products that have one or more features or
functions similar to those that we offer. Competition from current competitors
or future entrants in the markets in which we compete could cause us to lose
orders or customers or could force us to lower the prices we charge for our
products, all of which would have a material adverse impact on our business,
financial condition, and results of operations.
8
<PAGE>
OUR PRODUCTS MAY BECOME OBSOLETE DUE TO RAPID TECHNOLOGICAL CHANGE.
The telecommunications industry, including the ground-based satellite
communications systems business, is characterized by rapid and continuous
technological change. Future technological advances in the telecommunications
industry may result in the introduction of new products or services that compete
with our products or render them obsolete. Our success depends in part on our
ability to respond quickly to technological changes through the improvement of
our current products and the development of new products. Accordingly, we
believe that we will need to allocate a substantial amount of capital to
research and development activities in the future. We may not generate cash flow
from operations or have access to outside financing in amounts that are
sufficient to adequately fund the development of new products. Even if we are
able to obtain the required funding to develop new products, we cannot assure
you that we will be able to develop products that we will be able to sell
successfully. Our inability to improve our existing products and develop new
products could have a material adverse effect on our business, financial
condition, and results of operations.
THE HIGH COST OF RESEARCH AND DEVELOPMENT REDUCES OUR PROFITABILITY.
Our future growth depends on penetrating new markets, adapting existing
satellite communications products to new applications, and introducing new
communications products that achieve market acceptance and benefit from our
established international distribution channels. Accordingly, we are actively
applying our communications expertise to design and develop new hardware and
software products and enhance existing products. We expended $4,296,000 in the
year ended December 31, 1998 and $6,730,000 in the nine months ended September
30, 1999 on research and development activities. This represents 20% of our net
sales for the year ended December 31, 1998 and 17% for the nine months ended
September 30, 1999. We intend to utilize a portion of the net proceeds of this
offering to fund our research and development efforts. Since we account for our
research and development as an operating expense, these expenditures will
adversely affect our earnings in the near future. Additionally, even if
adequately funded, our research and development program may not produce
successful results, which would have a material adverse effect on our business,
financial condition, and results of operations.
RAPID GROWTH COULD STRAIN OUR PERSONNEL AND SYSTEMS.
Our operations have expanded significantly as a result of our acquisition
of ComStream. In order to pursue successfully the opportunities presented by the
ground segment and emerging satellite-delivered communications and
Internet/intranet-infrastructure markets, we will be required to continue to
expand our operations. This expansion could place a significant strain on our
personnel, management, and financial and other resources. In order to manage
any future growth effectively, we will be required to:
attract, train, motivate, and manage a significantly larger number of
employees;
conduct product engineering and management, sales and marketing
efforts, and customer support activities; and
manage higher capital requirements.
Any failure to manage any further growth in an efficient manner and at a pace
consistent with our business could have a material adverse effect on our growth
and our business, financial condition, and results of operations.
9
<PAGE>
OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY OF OTHERS.
We rely on our proprietary technology and intellectual property to maintain
our competitive position. Unauthorized parties could attempt to copy aspects of
our technologies or to obtain information that we regard as proprietary. We may
not be able to police unauthorized use of our intellectual property. Our failure
to protect our proprietary technology and intellectual property could adversely
affect our competitive position.
We generally rely on confidentiality agreements with our employees and some
of our suppliers to protect our proprietary technology. We also control access
to and distribution of confidential information concerning our proprietary
technology. We cannot guarantee that the other parties to these agreements will
not disclose or misappropriate the confidential information concerning our
proprietary technology, which could have a material adverse effect on our
business.
We rely on patents to protect some of our proprietary technology. Patents,
however, often provide only narrow protection that may not prevent competitors
from developing products that function in a manner similar to those covered by
our patents. In addition, some foreign countries in which we sell our products
do not provide the same level of protection to intellectual property as the laws
of the United States provide. We cannot assure you that any patents we currently
own or control, or that we may acquire in the future, will prevent our
competitors from independently developing products that are substantially
similar or superior to ours.
Third parties may in the future assert that our technology violates their
intellectual property rights. As a result of such claims, we could be required
to enter into licensing arrangements or develop non-infringing products, which
could be prohibitively expensive or could divert a significant amount of
resources from other aspects of our business.
We may find it necessary to take legal action in the future to enforce or
protect our intellectual property rights or to defend against claims that our
products or technologies infringe on the rights of third parties. Litigation can
be very expensive and can distract our management's time and attention, which
could adversely affect our business. In addition, we may not be able to obtain a
favorable outcome in any intellectual property litigation.
WE DEPEND UPON CERTAIN SUPPLIERS AND SUBCONTRACTORS, THE LOSS OF WHICH COULD
CAUSE AN INTERRUPTION IN THE PRODUCTION OF OUR PRODUCTS.
We rely on subcontractors to assemble and test some of our products.
Additionally, our products use a number of specialized chips and customized
components or subassemblies produced by a limited number of suppliers. We
maintain limited inventories of these products and do not have long-term supply
contracts with our vendors. In the event our subcontractors or suppliers are
unable or unwilling to fulfill our requirements, we could experience an
interruption in product availability until we are able to secure alternative
sources of supplies. We are also subject to price increases by suppliers that
could increase the cost of our products or require us to develop alternative
suppliers, which could interrupt our business. It may not be possible to obtain
alternative sources at a reasonable cost. Supply interruptions could cause us to
lose orders or customers, which would result in a material adverse impact on our
business, financial condition and results of operations.
OUR QUARTERLY OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST, AND
WE ANTICIPATE THAT THEY COULD DO SO IN THE FUTURE, WHICH COULD ADVERSELY AFFECT
OUR STOCK PRICE.
10
<PAGE>
We may continue to experience significant quarter to quarter fluctuations
in our operating results, which may result in volatility in the price of our
common stock. These fluctuating operating results result from a variety of
factors, including the following:
timing of the initiation and completion of our purchase orders,
demand for our products,
introduction of new or enhanced products by us or our competitors,
growth of demand for Internet-based products and services in developing
countries,
timing of significant marketing programs we may implement,
extent and timing of hiring additional personnel,
competitive conditions in our industry, and
general economic conditions in the United States and abroad.
THE OWNERSHIP INTEREST OF OUR CONTROLLING SHAREHOLDER MAY MAKE OUR STOCK LESS
ATTRACTIVE TO INVESTORS AND POTENTIAL ACQUIRORS.
Upon the completion of this offering, ST will own approximately 82% of our
outstanding common stock. ST will, therefore, continue to have the ability to
elect all of our directors and to control the outcome of all issues submitted to
a vote of our shareholders. It also would be impossible for a third party to
acquire us without the consent or participation of ST.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION WHEN YOU PURCHASE UNITS
IN THIS OFFERING.
Upon the closing of this offering, investors will incur immediate and
substantial dilution in the per share net tangible book value of their common
stock. At September 30, 1999, after giving pro forma effect to our receipt of
the maximum net proceeds of our rights offering, we would have had a pro forma
net tangible book value (deficit) of approximately $(0.08) per share. Net
tangible book value is the amount of our total assets minus intangible assets
and liabilities. At September 30, 1999, after giving pro forma effect to our
receipt of the maximum net proceeds of our rights offering and the net proceeds
of this offering, we would have a pro forma net tangible book value of $0.37 per
share. This represents a gain in our net tangible book value of $0.45 per share
for the benefit of our current shareholders and dilution of $3.88 per share from
the public offering price for investors in this offering. See "Dilution."
SHARES OF STOCK ISSUABLE PURSUANT TO OUR STOCK OPTION PLAN, STOCK PURCHASE PLAN,
WARRANTS, AND THE REPRESENTATIVE'S PURCHASE OPTION MAY ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK.
As of September 30, 1999, we have outstanding under the 1996 Incentive
Stock Option Plan options to purchase an aggregate of 819,559 shares of common
stock at an exercise price of $2.50 per share (in the case of 629,419 of such
options, the optionee/employee would be entitled to a bonus of $1.72 per share
upon exercise), 305,083 shares at $3.125 per share, 40,000 shares at $3.25
per share and 518,503 shares at $3.75 per share. Options to purchase an
additional 162,500 shares will become exercisable at $3.00 per share over the
next three years, assuming that the grantees' employment does not terminate
prematurely. We may sell an additional 1,000,000 shares to employees at 85% of
fair market value pursuant to our 1999 Employee Stock Purchase Plan. The
exercise of the options granted under our stock option plan and the sales of
stock under our purchase plan would further reduce a shareholder's percentage
voting and ownership interest.
Upon completion of this offering, we will issue to the representative of
the underwriters for nominal consideration an option to purchase up to 150,000
shares of common stock. This option will be exercisable for five years after the
date of this prospectus at an exercise price of $____ per share.
11
<PAGE>
The options granted under our stock option plan and the representative's
purchase option are likely to be exercised when our common stock is trading at a
price that is higher than the exercise price of these options and we would be
able to obtain a higher price for our common stock than we will receive under
such options. The exercise, or potential exercise, of these options could
adversely affect the market price of our common stock.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK.
The sale, or availability for sale, of a substantial number of shares of
common stock in the public market could materially adversely affect the market
price of our common stock and could impair our ability to raise additional
capital through the sale of our equity securities. At the conclusion of this
offering, there will be approximately 11,651,026 shares of common stock issued
and outstanding. Of these shares, approximately 2,087,821 will be freely
transferable. The remaining 9,563,205 shares will be held by ST and will be
eligible for resale, subject to the volume and manner of sale limitations of
Rule 144 of the Securities Act.
The representative will have registration rights for purposes of reselling
any shares purchased upon exercise of the representative's purchase option. We
have registered the shares of common stock issuable pursuant to our stock option
plan and stock purchase plan and shares issued under these plans will generally
be freely transferable. In addition, the shares issuable upon the exercise of
the warrants sold in this offering will be freely transferable.
THE MARKET PRICE OF OUR SHARES HAS BEEN VOLATILE AND COULD RESULT IN LOSSES TO
OUR SHAREHOLDERS.
We cannot predict the effect that this offering will have on the trading
price of our common stock. We cannot provide assurance that the market price of
our common stock will not fall below the initial offering price or that,
following the offering, a shareholder will be able to sell shares acquired in
this offering at a price equal to or greater than the offering price. Since we
emerged from bankruptcy, there has been a very limited trading market for our
common stock. We believe that the low volume of trading in this market has been
the primary reason that the market price of our common stock has varied widely.
We cannot assure you that an active trading market will develop for our common
stock following this offering. In addition, the market price of our common stock
may continue to be volatile after this offering.
The price of the units, common stock or the warrants may be subject to
significant fluctuation in the future. There has been no prior market for the
units or warrants and there can be no assurance that one will develop or be
maintained after this offering.
WARRANTHOLDERS MAY SUFFER POTENTIAL ADVERSE EFFECTS FROM THE REDEMPTION OF THE
WARRANTS AFTER THIS OFFERING.
Commencing one year from the date of this prospectus, we may call the
warrants for redemption at a price of $.01 per warrant upon not less than 30
days' nor more than 60 days' notice if the average closing price of our common
stock is at least $_____ per share for each of the 20 consecutive trading days
ending not earlier than five days from the date we call the warrants for
redemption. If we call the warrants for redemption, the holders will have the
right to:
exercise the warrants and pay the exercise price at a time when it may
be disadvantageous for the holder to do so,
sell the warrants at the then-current market price, or
12
<PAGE>
accept the redemption price, which is likely to be substantially less
than the market value of the warrants.
WE MUST MAINTAIN A CURRENT PROSPECTUS REGISTRATION FOR WARRANTHOLDERS TO
EXERCISE WARRANTS.
You will only be able to exercise the warrants if (a) a current prospectus
under the Securities Act relating to the shares of common stock issuable upon
exercise of the warrants is then in effect and (b) such securities are qualified
for sale or exempt from qualification under the applicable securities laws of
the states in which the various holders of warrants reside. We have agreed with
the underwriters to use our best efforts to maintain the effectiveness of a
current prospectus covering the common stock underlying the warrants. However,
there can be no assurance that we will be able to do this. We will not accept
payment for or issue common stock upon the exercise of any warrants unless (1)
there is an effective and current registration statement covering the issuance
of the common stock upon exercise of the warrants, and (2) such common stock is
qualified for sale or exempt from qualification under the applicable securities
laws of the state in which the exercising warrant holder resides. If either
condition is not met, we will refund those payments to the warrant holder. The
value of the warrants may be greatly reduced if we fail to meet our registration
obligations.
OUR SECURITIES COULD BE DELISTED FROM THE NASDAQ SMALLCAP MARKET, WHICH COULD
LEAD TO LOSSES FOR INVESTORS.
We will apply to have our common stock, warrants, and units listed for
trading on the Nasdaq SmallCap Market at the time of the offering. Our common
stock is currently listed on the OTC Bulletin Board. To qualify for continued
inclusion in the Nasdaq SmallCap Market, we will have to maintain.
either (1) $2,000,000 in net tangible assets (total assets minus total
liabilities and goodwill), (2) market capitalization of $35,000,000,
or (3) net income of $500,000 in the most recently completed fiscal
year or in two of the last three most recently completed fiscal years;
and
a public float of at least 500,000 shares with a market value of at
least $1,000,000.
Public float is defined as shares not directly or indirectly held by any of
our officers or directors or by any other person who is the beneficial owner
of more than 10% of the total shares outstanding.
In addition, continued inclusion requires two market-makers, a minimum bid
price for the common stock of $1.00 per share, and at least 300 shareholders
holding 100 shares or more. If we fail to meet the listing maintenance criteria
of the Nasdaq SmallCap market in the future for any reason, Nasdaq may
discontinue the inclusion of our securities in such market. In the event of
delisting, trading in our securities may then continue to be conducted on the
OTC Bulletin Board or in the over-the-counter market. In this event you may find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, our securities.
PARTIES ON WHICH WE RELY MAY HAVE YEAR 2000 TECHNOLOGY PROBLEMS THAT COULD
DISRUPT OUR BUSINESS.
The Year 2000 issue concerns the fact that certain computer systems and
processors may recognize the designation "00" as 1900 when it is intended to
mean 2000, resulting in system failure or miscalculations. Other potential
date-related errors may result from computer systems' inability to recognize the
Year 2000 as a leap year, and the date January 1, 2001 (1-1-01) may cause
errors. All of these date-related issues are commonly referred to as the Year
2000 issue. Commencing in 1997, we began a comprehensive review of our
information technology systems, upon which our day-to-day business operations
depend, in order to determine the adequacy of those systems in light of future
business requirements. Year 2000 readiness was one of the factors considered in
the review process. We
13
<PAGE>
have completed that review and believe that all mission critical systems at our
Phoenix facility are Year 2000 compliant. In addition, we recently completed the
required upgrades at our San Diego facility.
Our Year 2000 readiness plan also involves the review of our
non-information technology systems, a review that we consider to be complete.
The only noncompliance that we discovered relates to certain date functions in
diagnostic equipment, which functions we do not employ. However, it is possible
that the scope of the Year 2000 issue could be greater than originally believed
and that our efforts could prove inadequate.
As part of our comprehensive review, we are continuing to verify the Year
2000 readiness of third parties (vendors and customers) with whom we have
material relationships. This is a particular concern in light of our reliance on
overseas assembly operations. We sent a Year 2000 readiness survey to all of our
material vendors and customers. We have received acceptable responses from all
of our mission critical vendors. We expect to receive responses from 70% to 80%
of our non-critical vendors. Efforts continue to obtain as many responses as
possible. In any event, we may increase some inventory levels to mitigate any
risk of inventory supply problems. We have also created a database to track
responses, problems and follow-up plans. While our assessments of the readiness
of our vendors are necessarily dependent upon their survey responses, we intend
to test their stated compliance where we determine that to be a necessary and
feasible step.
In evaluating the potential impact of vendor Y2K noncompliance, we believe
that the two worst case scenarios would likely be as follows. First, if the
electric utility at either of our principal facilities were to black out,
operations at that facility could essentially cease for the duration of the
problem. At this point those utilities have provided reasonable assurances of
their own Y2K compliance, although they are not in a position to rule out
potentially relevant problems elsewhere on the power grid. Second, if one of our
major circuit board suppliers were to report Y2K compliance, but then surprise
us with a shut-down, there would be an adverse impact on our delivery schedule.
However, since our contingency plan includes maintenance of a three-month
inventory of critical parts, we would expect to be able to replace the
noncompliant vendor in a timely enough manner to avoid a product delivery delay
of more than 30 days. However, we are not able to precisely determine the effect
on results of operations, liquidity and financial condition in the event our
material vendors and customers are not Year 2000 compliant. Our inability to
accurately forecast such effects may prevent us from taking necessary steps to
rectify any Year 2000 issues in advance. Moreover it is impossible to predict
the extent, if any, to which customers may allocate funds to the solution of
their own Year 2000 issues instead of purchasing our products. We will continue
to monitor the progress of our material vendors and customers and formulate a
contingency plan if and when we conclude that a material vendor or customer may
not be compliant.
While we believe our efforts to date are adequate to prevent any Year 2000
issue from having a material adverse effect on us, our assessment may turn out
to be inaccurate.
14
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the units offered by
this offering will be approximately $5,369,557, or approximately $6,238,057
if the underwriters' over-allotment option is exercised in full, based on an
assumed public offering price of $4.25 per unit and after deducting the
underwriting discount and our estimated offering expenses.
We intend to use the net proceeds from this offering primarily, to fund
research and development costs associated with our proposed expansion of our
product lines to include:
Internet-related products.
New telecommunication products.
Digital audio, video, and data products.
We also plan to use a portion of the proceeds to hire any additional
technical personnel that we require to meet the demand for our existing product
lines and to pursue our growth strategy. Until we apply the proceeds for these
uses, we may repay a portion of the outstanding balance under our credit
facility, subject to the terms and conditions of this facility. As of
September 30, 1999, there was $12,920,000 outstanding under our revolving
credit facility at interest rates ranging between 6.59% and 6.94%.
Pending these uses, we intend to invest the net proceeds from this offering
in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid any cash dividends on our capital stock and do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain any future earnings to fund the development and growth of our
business.
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<PAGE>
CAPITALIZATION
The following table summarizes our capitalization as of September 30, 1999
(a) on an actual basis giving effect to our sale of 4,187,205 shares of common
stock and our receipt of net proceeds of $15,618,274 in the rights offering
through September 30, 1999 and (b) on a pro forma basis as adjusted to give
effect to our receipt of net proceeds of $2,080,859 we expect to receive from
our assumed sale subsequent to September 30, 1999 of the remaining 557,871
shares of common stock offered in the rights offering, and (c) on a pro forma
as adjusted basis to reflect our receipt of the net proceeds we received
from the rights offering and the estimated net proceeds we expect to receive
from the sale of 1,500,000 units offered by this prospectus at an assumed public
offering price of $4.25 per unit, after deducting the underwriting discount and
the estimated offering expenses we will pay.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
----------------------------------------------
PRO FORMA AS
PRO FORMA AS ADJUSTED FOR
ADJUSTED FOR RIGHTS
RIGHTS OFFERING AND
ACTUAL OFFERING THIS OFFERING
-------------- -------------- ---------------
<S> <C> <C> <C>
Short-term debt................................................... $12,984,561 $12,984,561 $12,984,561
Long-term debt and capitalized lease obligations, less current
portion........................................................... 76,572 76,572 76,572
Accrued stock option compensation................................. 1,108,804 1,108,804 1,108,804
Shareholders equity:
Common Stock, $.002 pr value, 20,000,000 shares authorized,
10,151,026 shares outstanding, actual; 10,708,898 shares
outstanding, pro forma as adjusted for rights offering;
12,208,898 shares outstanding, pro forma as adjusted for the
rights offering and this offering (1) .......................... 20,303 21,419 24,419
Additional paid-in capital........................................ 21,435,312 23,215,924 28,582,481
Retained earnings (accumulated deficit)........................... (20,440,639) (20,440,639) (20,440,639)
Total shareholders' equity (capital deficiency) 1,014,976 2,796,704 8,166,261
============== ============== ===============
Total capitalization.............................................. $15,184,913 $16,966,641 $22,336,198
============== ============== ===============
</TABLE>
- -----------------------
(1) The number of shares issued and outstanding excludes (a) 1,500,000 shares
of common stock reserved for issuance upon the exercise of 1,500,000 common
stock purchase warrants included in the units, (b) 1,845,145 shares of
common stock reserved for issuance under our 1996 Incentive Stock Option
Plan, of which options to purchase 1,683,145 shares were outstanding as of
September 30, 1999 at a weighted average exercise price of $2.98 per share,
and (c) 1,000,000 shares of common stock reserved for issuance under our
1999 Employee Stock Purchase Plan. See "Management--Employee Compensation
Plans."
16
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock currently trades on the OTC Bulletin Board under the
symbol "RADN." We will apply to have our units, common stock, and warrants
listed on the Nasdaq SmallCap Market under the symbols "RADNU," "RADN," and
"RADNW," respectively, upon completion of this offering. There currently is no
established trading market for our common stock as actual transactions are
infrequent and we cannot assure you that an active trading market will develop
after this offering. The following table sets forth the range of high and low
trading prices as reported by the OTC Bulletin Board for the periods indicated.
At September 30, 1999, we had approximately 422 shareholders of record and
approximately 1,600 beneficial owners of our common stock.
<TABLE>
<CAPTION>
HIGH $ LOW $
------ -----
<S> <C> <C>
1997:
First Quarter 6 3-1/8
Second Quarter 5-3/4 1-1/8
Third Quarter 10-3/4 1-5/8
Fourth Quarter 10-1/2 3-1/8
1998:
First Quarter 5-1/4 2-7/64
Second Quarter 5 2-3/4
Third Quarter 5 3-3/16
Fourth Quarter 5 2-3/8
1999:
First Quarter 4-1/4 2-1/4
Second Quarter 3-3/4 2-5/8
Third Quarter 3-9/16 2-1/4
</TABLE>
On November 8, 1999 the last sale price of the common stock as reported by
the OTC Bulletin Board was $3.50 per share.
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<PAGE>
DILUTION
Purchasers of units in this offering will be diluted to the extent of the
difference between the public offering price per unit and the net tangible book
value per share of our common stock after this offering. Net tangible book value
dilution per share represents the difference between the amount per share paid
by purchasers of shares of common stock in this offering and the pro forma,
adjusted net tangible book value per share of common stock immediately after
completion of this offering.
Our pro forma, adjusted net tangible book value (deficit) as of September
30, 1999, after giving pro forma effect to the common stock issued in the rights
offering subsequent to September 30, 1999 and the application of the net
proceeds from such transaction, would have been $(897,000) or $(0.08) per share
of common stock. Pro forma net tangible book value per share as of a specified
date is determined by dividing our tangible book value (total tangible assets
less total liabilities) by the number of outstanding shares of common stock at
such date. After giving effect to our sale of the 1,500,000 units offered hereby
(based upon an assumed public offering price of $4.25 per unit, assuming that no
portion of the unit offering price is allocated to the warrant included in the
unit and after deducting the underwriting discount and our estimated offering
expenses), our pro forma net tangible book value as of September 30, 1999 would
have been $4,473,000 or $0.37 per share of common stock. This represents an
immediate increase in pro forma net tangible book value to existing shareholders
of $0.45 per share and an immediate dilution to new investors of $3.88 per
share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share................................ $ 4.25
Pro forma net tangible book value per share as of September 30, 1999
(giving effect to the rights offering)................................. $(0.08)
Increase in pro forma net tangible book value per share
Attributable to new investors in this offering.................... 0.45
Pro forma net tangible book value per share as of
September 30, 1999 after this offering............................ 0.37
Pro forma net tangible book value dilution per share
to new investors in this offering................................. $3.88
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to 1,725,000, or 14.12% of the
total shares of common stock outstanding after this offering.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data for the years ended
December 31, 1998 and December 31, 1997, the six months ended December 31, 1996,
the year ended June 30, 1996, the six and one-half month period ended June 30,
1995 and the ten and one-half month period ended December 16, 1994, and the
selected balance sheet data at those dates, are derived from our consolidated
financial statements and notes thereto audited by our independent auditors:
KPMG LLP (in the case of the year ended December 31, 1998, restated) and
Deloitte & Touche LLP (in the case of the year ended December 31, 1997, the six
months ended December 31, 1996, the year ended June 30, 1996, the six and
one-half months ended June 30, 1995 the ten and one-half months ended
December 16, 1994), our independent auditors. The statement of operations data
for nine months ended September 30, 1999 and September 30, 1998 are unaudited.
Per share data and shares outstanding reflect an adjustment for the effects
of the 1-for-5 reverse split of our common stock, which became effective on
January 9, 1997. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this prospectus.
The variations in the duration of the respective periods in the table below
are due to a series of changes in our fiscal year. Upon emergence from
bankruptcy on December 16, 1994, our fiscal year ended. We then adopted the
fiscal year of our new parent, which ran through June 30, 1995, followed by a
full year ended June 30, 1996. We then became a subsidiary of ST in August 1996
and adopted its fiscal year (the calendar year), which created a stub fiscal
period from July 1 through December 31, 1996.
19
<PAGE>
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
10-1/2 MOS. 6-1/2 MOS.
ENDED ENDED YEAR ENDED 6 MOS. ENDED YEAR ENDED
12/16/1994(1) 6/30/1995 6/30/1996 12/31/1996 12/31/1997
------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $2,569,396 $1,861,262 $3,829,523 $4,905,059 $13,446,852
Cost of sales................................... 2,229,329 1,228,747 2,559,350 4,052,433 8,022,262
Gross profit ................................... 340,067 632,515 1,270,173 852,626 5,424,590
Selling, general and administrative expense..... 1,658,388 961,162 1,843,576 1,437,971 4,242,138
Asset impairment charge(2) ..................... -- -- -- 421,000 --
Professional fees related to reorganization..... 600,198 -- -- -- --
Research and development expense................ -- -- 1,794,823 808,025 2,262,066
Stock option compensation expense .............. -- -- -- -- --
In process research and development expense -- -- -- -- --
Restructuring costs ............................ -- -- -- -- --
Total operating expenses........................ 2,258,586 961,162 3,638,399 2,666,996 6,504,204
Operating income (loss)......................... (1,918,519) (328,647) (2,368,226) (1,814,370) (1,079,614)
Interest expense................................ 118,235 36,209 256,871 255,604 677,102
Other .......................................... -- -- -- -- --
Income (loss) before fresh start adjustments
and extraordinary items...................... (2,036,754) (364,856) (2,625,097) (2,069,974) (1,756,716)
Fresh start adjustments......................... 1,598,841 -- -- -- --
Income (loss) before extraordinary items
and taxes on income.......................... (437,913) (364,856) (2,625,097) (2,069,974) (1,756,716)
Extraordinary items............................. 2,699,156(3) -- -- -- --
Income (loss) before taxes...................... 2,261,243 (364,856) (2,625,097) (2,069,974) (1,756,716)
Basic Earnings (Loss) per share:
Income (loss) before extraordinary item....... (1.33) (0.10) (0.70) (0.55) (0.35)
Extraordinary Item............................ 8.20 0.00 0.00 0.00 0.00
---- ---- ---- ---- ----
Net income (loss)............................. 6.87 (0.10) (0.70) (0.55) (0.35)
Diluted Earnings (loss) per share:
Income (loss) before extraordinary item....... (1.33) (0.10) (0.70) (0.55) (0.35)
Extraordinary Item............................ 8.20 0.00 0.00 0.00 0.00)
---- ---- ---- ---- ----
Net income (loss)............................. 6.87 (0.10) (0.70) (0.55) (0.35)
Weighted average shares used in computation
Basic......................................... 329,020 3,729,721 3,742,227 3,750,699 5,012,664
Diluted....................................... 329,020 3,729,721 3,742,227 3,750,699 5,012,664
<CAPTION>
YEAR ENDED 9 MOS. ENDED 9 MOS. ENDED
12//31/1998 9/30/1998 9/30/1999
----------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales....................................... $21,111,704 $9,973,611 $39,261,814
Cost of sales................................... 15,808,459 7,704,856 21,090,713
Gross profit ................................... 5,303,245 2,268,755 18,171,101
Selling, general and administrative expense..... 5,531,213 2,543,986 9,138,897
Asset impairment charge(2) ..................... 262,935 -- --
Professional fees related to reorganization..... -- -- --
Research and development expense................ 4,296,268 1,944,809 6,730,223
Stock option compensation expense .............. 1,566,075 -- --
In process research and development expense 3,909,000 -- --
Restructuring costs ............................ 3,100,000 -- --
Total operating expenses........................ 18,665,491 4,488,795 15,869,120
Operating income (loss)......................... (13,362,246) (2,220,040) 2,301,981
Interest expense................................ 1,198,777 568,592 1,561,616
Other .......................................... (23,480) -- --
Income (loss) before fresh start adjustments
and extraordinary items...................... (14,537,543) (2,788,632) 740,365
Fresh start adjustments......................... -- -- --
Income (loss) before extraordinary items
and taxes on income.......................... (14,537,543) (2,788,632) 740,365
Extraordinary items............................. -- -- 188,182
Income (loss) before taxes...................... (14,537,543) (2,788,632) 913,547
Basic Earnings (Loss) per share:
Income (loss) before extraordinary item....... (2.45) (0.47) 0.12
Extraordinary Item............................ 0.00 0.00 0.03
---- ---- ----
Net income (loss)............................. (2.45) (0.47) 0.15
Diluted Earnings (loss) per share:
Income (loss) before extraordinary item....... (2.45) (0.47) 0.11
Extraordinary Item............................ 0.00 0.00 0.03
---- ---- ----
Net income (loss)............................. (2.45) (0.47) 0.14
Weighted average shares used in computation
Basic......................................... 5,931,346 5,931,340 5,961,937
Diluted....................................... 5,931,346 5,931,340 6,401,161
</TABLE>
20
<PAGE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF AS OF
12/16/94(1) 6/30/95 6/30/96 12/31/96 12/31/97 12/31/98 9/30/99
----------- ------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents ............. $ 256,398 $ 2,109 $ 971 $ 186,488 $ 569,692 $ 254,956 $ 1,622,256
Working capital (deficit) (977,678) (1,343,018) (4,082,987) (5,851,527) 1,654,857 (8,803,970) (5,649,048)
Total assets ............ 3,084,394 3,452,999 3,272,686 6,572,917 10,231,617 29,190,714 24,968,155
Long-term liabilities ... 192,603 168,304 130,414 161,968 4,649,404 16,862,337 1,185,376
Total liabilities ....... 2,531,093 3,264,554 5,669,338 11,019,543 11,381,678 44,427,634 23,953,179
Shareholders' equity
(deficit) ............... 553,301 188,445 (2,396,652) (4,446,626) (1,150,061) (15,236,920) 1,014,976
</TABLE>
- --------------------
(1) Radyne ComStream's predecessor petitioned for bankruptcy protection in
April 1994 and operated as a debtor-in-possession until December 16, 1994.
(2) Consists of the writedown of designs and drawings in light of the
introduction of replacement products.
(3) Consists of $1,062,667 gain on exchange of debt for common stock and
$1,636,489 gain on debt forgiveness.
-21-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth under the "Risk Factors" and elsewhere in this
prospectus. The following discussion should be read in conjunction with our
consolidated financial statements and related notes thereto included elsewhere
in this prospectus.
GENERAL
In reviewing the following discussion and analysis, the reader should take
note of the fact that the respective periods being compared are of various
durations. This is due to a series of changes in our fiscal year. Upon emergence
from bankruptcy on December 16, 1994, our predecessor company's fiscal year
ended on that date. At that time we adopted the fiscal year of our new parent,
Engineering and Technical Services, Inc. or ETS. This created a fiscal period
from December 17, 1994 through June 30, 1995, followed by a full year ended June
30, 1996. When we became a subsidiary of ST in August 1996, we adopted ST's
calendar fiscal year, which created a stub fiscal period from July 1 through
December 31, 1996.
COMPANY HISTORY
Radyne Corp., our predecessor, was incorporated in 1980 and filed for
Chapter 11 bankruptcy protection in April 1994. It successfully emerged from
bankruptcy in December 1994 upon the acquisition of approximately 91% of its
common stock by ETS, then a major customer. On August 12, 1996, ST acquired ETS
through its indirect wholly owned subsidiaries, Stetsys US, Inc. ST now holds
approximately 94% of our common stock.
In 1995, we installed a new management team, which moved our operations
from New York to Phoenix, Arizona. As part of this management change, we hired
an almost entirely new staff of engineering, sales and support personnel.
On October 15, 1998, we purchased ComStream Holdings, Inc. from Spar
Aerospace Limited, a Canadian advanced technology company. ComStream is an
international provider of digital transmission solutions for voice, data, audio
and video applications with offices in the United States, Singapore, Indonesia,
China and the United Kingdom. ComStream recorded revenue of approximately $37
million in fiscal 1998. We acquired ComStream in an effort to expand our core
business and to supplement our product lines with a number of viable developed
products and superior quality products in the design stage, some of which have
since been released for production. In addition, we based our decision to
acquire ComStream on the strategic belief that the combined companies could
compete more effectively and realize certain synergies. We believe that Radyne's
acquisition of ComStream has had and will have a number of positive effects,
including the following:
1. The combined annual revenue of Radyne ComStream for fiscal 1999 should
approximate $50 million versus Radyne Corp.'s stand-alone revenue of
approximately $13 million. This dramatic difference in size provides
us with better control over prices and margins and enables us to
compete in larger markets.
2. The acquisition has produced positive synergistic effects by combining
Radyne's newer product lines with ComStream's established products and
sales channels. We have experienced positive results from the efforts
of the ComStream sales force as compared with our historic reliance on
independent sales representatives. The addition of
-22-
<PAGE>
ComStream's technology in the satellite communications industry has
strengthened our market share and provided new customers for our
existing products.
3. While we viewed ComStream's gross margins as excellent, its
profitability had suffered from extremely high expenses. Since closing
the acquisition in October 1998, we have reduced ComStream's recurring
expenses by approximately $1,000,000 per month. The continued
efficiencies and restructuring of our product lines have resulted in
significant cost savings.
We recorded the acquisition of ComStream under the "purchase method" of
accounting. Accordingly, we allocated the purchase price to the assets purchased
and the liabilities assumed based upon the estimated fair values at the date of
acquisition. The excess of the purchase price over the fair values of the net
assets acquired was approximately $8.7, million of which $3.9 million was
allocated to in-process research and development, $2.5 million was valued as
purchased technology, which is being amortized over 6.25 years, and $2.3 million
has been recorded as goodwill, which is being amortized over ten years. As a
result of the recent completion of our settlement negotiations with Spar, the
amount of goodwill recorded in the transaction will be reduced by $515,940 to
$1,576,538 (after amortization of $223,649) in the fiscal quarter ended
September 30, 1999. See "-- Liquidity and Capital Resources." We have included
ComStream's results in our combined statement of operations from the acquisition
date.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998.
We increased our net sales by 294% to $39,262,000 during the nine months
ended September 30, 1999 from $9,974,000 during the nine months ended September
30, 1998, primarily as a result of our acquisition and integration of ComStream
into our operations.
Our cost of sales as a percentage of net sales decreased to 54% during the
nine months ended September 30, 1999 from 77% during the nine months ended
September 30, 1998. Costs associated with the delivery of new products to the
marketplace accounted for the high period costs in 1998. We expensed $911,000
during the nine months ended September 30, 1998 to write off these costs and to
set up a provision for obsolescence. We expense costs in the period in which
they occur.
Selling, general and administrative costs increased to $9,139,000 (23% of
sales) during the nine months ended September 30, 1999 from $2,544,000 (26% of
sales) during the nine months ended September 30, 1998. The increase in real
costs and the reduction, in terms of percentage of sales, was primarily a result
of the higher expense levels and sales amounts due to our acquisition and
integration of ComStream into our operations.
Research and development expenditures increased to $6,730,000 (17% of
sales) during the nine months ended September 30, 1999 from $1,945,000 (20% of
sales) during the nine months ended September 30, 1998. These expenses reflect
our continued commitment to invest in our future through technological advances
and our efforts to improve our older product lines for manufacturability and
lower costs. The increase in real costs and the reduction, in terms of
percentage of sales, was primarily a result of the higher expense levels and
sales amounts due to our acquisition and integration of ComStream into our
operations.
Based on the increases in our gross margins and our lower operating costs
as a percentage of sales (40% for the nine months ended September 30, 1999
compared to 45% for the nine months ended September 30, 1998) we recorded
earnings before interest and taxes ("EBIT") and extraordinary income of
$2,302,000 during the nine months ended September 30, 1999 compared to a loss
of ($2,220,000) for the nine months ended September 30, 1998.
-23-
<PAGE>
Net interest expense increased to $1,562,000 (4% of sales) in the nine
months ended September 30, 1999 from $569,000 (6% of sales) in the nine months
ended September 30, 1998 due to an increase in our debt level.
We recorded extraordinary income of $188,000 during the nine months ended
September 30, 1999 as a result of negotiated forgiveness of previously recorded
and accrued interest expense in connection with the note payable to Spar.
We recorded income tax expense in the nine months ended September 30, 1999
of $15,000. We had not previously provided for income tax.
Based on all of the above we recorded net income of $914,000 or $0.14 per
diluted weighted average share outstanding during the nine months ended
September 30, 1999 as compared to a net loss of ($2,789,000) during the nine
months ended September 30, 1998.
Our new-orders-booked (Bookings) increased 282% to $43,849,000 for the nine
months ended September 30, 1999 from $11,490,000 for the nine months ended
September 30, 1998. This increase was primarily a result of our acquisition and
integration of ComStream into our operations.
Our level of unfilled-orders-to-ship (Backlog) increased 111% to
$13,193,000 at September 30, 1999 from $6,253,000 at September 30, 1998,
primarily due to the record level of bookings received during the current and
immediately preceding reporting periods.
In connection with the acquisition of ComStream, we allocated $3,909,000 of
the purchase price to seven in-process research and development projects. This
allocation represents the estimated fair value based on risk-adjusted future
cash flows related to the incomplete projects. At the date of the acquisition,
the development of these projects had not yet reached technological feasibility
and the research and development in process had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.
This allocation was based on a number of assumptions, including those
regarding estimated project completion dates and costs. As of October 31, 1999,
six of the seven projects have been completed. The original cost estimates
remain essentially accurate and no other material variations in the assumptions
have appeared. Therefore, we continue to regard the $3,909,000 valuation as
correct.
The nature, amount, and timing of the costs required to complete the
in-process technology are presented in the following chart:
<TABLE>
<CAPTION>
TOTAL COST AT
PRODUCT LINE STARTED COMPLETION COMPLETION
DESCRIPTION BASE TECHNOLOGY APPLICABILITY (MONTH - YEAR) DATE $000'S
- ------------------------------ ------------------------------ -------------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
2 MB Card QPSK,FEC Coding Modems 01-98 11-99 $ 1,820(1)*
"CM 601" Low Cost Modem Coding Modulation Modems 05-97 03-99 1,400**
"DT8000" Ku-band Modulation Coding Earth Stations 03-97 12-98 2,850***
2 Watt Earth Station Transmission
"DBR 2000" Data Broadcast L-Band Receivers Packet Broadcast Data 06-98 06-99 400
Receiver Protocol
"ABR 202" Audio Receiver L-Band Receivers Multiplexing Broadcast Audio 12-98 750
Set Top Box Receiver DTH Television Cable Satellite 03-97 07-99 1,600
Television Proprietary IC's Television Cable
- MPEG Decoders Television
MediaCast Card Receiver Proprietary IC's - Internet Internet Receiver 03-97 03-99 1,900
Protocol DVB MPEG Decoders Video Receiver --------
$ 10,720
========
</TABLE>
- -----------------------
(1) Estimated cost to completion.
* Estimated at $1,800 in our Form 10-K/A for the year ended 12/31/98.
** Estimated at $1,500 in our Form 10-K/A for the year ended 12/31/98.
*** Estimated at $2,750 in our Form 10-K/A for the year ended 12/31/98.
-24-
<PAGE>
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1997
We increased our net sales by 57% to $21,112,000 during the year ended
December 31, 1998 from $13,447,000 during the year ended December 31, 1997. This
increase was primarily attributable to the increased product sales resulting
from our purchase of ComStream.
Our cost of sales as a percentage of net sales increased to 75% during the
year ended December 31, 1998 from 60% for the year ended December 31, 1997.
During the year ended December 31, 1998, we recorded adjustments to inventory of
approximately $911,000 (4.3% of sales) to write off excess and obsolete
inventory as well as costs associated with the introduction of new products.
This included approximately $280,000 of inventory associated with the DMD-5000
and DMD-4500 modem product lines and approximately $30,000 of inventory
associated with the initial DVB-3000 video broadcast products, all of which were
essentially rendered obsolete by the introduction of newer products. The costs
associated with the introduction of new products (approximately $601,000)
related principally to the following product lines in the following approximate
amounts: the DD-45 and DM-45 high-speed modem products ($75,000), the DD-160 and
DM-160 high speed modem products ($80,000), Ku band converters ($110,000),
C-band converters ($40,000), L-band modem line ($100,000), the DMD-15G
government FM order wire products ($90,000), upgrade and enhancements on digital
video broadcast lines ($20,000) and upgrade and enhancements on the DMD-2401
modem line ($10,000). These costs included production line personnel training
costs, short-lived diagnostic and measurement equipment, set-up costs, expedited
product delivery costs, low volume pricing for purchased parts on initial
production runs and the costs of reworking early circuit board designs. In
addition, we increased our inventory obsolescence reserve by $1,261,000 during
the year ended December 31, 1998. The principal components of this reserve were
approximately $700,000 in parts for our DT-7000 earth station product and
$500,000 in parts for the DT-8000 Au band product, both of which were rendered
slow moving or obsolete by the introduction of the superior and more popular
DT-8000 Ku band product around December 1, 1998. These adjustments are not
anticipated to have an impact on our future results of operations.
Selling, general and administrative costs increased to $5,531,000, or 26%
of sales, during the year ended December 31, 1998 from $4,242,000, or 32% of
sales, for the year ended December 31, 1997. The decrease in expenses as a
percentage of sales was primarily attributable to the sales growth as explained
above. The increase in pure dollars is mainly attributable to the purchase of
ComStream in October 1998.
We recorded an asset impairment charge of $263,000 during the year ended
December 31, 1998, to reflect a valuation adjustment to certain designs and
drawings that were fully impaired by the introduction of competing product lines
which we obtained in our purchase of ComStream. Impairment was determined by
comparing the amount of undiscounted projected cash flows attributable to each
product using the related technology to the carrying value of the asset.
Research and development expenditures increased to $4,296,000 (20% of
sales) from $2,262,000 (17% of sales) during the year ended December 31, 1997.
The increase in expenses was primarily attributable to major development
programs instituted during 1997 and to the inclusion of the research and
development expenses from our San Diego facility acquired in the purchase of
ComStream in October 1998. We expect to continue to experience high research and
development expenses as we position ourselves to gain market share through the
introduction of new products.
We recorded stock option compensation expense of $1,566,000 in 1998 to
reflect the bonus and related expenses to be incurred as a result of the vesting
of 657,000 incentive stock options under the 1996 Incentive Stock Option Plan.
These options carry the right to a cash bonus of $1.72 per purchased share,
payable upon exercise. These options were fully vested by action of the Board of
Directors effective October 15, 1998.
We recorded restructuring costs of $3,100,000 in 1998 in connection with a
corporate restructuring cost-cutting initiative. This amount included (a)
$1,100,000 reserved for additional costs expected in connection with the
termination of approximately 25% of the ComStream work force and (b) $2,000,000
-25-
<PAGE>
reserved for costs related to the termination of a lease for a 125,000 square
foot facility in San Diego, including $700,000 in leasehold improvements which
were abandoned.
In connection with the acquisition of ComStream, we allocated $3,909,000 of
the purchase price to in-process research and development projects. This
allocation represents the estimated fair value based on risk-adjusted future
cash flows related to the incomplete projects. At the date of the acquisition,
the development of these projects had not yet reached technological feasibility
and the research and development in process had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.
Interest expense net of interest income increased to $1,199,000 (6% of
sales) during the year ended December 31, 1998 from $677,000 (5% of sales) for
the year ended December 31, 1997. The large increase in expense was primarily
attributable to our increased debt that, in turn, was primarily attributable to
the acquisition of ComStream.
For the year ended December 31, 1998, we did not provide for income taxes,
due to the current period net loss and our net operating loss carryforwards. We
also did not provide for income taxes for the prior period due to net operating
losses.
For the year ended December 31, 1998, we had a net loss of $14,538,000 as
compared with a net loss of $1,757,000 for the year ended December 31, 1997. The
increase in net loss was primarily attributable to the restructuring costs,
acquired in-process research and development, increased research and development
expense, the stock option compensation expense and the asset impairment charge.
Bookings for the year ended December 31, 1998 were $24,904,000 as compared
to $15,788,000 for the year ended December 31, 1997. The increase is primarily
attributable to the bookings included in the fourth quarter for the acquired
ComStream products.
Our Backlog of orders to be shipped was $8,606,000 as of December 31, 1998,
an increase of 79% over the $4,814,000 in Backlog as of December 31, 1997. Our
Backlog consists of firm orders as evidenced by written contracts and/or
purchase orders from customers.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED
DECEMBER 31, 1996
Our net sales increased 174% to $13,447,000 during the twelve month period
ended December 31, 1997 from $4,905,000 during the six months ended December 31,
1996. This increase was primarily attributable to the fact that the more recent
period was twelve months and the prior period was six months, and to the
introduction of our new product lines, which experienced exceptional market
acceptance.
Our cost of sales as a percentage of net sales decreased to 60% during the
twelve months ended December 31, 1997 from 83% for the six months ended December
31, 1996. During the six months ended December 31, 1996, adjustments to
inventory of approximately $491,000 (10% of sales) for obsolescence, of which
$364,000 was related to the introduction of new products (which essentially
rendered one entire older product line obsolete), and $340,000 (7% of sales) for
costs related to the introduction of new products were included in the cost of
sales as old product lines were replaced with new product lines. These products
included a new generation modem sub-system, which makes use of our proprietary
technology from older products while adding features and reducing future
manufacturing costs, and new digital video broadcast modems.
Selling, general and administrative costs increased to $4,242,000 or 32% of
sales during the twelve months ended December 31, 1997 from $1,438,000 or 29% of
sales for the six months ended December 31, 1996. The increase in expenses as a
percentage of sales was primarily attributable to growth and expenses incurred
for market penetration. The increase in pure dollars was also attributable to
the increased time frame of the later period over the prior period.
-26
<PAGE>
We recorded an asset impairment charge of $421,000 during the six months
ended December 31, 1996, to reflect a valuation adjustment to designs and
drawings which were partially impaired due to the introduction of new product
lines.
The valuation of designs and drawings was the result of adjustments made by
us to adopt "Fresh Start" reporting in accordance with AICPA Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code, and represents the excess reorganization value that was applied
to the acquired technology supporting our products. Amortization of designs and
drawings was computed using the straight-line method over an estimated useful
life of four to seven years. The remaining asset carried a net book value of
$472,000, amortized using the straight-line method over the remaining estimated
useful life of one to four years.
Research and development expenditures increased to $2,262,000 (17% of
sales) during the twelve months ended December 31, 1997 from $808,000 (16% of
sales) for the six months ended December 31, 1996. The increase in expenses was
primarily attributable to the increased time frame of the later period over the
prior period and to major development programs instituted during the fiscal year
ended December 31, 1997. It is anticipated that we will continue to experience
high research and development expenses as we position ourselves to gain market
share through the introduction of new products.
As of the last day of the fiscal period ended December 31, 1997, we held
approximately $600,000 worth of inventory, in the form of finished goods in a
ready-to-ship status, on the shipping dock for two orders placed with us which
were to be purchased with funds underlying international letters of credit. Due
to unexpected difficulties, the letters of credit were not received by the end
of the period and so the products were not shipped. The impact of these delayed
letters of credit was to delay shipment, and revenue recognition, of
approximately $945,000 in sales.
Interest expense net of interest income increased to $677,000 (5% of sales)
during the twelve months ended December 31, 1997 from $256,000 (5% of sales) for
the six months ended December 31, 1996. The large increase in expense was
primarily attributable to the increased time frame of the later period over the
prior period.
For the period ended December 31, 1997, we did not provide for income
taxes, due to the net loss. We also did not provide for income taxes, for the
six months ended December 31, 1996, due to the net loss.
For the twelve month period ended December 31, 1997, we had a net loss of
($1,757,000) as compared with a net loss of ($2,070,000) in the six month period
ended December 31, 1996. The decrease was primarily attributable to increased
sales with a lower percentage of cost of sales.
Bookings for the twelve months ended December 31, 1997 were $15,788,000 as
compared to $5,939,000 for the six months ended December 31, 1996. This increase
was a result of the increased time frame of the later period over the prior
period coupled with our increased effort, to rejuvenate our marketing strategy.
Our Backlog of orders to be shipped was $4,814,000 as of December 31, 1997,
an increase of 95% over the $2,473,000 in Backlog as of December 31, 1996.
Approximately $945,000 of our Backlog as of December 31, 1997 was due to the
effect of the late letters of credit from two orders as described above. One of
these orders was from South America and subsequently shipped. The other order
was from Indonesia and was subsequently cancelled.
-27-
<PAGE>
SIX MONTH PERIOD ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED
JUNE 30, 1996.
Our net sales increased 28% to $4,905,000 during the six month period ended
December 31, 1996 from $3,830,000 during the twelve months ended June 30, 1996.
This increase was primarily attributable to the introduction of our new product
lines which experienced exceptional market acceptance. Sales of products
introduced since July 1, 1995 increased from $434,000 for the fiscal year ended
June 30, 1996 to $3,477,000 for the six month period ended December 31, 1996.
Our cost of sales as a percentage of net sales increased to 83% during the
six months ended December 31, 1996 from 67% for the fiscal year ended June 30,
1996. There were two primary reasons for this increase in percentage. First,
there were adjustments to inventory of $491,000 (10% of sales) for obsolescence.
Of this amount, $364,000 was related to the introduction of new products which
essentially rendered one entire product line obsolete; $110,000 was related to
ongoing product development; and $17,000 was related to the valuation of excess
materials on hand. Second, $340,000 (7% of sales) of costs related to the
introduction of new products were included in the cost of sales for the period
ended December 31, 1996. These products included a new generation modem
sub-system which makes use of our proprietary technology from older products
while adding features and reducing future manufacturing costs. Also, we
introduced and shipped the new digital video broadcast modem, which experienced
exceptional market acceptance. Also contributing to the increase in cost of
sales as a percentage of sales were freight charges related to international
sales (2% of sales) and higher than anticipated warranty expense on some of our
older products (1% of sales).
Selling, general and administrative costs decreased to $1,438,000 or 29% of
sales during the six months ended December 31, 1996 from $1,844,000 or 48% of
sales for the fiscal year ended June 30, 1996. The decrease in expenses was
primarily attributable to the fact that the more recent period was six months
and the prior period was twelve months (approximately $922,000) and partially
offset by increased costs related to the higher level of business that we
experienced during the latter period (approximately $516,000).
We recorded an asset impairment charge of $421,000 during the six month
period ended December 31, 1996 to reflect a valuation adjustment to designs and
drawings, which were partially impaired due to the introduction of new product
lines.
Research and development expenditures decreased to $808,000 (16% of sales)
during the six months ended December 31, 1996 from $1,795,000 (47% of sales) for
the twelve months ended June 30, 1996. The decrease in expenses was primarily
attributable to the fact that the more recent period was six months and the
prior period was twelve months (approximately $808,000). Additionally, we
embarked on a major development program during the fiscal year ended June 30,
1996, in order to regain a competitive posture after two fiscal periods during
which we made no development effort (approximately $897,000).
Interest expense net of interest income decreased to $256,000 (5% of sales)
during the six months ended December 31, 1996 from $257,000 (7% of sales) for
the fiscal year ended June 30, 1996. The small decrease in expense was primarily
attributable to the fact that the more recent period was six months and the
prior period was twelve months (approximately $250,000), offset by additional
interest from our increased debt level (approximately $250,000).
For the six month period ended December 31, 1996, we did not provide for
income taxes, due to the net loss and net operating loss carryforwards from
prior periods. We also did not provide for income taxes for the twelve month
period ended June 30, 1996, for the same reasons.
For the six month period ended December 31, 1996, we had a net loss of
$2,070,000 as compared with a net loss of $2,625,000 in the twelve month period
ended June 30, 1996. The decrease was primarily attributable to the fact that
the more recent period was six months and the prior period was
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<PAGE>
twelve months as partially offset by the increase in cost of sales as a
percentage of sales and the expenses of increased business activity, and the
$421,000 asset impairment charge as discussed above.
Bookings for the six months ended December 31, 1996 were $5,939,000 as
compared to $4,184,000 for the year ended June 30, 1996. Our Backlog of orders
to be shipped was $2,473,000 as of December 31, 1996, an increase of 72% over
the $1,439,000 in Backlog as of June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the past five years we have financed our working capital
requirements, capital expenditures and the acquisition of ComStream through
borrowings from our principal shareholder and banks and the sale of common stock
to our shareholders through rights offerings.
We had a working capital deficit of $5,649,000 at September 30, 1999, which
represents an increase in our working capital of $3,155,000 from our working
capital deficit of $8,804,000 at December 31, 1998. Our working capital
increased primarily as a result of a reduction in current liabilities of
($4,797,000), primarily made up of a reduction in short-term notes payable
of ($2,080,000), a reduction in accounts payable of ($787,000), and in other
accrued expenses and short term capital lease obligations of ($1,930,000),
as offset by a reduction in current assets of ($1,643,000), made up of an
increase in cash of $1,367,000 and a decrease in accounts receivable of
($1,707,000), inventories of ($1,142,000) and prepaid expenses of ($160,000).
Net cash provided by/(used in) operating activities was $2,997,000 for the
nine months ended September 30, 1999; ($3,850,000) for the year ended December
31, 1998; and ($4,945,000) for the year ended December 31, 1997.
Cash used in investing activities was $235,000 for the nine months ended
September 30, 1999; $10,551,000 for the year ended December 31, 1998; and
$593,000 for the year ended December 31, 1997. The increase of almost
$10,000,000 in 1998 was related to the purchase of ComStream. We have no
material commitments to make capital expenditures in 1999 or thereafter.
Net cash (used in)/provided by financing activities was ($1,395,000) for
the nine months ended September 30, 1999; $14,086,000 for the year ended
December 31, 1998; and $5,922,000 for the year ended December 31, 1997. The net
cash provided from financing activities in 1998 and 1997 resulted from
borrowings under our bank credit line, as described below, and from ST, and in
1997 from the sale of shares of our common stock in a rights offering. In 1999,
net cash used in financing activities resulted from payments made to the bank
under our line of credit.
We have a $20,500,000 uncommitted credit line with Citibank, N.A. that
includes $20,000,000 available for borrowing and facilities of up to $500,000
for bank guarantees and/or standby letters of credit. All loans pursuant to the
bank line of credit are demand loans. The bank could demand repayment at any
time in which case we might have to use the proceeds of this offering and seek
additional financing to repay our line of credit. If we are required to seek
additional sources of financing to repay our line of credit, such financing may
not be available on terms that we consider acceptable or may not be available in
sufficient amounts to enable us to repay our obligations to the bank. Any of
these circumstances would have a material and adverse impact on our business,
financial condition, and results of operations. We
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<PAGE>
believe the bank's willingness to provide us with the line of credit is based in
part on the bank's relationship with ST. ST has provided the bank with a letter
of awareness in which ST states it (1) will endeavor to ensure that we utilize
sound financial and business practices in our operations and (2) ST will give
the bank at least 60 days' prior written notice of any divestment of our shares
held by ST or its affiliates. ST has not, however, guaranteed our indebtedness
to the bank and is under no obligation to do so or to otherwise satisfy our
debts if we fail to pay them when due. Borrowings under the line of credit bear
interest at a fluctuating rate equal to LIBOR plus 1% per annum or an
alternative Citibank Quoted Rate plus 1% per annum (rates of 6.125% and 6.938%
on balances owed at December 31, 1998 and 1997, respectively).
The credit agreement requires us to maintain certain financial leverage
ratios. Since December 31, 1998 we have not been in compliance with the covenant
in our loan agreement with the bank which requires us to limit our indebtedness
to no more than twice our tangible net worth. Our failure to comply with this
covenant or any other covenant contained in our loan agreement with the bank
could cause the bank to demand repayment of our loan. The bank has provided us
with a temporary waiver of our non-compliance with this covenant. We cannot
assure that the bank will continue to provide this waiver.
The availability of additional borrowings under the written credit
agreement expired on September 29, 1999 and we are currently operating under an
oral extension until the renewal agreement is executed. The credit agreement is
renewable annually at the option of Citibank. We owed principal of approximately
$12,920,000 at an interest rate of 6.59% to 6.94%, under the line of credit as
of September 30, 1999.
We also had a note payable to Spar Aerospace Limited in the amount of
$7,000,000. This note was issued on October 15, 1998 as partial consideration
for the acquisition of ComStream. The note matured on July 15, 1999 with
interest at 8% per annum. We negotiated a reduction in the note balance due
to Spar for the following reasons: (i) $521,000 reduction for our assumption
of $115,000 of liabilities from Spar and the waiver of Spar's obligation to
indemnify us against a $406,000 claim by a product assembly contractor for costs
incurred on ComStream's behalf prior to the acquisition, (ii) a $516,000
reduction in the note for certain inventory, and furniture and equipment
erronously carried on ComStream's pre-closing balance sheet. Because these
discrepencies were identified prior to the purchase price allocation, no
portion of our purchase price for ComStream was allocated to such inventory,
and furniture and equipment. Therefore, this $516,000 reduction has resulted
in a reduction in good will. The note was paid during the quarter ended
September 30, 1999. In addition, we negotiated a $278,000 reduction in interest
on the note ($188,000 of which had accrued in prior periods and has been
reported as extraordinary income in the current period).
.
We have financed the repayment of debt incurred for the ComStream
acquisition, certain restructuring costs, and our ongoing working capital needs
through (a) the rights offering pursuant to which we have offered approximately
$17,700,000 of common stock to our existing shareholders of record as of April
16, 1999, and (b) the existing bank line of credit. In the rights offering, we
issued rights to our shareholders entitling them to purchase an aggregate of
4,745,076 shares of our common stock at a purchase price of $3.73 per share. On
September 30, 1999, ST instructed us to capitalize the entire $15,618,272
principal amount of the debt we owed to ST in partial exercise of its rights
in the rights offering. In October 1999, ST exercised the balance of its
rights by paying cash to us in the amount of $423,700. We used these funds,
along with $932,200 of cash on hand to pay the accrued interest due to ST as
of September 30, 1999.
As of October 31, 1999 our shareholders have purchased 4,301,315 shares
in our rights offering, including ST's aggregate purchase of 4,300,800 shares,
at an aggregate purchase price of $16,043,904.
We used the net proceeds we received from ST's purchase of common stock in
the rights offering, together with $932,200 of cash in our reserves, to pay the
entire $15,618,272 principal amount of notes we owed to ST, plus all accrued
interest on such notes.
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<PAGE>
We believe that the proceeds of this offering, our bank credit lines and
cash from operations are likely to be sufficient to fund our planned future
operations and capital requirements for continued growth through the end of
2000.
YEAR 2000 COMPLIANCE
The Year 2000 issue concerns the fact that certain computer systems and
processors may recognize the designation "00" as 1900 when it is intended to
mean 2000, resulting in system failure or miscalculations. Other potential date
related errors may result from computer systems' inability to recognize the year
2000 as a leap year and a date such as January 1, 2001 (1-1-01, the first day of
the new millennium) may cause errors. All of these date-related issues are
commonly referred to as the Year 2000 issue, the Y2K problem or the Millennium
Bug. Commencing in 1997, we began a comprehensive review of our information
technology systems, upon which our day to day business operations depend, in
order to determine the adequacy of those systems in light of future business
requirements. Year 2000 readiness was one of the factors considered in the
review process. We have completed that review and certain upgrading and believe
that all of our mission critical systems are now Year 2000 compliant.
Our Year 2000 readiness plan also involves the review of our
non-information technology systems, a review that we consider to be complete.
The only noncompliance which we discovered relates to certain date functions in
diagnostic equipment, which functions we do not employ. However, it is possible
that the scope of the Year 2000 issue could be greater than originally believed
and that our efforts could prove inadequate.
As part of our comprehensive review, we are continuing to verify the Year
2000 readiness of third parties (vendors and customers) with whom we have
material relationships. A Year 2000 readiness survey was sent to all of our
material vendors and customers. We have received acceptable responses from all
of our mission critical vendors. We expect to receive responses from 70% to 80%
of our non-critical vendors. Efforts continue to obtain as many replies as
possible. In any event, we plan to increase some inventory levels to mitigate
any risk of inventory supply problems. We have also created a database to track
responses, problems and follow-up plans. While our assessments of the readiness
of our vendors are necessarily dependent upon their survey responses, we intend
to test their stated compliance where we determine that to be a necessary and
feasible step.
In evaluating the potential impact of vendor Y2K noncompliance, we believe
that the two worst case scenarios would likely be as follows. First, if the
electric utility at either of our principal facilities were to black out,
operations at that facility could essentially cease for the duration of the
problem. At this point those utilities have provided reasonable assurances of
their own Y2K compliance, although they are not in a position to rule out
potentially relevant problems elsewhere on the power grid. Second, if one of our
major circuit board suppliers were to report Y2K compliance, but then surprise
us with a shutdown, there would be an adverse impact on our delivery schedule.
However, since our contingency plan includes maintenance of a three-month
inventory of critical parts, we would expect to be able to replace the
noncompliant vendor in a timely enough manner to avoid a product delivery delay
of more than 30 days. However, we are not able to precisely determine the effect
on results of operations, liquidity and financial condition in the event our
material vendors and customers are not Year 2000 compliant. Our inability to
accurately forecast such effects may prevent us from taking necessary steps to
rectify any Year 2000 issues in advance. Moreover it is impossible to predict
the extent, if any, to which customers may allocate funds to the solution of
their own Year 2000 issues instead of purchasing our products. We will continue
to monitor the progress of our material vendors and customers and formulate a
contingency plan if and when we conclude that a material vendor or customer may
not be compliant.
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<PAGE>
We have completed a review of our products and determined that all but one
older ComStream product are Year 2000 ready. This product has a feature that
sequences dates incorrectly after January 1, 2000. We are notifying purchasers
and potential purchasers of this product, relatively few of which have been
sold, that they may have to reset certain features to correct this problem or
de-activate that particular feature.
While we believe our efforts to date are adequate to prevent any Year 2000
issue from having a material adverse effect on us, our assessment may turn out
to be inaccurate.
YEAR 2000 READINESS COSTS
-------------------------
Project Statistics:
Cost to 10/31/99 (labor) $90,000
Estimated cost at completion $105,000 to $120,000
<TABLE>
<CAPTION>
SYSTEM
INVENTORY ASSESSMENT REMEDIATION UNIT TESTING TESTING
---------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Percentage Completed 100% 100% 100% 95% 85%
Completion Date 4/30/99 6/30/99 7/31/99 11/15/99 11/15/99
</TABLE>
IMPACT OF INFLATION
We do not believe that inflation has had a material impact on revenues or
expenses during the last four fiscal periods reported on herein.
ACCOUNTING MATTERS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130) which became effective for us on January 1, 1998. SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. The Company
had no items of comprehensive income. Therefore, the adoption of SFAS No. 130
had no effect on us.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131) which became effective for us
on January 1, 1998. SFAS No. 131 establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim reports issued to stockholders. The adoption of
SFAS No. 131 did not have a material impact on us.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits" (SFAS No. 132) which became
effective for us on January 1, 1998. SFAS No. 132 establishes standards for the
information that public enterprises report in annual financial statements. The
adoption of SFAS No. 132 did not have a material impact on us.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133) which became effective for us on July 1,
1999. The adoption of SFAS No. 133 did not have a material impact on us.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk on our financial instruments from changes in
interest rates. We do not use financial instruments for trading purposes or to
manage interest rate risk. Increases in market interest rates would not have a
substantial adverse effect on profitability.
Our financial instruments consist primarily of short-term variable rate
revolving credit lines, and fixed rate debt. Our debt at September 30, 1999
consisted of notes payable under a line of credit agreement.
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BUSINESS
OVERVIEW
We design, manufacture, and sell equipment used in the ground-based portion
of satellite communication systems to receive data from, and transmit data to,
satellites. We also design, manufacture, and sell equipment used in cable
television systems. Our products are used in applications for telephone, data,
video and audio broadcast communications, private and corporate data networks,
Internet applications, and digital television for cable. We serve customers in
over 80 countries including customers in the television broadcast industry,
international telecommunications companies, Internet service providers, private
communications networks, and the United States government.
Our products have been utilized in major communications systems worldwide,
including the following:
The world's highest capacity domestic, digital satellite telephone
network - PT Telkom, Indonesia.
Italy's first digital telephone/data network - Telespacio, Italian
Railways.
Colombia's first alternate telecommunications network - Americatel.
Earth stations for the first international satellite links in China,
India, Pakistan, Brazil, Haiti and Zambia.
The world's largest private satellite broadcast network - Reuters.
International Cablecasting Technologies - utilizing 40,000 digital
audio broadcast receivers.
INDUSTRY OVERVIEW
Satellite technology has been established as a key element in the growth of
communications systems. Satellites enable high-speed communications service
where there is no suitable alternative available. Unlike the cost of land-based
networks, such as microwave and fiber cable, the cost to provide services via
satellite does not increase with the distance between sending and receiving
stations. Satellite networks can be rapidly installed, upgraded, and
reconfigured as compared with land-based networks, which require rights-of-way
and are expensive and time consuming to install and upgrade. The three principal
categories of satellite communications service applications are fixed satellite
services, mobile satellite services, and direct broadcast services.
Fixed Satellite Services. Fixed satellite services provide point-to-point
and point-to-multipoint satellite communication of voice, data, and video
between fixed ground-based earth stations. The introduction of high-power
satellites has created additional growth within the fixed satellite services
segment by enabling the use of smaller, less costly earth stations for
applications such as corporate data networks, intranet access, and rural
telephony.
Mobile Satellite Services. Mobile satellite services operate between fixed
earth stations and mobile user earth stations, or terminals. These services
provide mobile voice and data transmission capability on land, sea, and air. New
mobile satellite services are being developed to bring more extensive coverage
and circuit reliability for mobile telephone and data services to underserved
populations throughout the world.
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<PAGE>
Direct Broadcast Services. Direct broadcast satellite services provide a
direct transmission link from high-power satellites to customers over a wide
geographic area. This includes direct-to-home television services, direct
broadcast data services, and Internet access.
Satellite communication systems used to provide these services consist of
two elements: satellites (the "space segment") and ground-based transmission and
reception systems (the "ground segment"). The space segment consists of a single
satellite or a constellation of satellites in earth orbit, which typically
provide continuous communications coverage over a wide geographic area. These
satellites typically contain multiple transponders, each of which is capable of
simultaneously receiving and transmitting one or more signals to or from
multiple users. The satellite ground segment consists principally of one or more
earth stations. An earth station is an integrated system consisting of antennae,
radio signal transmitting and receiving equipment, a satellite modem, a
frequency controller, and voice, data, and video network interface equipment.
Earth stations provide a communications link to the end user either directly or
through land-based networks.
We have participated principally in the ground segment products, systems,
and networks portion of the market. The Satellite Industry Association estimates
the global market for satellite ground equipment and integration services was
$15.2 billion in 1998, of which our management estimates $800 million was for
the type of equipment we develop, manufacture, and market.
INDUSTRY GROWTH
We believe that growth in demand for satellite system ground-based
equipment has been and will continue to be driven by, among other things, the
growth of satellite-delivered communications services such as the fixed, mobile,
and direct broadcast services described above. According to the Satellite
Industry Indicators Survey: Selected 1998 Survey Results conducted by the
Satellite Industry Association and Futron Corporation, total revenues for
providers of satellite communications services grew at an 18% compound growth
rate to $26.2 billion in 1998, from $21.2 billion in 1997 and $15.9 billion in
1996.
We believe that future growth in satellite communications services will be
driven principally by the following major factors:
Global deregulation and privatization of government-monopolized
telecommunications carriers, which will stimulate growth in the
communications industry in general.
Growing worldwide demand for communications services in general,
including data communications services over the Internet and corporate
intranets.
The relative cost-effectiveness of satellite communications for many
applications, such as digital television delivery.
Technological advancements that broaden applications for and increase
the capacity in satellite networks.
Deregulation and Privatization. Many developing countries that had
previously not committed significant resources to or placed a high priority on
developing and upgrading their communications systems are now doing so,
primarily through deregulation and privatization. A significant number of these
countries do not have the resources, or have large geographic areas or terrain
that make it difficult, to install extensive land-based networks on a
cost-effective basis. This provides an opportunity for satellite communications
services systems to meet the requirement for communications services in these
countries.
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<PAGE>
Growing Worldwide Demand for Communications Services. Factors contributing
to the growing demand for communications services include worldwide economic
development and the increasing globalization of commerce. Businesses have a
growing need for higher bandwidth services to communicate with their customers
and employees around the world and are increasingly reliant upon Internet and
multimedia applications. We expect demand for these kinds of higher bandwidth
services to grow in both developed and developing countries.
Cost-Effectiveness of Satellite Communications. The relative
cost-effectiveness of satellite communications services is a major factor
driving the growth of satellite communications services in areas with rapidly
growing telecommunications infrastructures. Large geographic areas, where
population concentrations are separated by significant distances, require a
technology whose cost and speed of implementation is relatively insensitive to
distance. Unlike the cost of land-based networks, the cost to provide services
via satellite does not increase with the distance between sending and receiving
stations.
Technological Advances. Technological advances continue to increase the
capacity of a single satellite and reduce the overall cost of a system and the
service it delivers. This increases the number of potential end-users for the
services and expands the available market. We believe that recent technological
developments such as bandwidth on demand, digital television compression
technology, and signal processing methods will continue to simulate the demand
for the use of satellite communication services.
MARKET OPPORTUNITIES
Satellite communication systems provide a number of advantages over
land-based networks for a variety for applications. We have identified several
key markets and customer groups that we believe provide opportunities to sell
our products.
International and Rural Telephony
Satellite communication systems enjoy advantages in international
telecommunications markets for several reasons:
It is not cost-effective to utilize land-based networks in many areas
of the world, especially developing countries where modern
communications capabilities are just beginning to develop.
All areas within a satellite beam receive the same level of service,
making it highly attractive in rough terrain or underdeveloped
regions.
Satellites can be deployed much more rapidly to offer international
services.
We believe there are certain communication requirements that can be
reasonably satisfied only with satellite systems. For example, satellite
communications offer a cost-effective solution that can be installed relatively
quickly to provide communications services in remote or sparsely populated
areas, in rugged or in mountainous terrain, or in nations composed of many
islands, a geographical feature which is relatively common in the Pacific
region.
The potential to reach areas of low subscriber density without costly
construction of land-based networks makes satellite communication systems a
viable solution for rural telephony systems. Rural telephony can be described as
an intra-country telecommunications network linking many remote locations, such
as small villages or islands in the Philippines. These networks allow villages
to communicate with each other and with the world. In a typical rural telephony
system, a small village
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<PAGE>
might install a satellite earth station in a central location such as the local
post office. Residents then use this convenient location to communicate
throughout the country and the world.
Private Networks
As businesses and other organizations expand into regions of the world
where the telecommunications infrastructure is inadequate for land-based
networks, the need for alternative communications connections among multiple
facilities becomes evident. A private network is a dedicated communications
and/or data transmission network. Such a network may link employees of a
multiple-location business with co-workers located throughout the world. Users
can consolidate multiple-applications over a single satellite network and
receive the same quality of service at a lower over-all cost. We believe the
satellite communications industry is poised to gain a foothold in this market by
offering reliable high-speed connectivity. Satellite systems can bypass the
complexity of land-based networks, multiple carriers, and varying price and
billing schedules.
Information and Radio Broadcasts
Satellites are an ideal transmission medium for broadcast services, as a
single satellite has the ability to communicate with ground locations spread
across up to one-third of the surface of the earth. Financial news providers,
merchandise retailers, and others use satellite systems to provide financial
data and other audio and video transmissions for a variety of applications, such
as news wire services and supermarket in-store radio.
Television Video Distribution
Compressed digital video is a recently developed technology that provides
significant new market opportunities for the satellite communications industry.
The development of digital compression technology allows the transmission of
television signals via satellite in a smaller bandwidth than is currently
possible through alternative technologies. This advance in communications
technology is enabling a wider application of satellite solutions for television
and video broadcast services, including the following:
Satellites provide television broadcasters with an efficient and
economic method to distribute their programming to cable service
providers and direct broadcast satellite operators.
Compressed video encoding and decoding make satellites available for
less demanding video transmissions, including business
teleconferencing, private business networks and telemedicine.
The economics of the new compressed video allow the use of satellite
transmission for long-distance teaching applications.
Digital cinema distribution is emerging as a viable alternative to the
physical distribution of feature length films.
There is an emerging market to provide data and video directly to the
personal computer via satellite.
Internet Communications
The Internet is evolving into a global medium, allowing millions of
individuals throughout the world to communicate, share information, and engage
in electronic commerce. According to the International Data Corporation, the
number of people worldwide accessing the Internet will grow from approximately
100 million at year end 1998 to 320 million by 2002. This growth is expected to
be driven by the large and growing number of personal computers installed in
homes and offices, the declining
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prices of personal computers, improvements in network infrastructure, the
availability of faster and cheaper Internet access, and the increasing
familiarity with and acceptance of the Internet by businesses and consumers.
Internet usage also is expected to continue to grow rapidly due to unique
characteristics that differentiate it from traditional media, such as real-time
access to interactive content, real-time communication capabilities, and the
absence of geographic or temporal limitations.
According to DTT Consulting, a satellite industry consulting and research
firm, there has been significant growth in the use of satellites for Internet
traffic in recent years. This growth has been centered on connecting Internet
service providers, or ISPs, with Internet servers. According to DTT Consulting
estimates, there were 948 satellite ISP links in operation in January 1999, up
from 222 at the same time in the prior year. Satellite capacity is being used
for ISP links primarily where fiber cable is prohibitively expensive or rare,
such as in underdeveloped or emerging countries or where there is insufficient
transoceanic fiber. Although ISPs rarely use satellites to provide
point-to-point infrastructure for the Internet within the United States, the
following table sets forth data that indicates that nearly one in ten ISPs
worldwide use satellite capacity to link with an Internet server for
point-to-point traffic.
INTERNET SERVICE PROVIDERS CONNECTIONS BY REGION
As of January 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
% ISPS
GEOGRAPHIC AREA NO OF ISPS NO. SATELLITE LINKS CONNECTED VIA SATCOMS*
--------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Western Europe 2273 84 3.7%
CEE and CIS** 359 280 78.0%
Sub-Saharan Africa 288 131 45.5%
Latin America 577 138 23.9%
Middle East & North Africa 156 48 30.8%
Asia 825 85 10.3%
Australasia 748 86 11.5%
North America 4512 96 2.1%
Total 9738 948 9.7%
Source: DTT Consulting
- --------------------------------------------------------------------------------------------
</TABLE>
* Satcoms are communications satellites.
** CEE stands for Central and Eastern Europe and CIS stands for the Commonwealth
of Independent States.
We expect satellite communications to continue to offer a cost-effective
augmentation capability for Internet service providers, particularly in markets
where land-based networks are unlikely to be either cost-effective or abundant,
such as rural areas. Additionally, satellite broadcast architecture provides an
attractive alternative for Internet service providers, which presently are
dealing with the bottlenecks associated with rapid and uneven Internet growth.
Satellite systems can relieve congestion by providing a low-cost means of
selectively distributing content to sites closer to end-users. Today, only 1,000
Websites represent over 80% of the most frequently accessed content on the
Internet. These Web pages can be transmitted via satellite at regular intervals
to designated server destinations and then stored in servers for local users to
access. This cached content reduces the need to retrieve the most popular data
from the source, thus reducing delays and congestion on the Internet. Likewise,
we expect Internet multicasting to serve as a solution for the distribution of
large applications, such as database updates.
-38-
<PAGE>
Government and Military
The United States government provides a significant market opportunity for
satellite equipment manufacturers as the defense budget shrinks and government
policies encourage the use of commercial off-the-shelf components whenever
feasible. This provides us with the opportunity to configure our standard
products for a customer that is sizable and likely to provide consistent
business.
STRATEGY
Our business goals are to expand our market share in our ground-based
satellite systems business and improve profitability. We intend to achieve these
goals through the following strategies:
Target Providers of Fixed, Mobile, and Direct Broadcast Communications
Services Worldwide. We plan to target developing markets that we believe will
account for a significant portion of the demand for satellite-based systems.
These markets typically lack terrestrial infrastructure adequate to support
demand for domestic and international communications services. We plan to target
providers of rural telephony services and Internet service providers in
developing markets because we believe they will rely extensively upon satellite
communication solutions. In developed countries, we plan to target emerging
satellite communications service providers such as those offering direct
broadcast applications.
Exploit New Applications for Our Existing Satellite Technology. We plan to
adapt existing products for use in the Internet broadband, cable television, and
television news gathering markets, which utilize digital receivers and
transmission equipment using many of the same modulation, coding, interface, and
protocol technologies as the satellite business. We have adapted some of our
products for the television distribution market, including satellite modems that
we converted for use in cable television systems. We also recently entered into
a strategic relationship with a major producer of compressed digital television
systems. Under this arrangement, our strategic partner will utilize our products
in cable systems that it markets to cable television system operators.
Develop New Products to Exploit New Market Opportunities. We plan to use
our international sales force and our research and development capabilities to
identify new market opportunities and develop new products to exploit these
opportunities. We intend to develop new products to penetrate and increase our
presence in the markets for Internet communications, rural telephony for
developing markets, high-speed satellite communications, government data
equipment, cable television distribution, and private networks for businesses
and governments.
Provide High-Margin Customized Products to Niche Markets. We design our
products so we can adapt them to differing specifications with minimal
engineering. We plan to design and produce customized products for niche
markets, particularly military and government markets, which require customized
technology.
Pursue Strategic Acquisitions. We intend to pursue strategic acquisitions
of competitive or complementary companies in order to gain market share,
increase our revenues, expand our product line, improve our sales force or
increase our profitability.
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<PAGE>
PRODUCTS
We offer the following product families:
Satellite modems and earth stations.
Frequency converters.
Data, audio, and video broadcast equipment.
Digital video broadcast (DVB) and high speed modems.
Cable and microwave modems.
Satellite Modems and Earth Stations
We produce satellite modems that are sold individually and earth stations
that are a bundled solution built around our satellite modems. Satellite modems
transform user information, such as data, video or audio, into a signal that can
be further processed for transmission via satellite. We produce several
varieties of satellite modems, which operate at different speeds using a variety
of modulation techniques.
Our earth stations commonly consist of several components, including a
satellite modem, a frequency converter, a transceiver, a transmitter, and an
antenna. Earth stations serve as an essential link in transmitting signals to,
and receiving signals from, satellites. Our earth stations enable users to
program power levels and operating parameters in order to compensate for low
signal levels, extreme weather conditions, and other variables. We design and
manufacture our earth stations using components that we manufacture as well as
components that we obtain from other manufacturers.
Our Star Network Management System augments these product offerings. The
Star Network Management System, which consists of a Windows NT'r' point and
click system, is used to remotely monitor and maintain the functioning of an
entire network of modems, earth stations, and ancillary equipment. This can be
done from a single location, thereby eliminating the need to travel to each
remote location. This system provides local and remote modem management, control
of the equipment connected to the modems and earth stations, collection of
network status and alarm information, remote channel monitoring, and dial-up
control.
The following diagram illustrates the operation of a standard satellite
telephony system:
[Picture titled "Satellite Modems and Earth Stations" that depicts the use of
our products to transmit data from a user through an earth station to a
satellite, from the satellite to a remote earth station, and finally to the
end user.]
Frequency Converters
We currently market two varieties of converters used to transmit signals to
satellites and three converters used to receive signals relayed from satellites.
We also produce a redundancy control unit, which will switch a satellite system
to stand-by equipment in the event of a malfunction in a satellite modem or
converter. Such redundancy is a critical element for many of our customers, such
as rural or international telephony networks, that strive to provide
uninterrupted satellite communications services to their customers.
Each satellite is configured to receive or transmit a particular radio wave
pattern, otherwise called a frequency band, which is typically different from
the frequency of the satellite modem. Frequency converters are used to alter the
input/output of a satellite modem into a wave pattern that can be interpreted by
the particular satellite being used in the satellite system to relay
communication signals.
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<PAGE>
Data, Audio and Video Broadcast Equipment
Our digital audio distribution products provide radio networks, service
providers, and merchandise retailers with a satellite distribution system for
the broadcast of in-store advertising and background music. Our data
distribution products deliver real-time, high-value data and digital video
broadcast services. To date, the primary customers for our data distribution
products have been participants in the financial industry. For example, our
IntelliCast Digital Data Broadcast Receiver is used by customers, such as
Reuters, to distribute financial information, up-to-date news stories, or image
files of weather information and database updates from a central location to
many remote outlets.
Our Mediacast Satellite PC/Receiver card allows personal computers to
request information over a telephone link and then receive a digital video
broadcast of a wide range of data, audio, and video information directly from a
satellite. This speeds the reception of information, particularly in regions
with underdeveloped telephony, and is often used by Internet service providers.
[Picture titled "Broadband" depicting the use of our data broadcast receivers
to transmit data from a single broadcast source to a satellite from the
satellite to mulitple receiver sites.]
Digital Video Broadcast (DVB) and High Speed Modems
Our DVB modems facilitate the transmission of high-quality video images
among multiple locations via satellite. These modems utilize digital compression
technology that allows users to transmit television signals in a smaller
bandwidth than is possible using older technology, thereby making television
transmission by satellite more economical. Video compression allows for the
transmission by satellite of a much higher number of channels than was
previously the case, thus producing a significant new market for our products.
Satellites are often used in industries where live, high-quality video images
are essential, such as direct television broadcasts.
Our high-speed digital modems transmit a greater volume of data than
standard satellite modems. Our modems are used in large satellite system
connections that transmit significant amounts of data at high speeds. Internet
service providers and government agencies are principal customers for our
high-speed and digital high-speed products.
Cable and Microwave Modems
Our cable modems are used primarily in the distribution of digital video
for use by cable television distributors and in high-definition television. The
design of our cable modems allows for the transmission of digital video on
terrestrial, broadband cable and enables system operators to manage and control
the available bandwidth. Our microwave modems transmit over microwave
frequencies and usually feature high-speed and multidata-rate capabilities that
provide a complete point-to-multipoint communication link that facilitates
microwave link upgrades. For example, television stations use our microwave
modems to transmit audio and video over a microwave link to and from digital
news gathering trucks.
RESEARCH AND DEVELOPMENT
We conduct an active and ongoing research and development program that
focuses on advancing technology, developing improved design and manufacturing
processes, and improving the overall quality of the products we provide. Our
goal is to provide our customers with new solutions that address their needs.
Our research and development personnel concentrate on technology for the
satellite communications, telecommunications, and cable television industries.
Our future growth depends on increasing the market share of our new products,
adapting our existing satellite communications products to new applications, and
introducing new communications products that will find market acceptance and
-41-
<PAGE>
benefit from our established international distribution channels. Accordingly,
we are actively applying our communications technology expertise to improving
the performance of our existing products and developing new products to serve
existing and new markets.
We work closely with our customers and potential customers to assess their
needs in order to facilitate our design and development of new products. We
believe that this approach minimizes our development risk and improves the
potential for market acceptance of our product introductions. Additionally, we
use information obtained from our customers and our technological expertise to
develop custom-designed products for our customers' special applications.
Research and development expenses amounted to $6,730,000 for the nine
months ended September 30, 1999, $4,296,000 for the year ended December 31, 1998
and $2,262,000 for the year ended December 31, 1997, $808,000 for the six months
ended December 31, 1996 and $1,795,000 for the year ended June 30, 1996. A
number of new products were either launched or reached an advanced stage of
development during these periods.
We expect our total research and development expenditures for fiscal
1999 to more than double the expenditures for fiscal 1998 and to increase
further in fiscal 2000. Much of the increase is due to developmental
products acquired in the ComStream acquisition, but the remainder is directly
related to our ongoing commitment to expand our product line and penetrate new
markets. We intend to use a significant portion of the proceeds of this offering
to fund our research into Internet-related products for satellite ISP links,
personal receiver cards, and other new products. We also plan to target our
research and development activities at digital audio, video, and data products.
SALES AND MARKETING
We sell our products through an international sales force with sales and/or
service offices in San Diego, Phoenix, Boca Raton, Beijing, Singapore, London,
Amsterdam, and Jakarta. Our direct sales force consists of 14 individuals
supported by systems and applications engineers. We focus direct sales
activities on expanding our international sales by identifying emerging markets
and establishing new customer accounts. Additionally, we directly target certain
major accounts that may provide entry into new markets or lead to subsequent
distribution arrangements. International representatives, distributors and
systems integrators sell our products, supported by our sales and marketing
personnel.
We participate in approximately six trade shows each year. We also generate
new sales leads through advertising in trade magazines, direct mail, and our Web
site.
We maintain a customer service and support staff that primarily supports
customers and distributors and is responsible for after-sale support and
installation supervision. In certain instances, we use third-party companies to
install and maintain our products at our customers' sites.
CUSTOMERS
Our customers generally include national and international
telecommunications providers, digital television users, including broadcast and
cable networks, Internet service providers, financial information providers,
systems integrators, and the U.S. government.
For the nine months ended September 30, 1999 and the year ended December
31, 1998, no single customer represented more than 10% of our net sales. During
the year ended December 31, 1997, one customer represented 14.5% of our net
sales. Because of the nature of our business, we anticipate that customers that
represent 10% or more of our total revenue will vary from period to period
depending upon the placement of significant orders by a particular customer or
customers in any given year.
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<PAGE>
Our sales in our principal foreign markets for the periods indicated
consisted of the following percentages of our total net sales:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
REGION 12-31-98 12-31-97
------ -------- --------
<S> <C> <C>
Asia 7% 32%
Latin America 9% 12%
Europe 31% 7%
Others 3% 5%
--- ---
Total Exports 50% 55%
</TABLE>
We believe that the amount of our total exports may rise in subsequent
periods. We consider our ability to continue to sell our products in developing
markets to be important to our future growth. We may not, however, succeed in
our efforts to cultivate such markets.
COMPETITION
We have a number of major competitors in the satellite communications
field. These include large companies, such as Hughes Network Systems, NEC and
the Adaptive Broadband Corp., all of which have significantly larger and more
diversified operations and greater financial, marketing, human and other
resources than we possess. We estimate that our major competitors in the
principal markets in which we compete have the following market shares as
compared to our market share:
<TABLE>
<CAPTION>
DIGITAL VIDEO
SATELLITE MODEMS BROADCAST & GOV'T & MILITARY DATA, AUDIO &
COMPETITOR & EARTH STATIONS HIGH SPEED MODEMS MODEMS VIDEO BROADCAST
- ---------- ---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Adaptive Broadband 19% 30% 35% *
Hughes Network Systems 19% * * *
SSE Telecom 8% * 10% *
NEC 24% * * *
Wegener * * * 25%
IDC * * * 25%
Radyne ComStream 8% 35% 35% 40%
</TABLE>
- ----------------------
* Competitor does not participate in product category.
We do not believe that any other single competitor has a greater than 10%
market share for any of these product classes. However, the foregoing market
share figures represent estimates based on the limited information available to
us, and we cannot assure you that it is accurate.
We compete by concentrating our sales efforts in the international market
and emphasizing our product features and quality. We believe that the quality,
performance, and capabilities of our products, our ability to customize certain
network functions, and the relatively lower overall cost of our products as
compared to the cost of the competing products generally offered by our major
competitors represent major factors in our ability to compete. However, our
major competitors have the resources to develop products with features and
functions that are competitive with or superior to our products. Competition
from current competitors or future entrants in the markets in which we compete
could cause us to lose orders or customers or could force us to lower the prices
we charge for our products.
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<PAGE>
We believe we are well-positioned to capitalize on the
increased demand for satellite ground segment systems and that our future
success in this market will be based upon our ability to leverage our
competitive advantages, which include the following:
An experienced management group, which has extensive technological and
engineering expertise and excellent customer relationships. The
members of our management team have an average of over 20 years of
experience in the satellite communications industry.
Our expansive line of well-known, well-respected, off-the-shelf,
state-of-the-art equipment that enables us to meet our customers'
requirements.
Our ability to custom design products for our customers' special
applications and to provide a one-stop shopping option to our
customers.
Our ability to meet the complex satellite ground communications
systems requirements of our customers in diverse political, economic,
and regulatory environments in various locations around the world.
Our worldwide sales and service organization with the expertise to
successfully conduct business internationally through sales and
service offices staffed by our employees in most of our major markets
throughout the world, including in Beijing, Singapore, London,
Jakarta, and Amsterdam.
Our October 1998 acquisition of ComStream, which:
significantly expanded our product line,
enhanced our sales force,
increased our market share, and
increased our profitability.
MANUFACTURING
We assemble and test certain of our products at our Phoenix, Arizona and
San Diego, California facilities using subsystems and circuit boards that we
obtain from subcontractors. We obtain the remainder of our products, completely
assembled and tested, from subcontractors. Although we believe that we maintain
adequate stock to reduce the procurement lead time for certain components, our
products use a number of specialized chips and customized components or
subassemblies produced by a limited number of suppliers. In the event that such
suppliers were unable or unwilling to fulfill our requirements, we could
experience an interruption in production until an alternative supply source was
developed. We maintain an inventory of certain chips and components and
subassemblies to limit the potential for such an interruption. We believe that
there are a number of companies capable of providing replacements for the types
of chips and customized components and subassemblies used in our products.
In 1999, our Phoenix facility was awarded ISO-9001 certification, the
international quality control standard for research and development, marketing,
sales, manufacturing, and distribution processes. This certification will assist
in increasing the acceptance of our products in foreign markets. We intend to
pursue certification of our San Diego facility. We cannot provide assurance,
however, that certification will be granted.
INTELLECTUAL PROPERTY
We rely on our proprietary technology and intellectual property to maintain
our competitive position. We protect a significant portion of our proprietary
technology as trade secrets by relying on confidentiality agreements with our
employees and some of our suppliers. We also control access to and distribution
of confidential information concerning our proprietary information.
-44-
<PAGE>
We also have a number of patents which protect some of our proprietary
technology. We have been cautious in seeking to obtain patent
protection for our products, since patents often provide only narrow protection
that may not prevent competitors from developing products that function in a
manner similar to those covered by our patents. In addition, some of the foreign
countries in which we sell our products do not provide the same level of
protection to intellectual property as the laws of the United States provide. We
will continue to seek patent protection for our proprietary technology in those
cases where we think it can be obtained and will provide us with a competitive
advantage.
EMPLOYEES
As of September 30, 1999, we had 182 full-time employees, including three
executive officers, 120 in engineering and manufacturing, 31 in marketing
operations, and 28 in administration. None of our employees are represented by a
union in collective bargaining with us. We believe that our relationships with
our employees are satisfactory.
FACILITIES
In order to accommodate our recent growth, we moved into new leased
facilities in both Phoenix, Arizona and San Diego, California in late 1998. We
currently have 76,000 square feet available in Phoenix and 66,400 square feet
available in the San Diego facility. The lease for our Phoenix facility expires
in July 2008 and we have an option to renew for two consecutive terms of five
years each. The lease for our San Diego facility expires in March 2005 and we
have an option to renew for two consecutive terms of five years each. We expect
these facilities will be adequate for meeting our needs in the immediate future.
We also have regional sales and service offices in Beijing, Singapore,
London, Jakarta, and Amsterdam. All of these facilities are leased.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive
officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --------- -----------------------------------------------------------------
<S> <C> <C>
Robert C. Fitting.................... 64 Director, Chief Executive Officer and President
Steven W. Eymann..................... 46 Executive Vice President and Chief Technical Officer
Garry D. Kline....................... 49 Vice President of Finance, Chief Financial Officer and Secretary
Ming Seong Lim....................... 51 Chairman of the Board
Yip Loi Lee.......................... 55 Director
Robert A. Grimes..................... 46 Director
Dennis W. Elliott.................... 57 Director
Kum Chuen Tang....................... 44 Director
</TABLE>
Robert C. Fitting has been Chief Executive Officer since October 1998 and
has been President since February 1995. He became a Director in March 1995. Mr.
Fitting has a Master of Electrical Engineering degree from New York University
and a Bachelors with distinction from Penn State University. His professional
career began at Bell Laboratories in 1962, where he spent six years developing
innovative communication technologies. Mr. Fitting then joined the Motorola
Government Electronics Division, where he was an engineering manager. He
published more than a dozen technical papers and was awarded a number of
patents. Mr. Fitting left Motorola in 1978 to build a new company under an
agreement with Comtech Telecommunications. The new company was named Comtech
Data Corporation, currently known as Fairchild Data Corporation. Mr. Fitting was
the General Manager and President of Comtech Data Corporation from 1978 to 1984.
In August 1984, Mr. Fitting left Comtech, along with Steven Eymann, to start
EFData Corporation. As co-founder, CEO, and President of EFData Corporation, Mr.
Fitting built the company into a worldwide market leader in satellite
communications equipment. While at EFData, Mr. Fitting won the "Arizona
Entrepreneur of the Year" award in 1993 in the manufacturing/high technology
category. Mr. Fitting left EFData in February 1995 to join our company.
Steven Eymann has been Chief Technical Officer since October 1998 and has
been our Executive Vice President since February 1995. Mr. Eymann graduated with
honors and a Bachelor of Science in Electrical Engineering from the University
of Nebraska. His professional career began in 1974 at the Motorola Government
Electronics Division, where he was a design engineer, task leader and finally a
project leader for the DSU-23/29B fuse development program. As project leader,
he was responsible for project management, budgets, schedules, and design and
testing of the fuse. He designed the computer-controlled automatic test set for
factory testing based on a HP 9825 computer. The DSU-23/29B is a L-Band PN radar
for accurate, low-cost altitude direction. In June 1981, Mr. Eymann joined
Comtech Data Corporation, where he was Director of Product Development. Mr.
Eymann was responsible for budget, schedule, and technical aspects of all new
product development within Comtech. Prior to becoming the Director of Product
Development, he served as a senior engineer with program and technical design
responsibility. He left Comtech in 1984, along with Robert Fitting, to start
EFData Corporation. As co-founder and Vice President of EFData, Mr. Eymann was
responsible for new product development and engineering management in the design
and manufacture of high technology, military
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<PAGE>
and commercial communications equipment. Mr. Eymann left EFData in February 1995
to join our company.
Garry D. Kline, Vice President of Finance, Chief Financial Officer and
Secretary, joined our company in September 1995. From that time until July 1997
he was Secretary and Controller. From 1987 until September 1995, Mr. Kline
served as CFO and Controller of EFData Corporation. Prior to 1987, Mr. Kline
served in various positions, including Vice President of Finance for Megatronics
Inc., a publicly held printed circuit board manufacturer, Vice President of
Operations for Vernal Lodging Associates, a hospitality management company, and
General Partner of Tax and Accounting Computer Service, an accounting firm.
Ming Seong Lim has been a Director and Chairman of the Board since August
13, 1996 and is chairman of the Compensation Committee. He is the Chairman of
Stetsys Pte Ltd and Stetsys US, Inc., members of the Singapore Technologies
group. He has been Group Director of Singapore Technologies Pte Ltd, since
February 1995. From March 1992 until February 1995, he was Executive Director
of Singapore Technologies Ventures Pte Ltd and from February 1990 to March
1992, he was Group President of Singapore Technologies Holdings Pte Ltd.
Prior to that time he held various corporate and government positions,
including Deputy Secretary in the Singapore Ministry of Defense from 1979
to 1986.
Yip Loi Lee has been a Director since August 13, 1996 and is chairman of
the Audit Committee and a member of the Compensation Committee of the Board. He
was Regional Director (America) of Singapore Technologies Pte Ltd from March
1994 until December 1998, and from May 1990 to January 1997 he was President of
its affiliate, Metheus Corporation. Prior to that time he held a number of
managerial positions with such corporations as Morgan Guaranty Trust and
Singapore Technologies Pte Ltd and government positions with the Singapore
Ministries of Education, Defense, Culture and Home Affairs. Mr. Lee is currently
a director of Stetsys Pte Ltd, Stetsys US Inc., California Avitron Corporation,
Tritech Microelectronics Ltd, and Vertex Management, Inc.
Robert A. Grimes, who is a member of the Audit and Compensation Committees
of the Board, has served as a member of the Board of Directors since December
1994. He has been President of Pinkerton Systems Integration since 1998. From
1991 to 1998, Mr. Grimes served as a member of the Board of Directors of
Engineering and Technical Services, Inc., of which he was President until
December 31, 1997. He was also the President of Stetsys US, Inc. from
February 24, 1997 to January 23, 1998.
Dennis W. Elliott has been a Director and a member of the Audit and
Compensation Committees since October 1998. He has been the President of Elliott
Communications Co., a technology/marketing consulting concern involved in
advising companies on strategy and developing operating ventures in
telecommunications, data networking, digital television/high definition
television and multimedia since 1990. Mr. Elliott was a Director of STM
Wireless, Inc. and a member of its Compensation Committee from January to
September 1998. Mr. Elliott is currently a director of Firetalk, Inc. He has
also held executive positions at Pacific Telecom, Inc., RCA American
Communications (now GE American Communications) and RCA Global Communications.
Kum Chuen Tang has been a director since June 1999. Mr. Tang has been the
General Manager of Agilis Communication Technologies Pte Ltd. since January
1999. From July 1997 until December 1998, he was the Deputy General Manager of
CET Technologies Pte Ltd. From April 1990 until June 1997, he was employed by
Singapore Technologies Electronics Limited, initially as Senior Project Engineer
and promoted to Divisional Manager in July 1996. From May 1987 until March 1990,
he held various government positions with the Singapore Ministry of Defense. Mr.
Tang has a Master of Science degree (IE) from the National University of
Singapore and a Bachelor of Engineering degree (First Class Honors) from Monash
University.
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<PAGE>
Each director is elected for a period of one year at the annual meeting
of shareholders and serves until the next meeting and until his or her
successor is duly elected and qualified. Officers are elected by, and
serve at the discretion of, the Board of Directors.
CERTAIN KEY EMPLOYEES
Alan Potter has been the Vice President for new business development since
December 1995. His duties include market research, neoteric product concepts,
new corporate alliances, and distribution systems in Europe and the Middle East.
He joined our company after 10 years with EFData as Sales Manager. Mr. Potter
graduated from the University of Houston with honors, holding a Bachelor of Arts
in Communications. After post graduate studies at the University of
Massachusetts, Amherst, he began his professional career as an Associate
Professor of Communications at the University of Texas at Houston. While there,
in 1973, he developed and operated the first practical bi-directional coaxial
cable network to simultaneously carry voice, data, and video communications. He
then designed, developed, and managed a series of broadband cable television and
data networks for Columbia Cable Television, Michelson Media, and Cox Cable
Communications. Mr. Potter joined Comtech Data in 1984 and, two years later, he
followed Messrs. Fitting and Eymann to initiate the Sales and Marketing
Department at EFData.
David Koblinski has been general manager of our Phoenix operations since
October 1998. Additionally, from 1995 to September 1999 he also served as a Vice
President of Operations for our Phoenix facility. Mr. Koblinski's professional
career began in 1982 at Comtech Data Corporation, where he held the position of
Customer Service Representative. He was responsible for repairs as well as field
and telephone support of satellite data modems. From 1985 to 1995, Mr. Koblinski
was the Senior Product Manager and Customer Support Manager for EFData
Corporation.
John Restivo has been Executive Vice President and General Manager of our
San Diego operations since March 1999. His duties presently include management
of our San Diego facility. Mr. Restivo has a Bachelor of Science degree in
Engineering from Florida Institute of Technology. His professional career
includes more than thirteen years in engineering and management. He has held a
variety of positions, most recently as Chief Technical Officer of Radiation
Systems, Inc. Previous experience includes Scientific Atlanta, where he was
Director of Engineering and Operations, and Hughes Aircraft Company as a systems
engineer.
Brian Duggan has been the Vice President of Sales and Marketing since
December 1998. Mr. Duggan handles global sales and marketing efforts for our
complete equipment line, with all regional sales offices reporting directly to
him. Prior to this appointment, Mr. Duggan served as Director of Worldwide Sales
for ComStream Corporation. Before joining ComStream in 1995, Mr. Duggan spent
eight years as Director of Marketing with Comtech Systems, Inc. He has held
various positions with Plessey Electronics Systems Ltd. (UK) in engineering and
sales and marketing, and with Datotek Corporation in Texas as Director of
Marketing. Mr. Duggan is a graduate of Hatfield College in the United Kingdom,
where he majored in engineering.
DIRECTOR AND EXECUTIVE COMPENSATION
Our policy has been to pay no compensation to directors who are our
employees or ST affiliates for their service as directors. Outside directors are
paid $4,000 per meeting attended and $500 if attendance is via telephone. In
April 1999, all directors became eligible to receive stock options. In June,
1999, the Board of Directors voted to grant stock options to four directors.
Robert Grimes, Dennis Elliot, Kum Chuen Tang and Yip Loi Lee each received an
option to purchase up to 10,000 shares of our common stock at an exercise price
of $3.25 per share. The options expire in June 2009.
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<PAGE>
In August 1999, our Board of Directors recognized the significant
achievements of our senior management in effecting the ComStream integration by
awarding bonuses of $203,900 to Robert C. Fitting, $98,900 to Steven W. Eymann,
and $46,700 to Garry D. Kline. In addition, to further the goal of providing
senior management an equity stake in our company, the Compensation Committee and
the Board of Directors adopted a senior management loan plan which will permit
senior management to borrow funds from our company for the purpose of exercising
stock options. If the borrower continues to be employed by us, we will forgive
one-half of each loan (including interest at 5% per annum) on the first and
second anniversaries of the loan and provide sufficient bonus compensation at
those times to enable the employee to satisfy the resulting income tax
obligation.
In October 1999, Messrs. Fitting and Kline borrowed $200,000, and $50,000,
respectively, under the plan for the purpose of exercising stock options. In
November 1999, Mr. Eymann borrowed $100,000 under the plan for the purpose of
exercising his stock options.
The following table sets forth the compensation for services in all
capacities for the period from the year ended June 30, 1996 through December 31,
1998 of our Chief Executive Officer and our Executive Vice President. No other
executive officer or employee received total annual salary and bonus of more
than $100,000 during the periods presented.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND YEAR ALL OTHER
PRINCIPAL POSITION ENDED(1) SALARY OPTIONS(#) COMPENSATION(2)
- ------------------ -------- ------ ---------- ---------------
<S> <C> <C> <C> <C>
Robert C. Fitting, CEO.................... 12/31/98 $144,234 30,000 $1,186
12/31/97 116,529 0 1,165
12/31/96 40,000 279,085 435
06/30/96 80,000 0 738
Steven Eymann, Exec. Vice Pres............ 12/31/98 $133,543 30,000 $1,174
12/31/97 111,620 0 1,112
12/31/96 40,000 279,085 435
06/30/96 80,000 0 738
</TABLE>
- -----------------------
(1) As a result of a change in fiscal year end, the amounts shown for the year
ended December 31, 1996 reflect a period of six months.
(2) Matching 401(k) plan contributions.
-49-
<PAGE>
OPTION GRANTS
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF TOTAL OPTIONS
OPTIONS GRANTED TO EMPLOYEES EXERCISE EXPIRATION GRANT DATE
NAME GRANTED IN FISCAL YEAR PRICE DATE PRESENT VALUE(1)
- ---- ------- -------------- ----- ---- ----------------
<S> <C> <C> <C> <C> <C>
Robert C. Fitting........... 15,000 3% $2.50 2/5/08 $3.37
15,000 3% $3.125 10/15/08 $2.48
Steven Eymann............... 15,000 3% $2.50 2/5/08 $3.37
15,000 3% $3.125 10/15/08 $2.48
</TABLE>
- -----------------------
(1) Based on the Black-Scholes option pricing model, assuming that one-fourth
of the options will be exercisable on the grant date and each of the first
three anniversaries thereof, no dividend yield, expected volatility of 105%
and a risk-free interest rate of 6.125%. Potential gains are net of the
exercise price, but before taxes associated with the exercise. Amounts
represent hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. The assumed rates of
stock price appreciation are provided in accordance with the rules of the
SEC and do not represent our estimate or projection of the future price of
our common stock. Actual gains, if any, on stock option exercises will
depend upon the future market prices of our common stock.
AGGREGATE OPTION EXERCISES IN 1998 AND HOLDINGS AT YEAR-END
The following table sets forth information concerning option holdings as of
December 31, 1998 with respect to Robert C. Fitting, our Chief Executive Officer
and President, and Steven Eymann, our Executive Vice President. Messrs. Fitting
and Eymann did not exercise any options during fiscal 1998.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED, IN-THE-MONEY
OPTIONS HELD AT DECEMBER 31, 1998 OPTIONS AT DECEMBER 31, 1998(1)
--------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert C. Fitting............... 182,585 62,500 $157,418 $47,656
Steven Eymann................... 182,585 62,500 157,418 47,656
</TABLE>
- -----------------------
(1) Based on the December 31, 1998 closing price of our common stock of $3.375
per share on the OTC Bulletin Board, less the per share exercise price.
EMPLOYEE COMPENSATION PLANS
1996 Incentive Stock Option Plan
Our shareholders adopted the 1996 Incentive Stock Option Plan, on January
8, 1997, as a means of rewarding certain officers and directors for their
efforts in improving our competitive and financial position and also as an
incentive to retain these individuals in the future. Our Board of Directors or
the compensation committee administers the plan. Each has the authority to
determine all matters relating to the plan, including the selection of
individuals to be granted options, the number of shares subject to the options,
the exercise price, and the term of and method by which the options may be
exercised. As of September 30, 1999, options to purchase 1,683,145 shares of
common stock have been granted at a
-50-
<PAGE>
weighted average exercise price of $2.98 and options have been exercised to
purchase 336,897 shares of common stock. The total number of shares of common
stock available for issuance under the plan is 2,182,042. Under the plan, we may
not grant options after November 12, 2006.
Options granted under the plan may be non-qualified options or options
qualifying as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended. The initial exercise option price of
each stock option granted under the plan will not be less than the fair market
value (110% of the fair market value if the grant is to any grantee owning more
than 10% of our outstanding common stock) of the common stock subject to the
option.
An option grantee must exercise any option no more than ten years after the
date of the grant, except that options granted to persons who own more than 10%
of the total combined voting power of our stock or that of an affiliate must be
exercised within five years of the grant.
Any option granted on or after October 6, 1998 under the plan generally
becomes exercisable immediately as to 25% of the shares covered thereby and
becomes exercisable for an additional 25% in each of the succeeding three years.
An amendment to the plan has accelerated the exercise schedule on certain
earlier option grants to match the current schedule or to become immediately
exercisable. No options granted under the plan are transferable, except upon the
death of the grantee.
1999 Employee Stock Purchase Plan
On June 15, 1999, our shareholders adopted the 1999 Employee Stock Purchase
Plan, as a means of rewarding and retaining existing employees. The purchase
plan allows eligible employees, including officers and directors, to utilize
payroll deductions to purchase shares of our common stock.
The Board of Directors or a committee of two or more directors, none of
whom will be officers or employees, have full authority to administer all
aspects of the purchase plan. As of October 31, 1999, 1,000,000 shares are
authorized for issuance under the purchase plan. We expect to activate the
purchase plan by January 2000.
Each eligible employee may elect to have from 1% to 15% of his or her
salary deducted in each pay period and deposited into a stock purchase account
in such employee's name. At the conclusion of each purchase period, the employee
may exercise the right to purchase shares of common stock or elect a cash
distribution of all amounts held in the stock purchase account. Amounts in such
accounts may be used by employees to purchase the largest number of whole shares
available at the purchase price. The purchase price for shares of common stock
will be the lesser of 85% of the fair market value of the common stock on (a)
the first day of the applicable purchase period, or (b) the last day of such
period. In the event of termination of all funds in the employee's stock
purchase account will be distributed to such employee in cash, except for
termination relating to a normal or early retirement, in which case the balance
in the stock purchase account will be used to purchase shares of common stock.
EMPLOYEE BENEFIT PLAN
We have a qualified contributory 401(k) plan that covers all employees in
our Phoenix facility who have attained the age of 18 and are employed at the
enrollment date. We provided contributions of $69,403 for the nine months ended
September 30, 1999 and $31,690, for the year ended December 31, 1998. Each
participant may elect to contribute up to 15% of his or her gross compensation
up to the maximum amount allowed by the Internal Revenue Service. We match up to
1% of the employee's salary.
-51-
<PAGE>
We also have a qualified contributory 401(k) plan that covers all full-time
employees in our San Diego facility who have been employed continuously for at
least 30 days prior to the enrollment date. We provided contributions of $91,691
for the nine months ended September 30, 1999 and $30,450 for the period October
15, 1998 through December 31, 1998. Each participant may elect to contribute up
to 15% of his or her gross compensation up to the maximum amount allowed by the
Internal Revenue Service. We match $0.35 for every dollar up to 7% of the
employee's contribution.
EMPLOYMENT AGREEMENTS
Under the respective employment agreements between Radyne ComStream and
each of Messrs. Fitting and Eymann, they will serve as our Chief Executive
Officer and President and Executive Vice President, respectively, until the
earlier of June 30, 2000 or such time as our adjusted earnings before interest
and taxes exceeds $6,000,000 for a period of four calendar quarters. Pursuant to
the agreements, we presently pay Mr. Fitting and Mr. Eymann annual salaries of
$200,000 and $150,000, respectively, and have granted them certain of the stock
options described in the above table. Each of Mr. Fitting and Mr. Eymann has
also agreed that if he exercises any of such stock options, he will not engage
in any competitive business until after the second anniversary of his
termination of employment, except in the case of involuntary termination without
cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Lim, Lee, Grimes, and
Elliott. There were no interlocking relationships between our company and other
entities that might affect the determination of the compensation of our
executive officers. Mr. Lim is currently the Chairman of Stetsys Pte Ltd and
Stetsys US, Inc. and has been the Group Director of Singapore Technologies Pte
Ltd since February 1995. Additionally, Mr. Lee served as a Regional Director
of Singapore Technologies Pte Ltd until December 1998.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation contains a provision that eliminates the
personal liability of the members of our Board of Directors for violations of
their fiduciary duty of care as a director. However, this provision does not
apply where there has been any of the following:
bad faith, intentional misconduct, or a knowing violation of law;
the payment of a dividend or approval of a stock repurchase
which is deemed illegal, or any other violation of Section 719
of the New York Business Corporation Law; or
a financial profit or advantage to which the director was not legally
entitled.
Our certificate of incorporation also contains a provision which allows us,
to the fullest extent permitted by Sections 721 through 726 of the New York
Business Corporation Law, to indemnify our directors and officers from and
against any and all expenses or liabilities arising from or in connection with
their serving in such capacities with us. This right of indemnification
continues once such a person ceases to be a director or officer of our company.
-52-
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 30, 1999 and giving effect
to shares purchased pursuant to the rights offering, the ownership of our common
stock by (i) each person who is known by us to own of record or beneficially
more than 5% of the outstanding common stock, (ii) each of our directors and our
Chief Executive Officer and Executive Vice President, and (iii) all directors
and executive officers of the company as a group. Except as otherwise indicated,
the shareholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS PERCENTAGE OF CLASS
NAME AND ADDRESS NUMBER OF SHARES BEFORE THIS OFFERING AFTER THIS OFFERING(1)
- --------------------------------------- ----------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Stetsys US, Inc.(2) 1,180,000 11.62% 10.13%
Stetsys Pte Ltd(2) 9,676,800(3) 94.27% 82.25%
Robert C. Fitting(4) 230,085(5) 2.22% 1.94%
Steven W. Eymann(4) 234,088(6) 2.25% 1.97%
Garry D. Kline 32,543(7) * *
Ming Seong Lim(2) 0 0 0
Yip Loi Lee(4) 10,000(8) * *
Robert A. Grimes(4) 10,000(8) * *
Dennis W. Elliott(4) 10,000(8) * *
Kum Chuen Tang(2) 10,000(8) * *
All directors and executive officers 536,716 4.97% 4.37%
of the company as a group (eight
persons)
</TABLE>
- -----------------------
* Less than one percent.
(1) Does not give effect to exercise of underwriters' option to purchase an
additional 225,000 units in this offering to cover over-allotments or the
exercise of the warrants included in the units sold in this offering.
(2) The address for each of these shareholders is: c/o Singapore Technologies
Pte Ltd, 83 Science Park Drive, #01-01/02 The Curie, Singapore Science
Park, Singapore 118258
(3) The shares reported as owned by Stetsys Pte Ltd include the shares reported
as beneficially owned by Stetsys US, Inc., of which Stetsys Pte Ltd is the
sole stockholder. The Minister of Finance (Incorporated) of Singapore
owns 100% of the stock of Singapore Technologies Pte Ltd, which in turn
owns 100% of Stetsys Pte Ltd. The shares reported include 113,595 shares
issuable under our rights offering issued to Stetsys Pet Ltd pursuant to
the rights offering which were exercised subsequent to September 30, 1999.
(4) The address for each of these shareholders is: c/o Radyne ComStream Inc.,
3138 East Elwood Street, Phoenix, Arizona 85034.
(5) Includes 230,085 shares underlying exercisable options held by Mr. Fitting.
(6) Includes 230,088 shares underlying exercisable options held by Mr. Eymann.
(7) Includes 31,043 shares underlying exercisable options held by Mr. Kline.
(8) Represents 10,000 shares underlying exercisable options held by each of
Messrs. Elliott, Grimes, Lee and Tang.
CERTAIN TRANSACTIONS
Under our senior management loan plan, we made loans of: (1) $200,000 to
Robert C. Fitting on October 8, 1999; (2) $100,000 to Steven W. Eymann on
November 1, 1999; and (3) $50,000 to Garry D. Kline on October 11, 1999. The
proceeds of these loans were used by each of Messrs. Fitting, Eymann, and Kline
to exercise stock options in October and November 1999 for an aggregate of
217,851 shares of common stock granted under the 1996 Incentive Stock Option
Plan.
Sales to Agilis Communication Technologies Pte Ltd, an affiliated company
under the common control of ST, were $89,000 for the nine months ended
September 30, 1999, $69,000 for the year ended
-53-
<PAGE>
December 31, 1998, $540,000 for the year ended December 31, 1997, $375,000 for
the six-month period ended December 31, 1996, and $118,900 for the year ended
June 30, 1996. Accounts receivable from Agilis were $5,000 at September 30,
1999 and $52,000 at December 31, 1998.
Until October 1998, ETS was a wholly owned subsidiary of ST. Sales to ETS
were $50,000 for the year ended December 31, 1998, $152,000 for the year ended
December 31, 1997, $307,300 for the six-month period ended December 31, 1996,
and $311,600 for the year ended June 30, 1996.
We purchased $22,100 of machinery and equipment and $805,000 in inventory
from ETS during the six-month period ended December 31, 1996. We purchased
$2,461,000 of inventory from ETS during the year ended June 30, 1996.
Prior to January 1997, ETS provided us with management services. Fees for
these services were 60,000 for the six-month period ended December 31, 1996 and
$120,000 for the year ended June 30, 1996.
ST made an unsecured loan of $4,500,000 to us on August 12, 1996. We used
the proceeds of this loan to repay a portion of an outstanding loan payable to
ETS. We repaid the ETS loan in full on February 10, 1997 with the proceeds of
loans from Citibank, N.A. and ST.
ST made several loans, totaling $2,100,000, to us in November and December
1996. These loans earned interest of 8% per annum and we repaid them in March
1997 with the proceeds of a new loan of $4,100,000 from ST. This ST loan was
ultimately repaid with the proceeds of a rights offering that was completed on
June 16, 1997. In such rights offering, ST purchased 1,976,000 shares of our
common stock at $2.50 per share, for an aggregate purchase price of $4,940,000.
During 1998, we received loans totaling $5,618,272 from ST, which bore
interest at rates ranging from 6.625% to 6.844%. We used the proceeds from
these loans to repay and terminate a bank line of credit with Bank of America NT
& SA, for which ST had provided a non-binding letter of awareness. In October
1998, ST loaned us an additional $10 million in connection with the ComStream
acquisition. This note bore interest at 6.375% and was repayable out of the
proceeds of the rights offering commenced on September 30, 1999. On September
30, 1999, ST instructed us to capitalize the entire $15,618,272 principal
amount of the debt we owed to ST in partial exercise of its rights. In
October 1999, ST exercised the balance of its rights by paying cash to us
in the amount of $423,700. We used these funds, along with $932,200 of cash
on hand, to pay the accrued interest due to ST as of September 30, 1999.
Interest expense on notes payable to ST was $732,000 for the nine months
ended September 30, 1999, $581,000 for the year ended December 31, 1998,
$148,000 for the year ended December 31, 1997, $205,900 for the six-month period
ended December 31, 1996, and $248,400 for the year ended June 30, 1996. Accrued
interest on notes payable to ST was $1,355,000 at September 30, 1999.
We acquired the assets of Merit Microwave, Inc. in 1995. As a part of this
transaction, we hired Peter Weisskopf, the principal shareholder and CEO of
Merit, as the president of our Microwave Products Division. We also agreed to
pay royalties to Mr. Weisskopf throughout the course of his employment. His
employment with us was terminated in March 1998 and we paid no royalties to Mr.
Weisskopf in 1998 or thereafter. We paid royalties to Mr. Weisskopf of $5,600
for the year ended December 31, 1997, and $4,600 for the year ended
December 31, 1996.
We believe that all of the foregoing transactions were on terms no
less favorable to us than we could have obtained in arms length transactions
with unaffiliated third parties.
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<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
We are incorporated in the State of New York. We are authorized to issue
20,000,000 shares of common stock, par value $.002 per share.
UNITS
Each unit being offered hereby consists of one share of common stock and
one redeemable common stock purchase warrant to purchase one share of our common
stock. The common stock and the warrants included in the units will not be
transferable until 180 days after the date of this prospectus or such earlier
date as HD Brous & Co. Inc. may determine.
COMMON STOCK
The following summary description of the common stock is qualified in its
entirety by reference to our Certificate of Incorporation.
As of September 30, 1999, there were 10,151,026 shares of common stock
issued and outstanding. Holders of common stock are entitled to one vote for
each share held of record on each matter submitted to a vote of shareholders.
There is no cumulative voting for election of directors. Holders of common stock
are entitled to receive dividends ratably when, as, and if declared by the Board
of Directors out of funds legally available therefor and, upon our liquidation,
dissolution or winding up are entitled to share ratably in all assets remaining
after payment of liabilities. Holders of common stock have no preemptive rights
and have no rights to convert their common stock into any other securities. The
outstanding shares of common stock are, and the shares of common stock being
sold in this offering and the shares of common stock issuable upon exercise of
the warrants sold in this offering will, when issued, be validly authorized and
issued, fully paid and nonassessable.
COMMON STOCK PURCHASE WARRANTS
General. The following is a brief summary of the material provisions of the
warrants included in the units offered hereby. This summary is qualified in all
respects by reference to the actual text of the warrant agreement between us and
Continental Stock Transfer and Trust Company as warrant agent. A copy of the
warrant agreement is filed as an exhibit to the registration statement of which
to this prospectus forms a part.
Exercise Price and Terms. Each warrant entitles the holder thereof to
purchase one share of common stock at a price of $ per share (125% of the
public offering price of the units), subject to adjustment in accordance with
the anti-dilution and other provisions described below. The exercise price of
the warrants is not related to any objective criteria of value and should not be
regarded as an indication of any future market price of the common stock. The
warrant will become exercisable when it becomes separately transferable from the
common stock in the unit. The warrants will become separately transferable 180
days following the date of this prospectus or such earlier date as HD Brous &
Co. Inc. may determine. The warrants will remain exercisable until the earlier
of (a) the fifth anniversary of the date of this prospectus or (b) the close of
business on the day before the redemption date described below. The holder of
any warrant may exercise such warrant by surrendering the certificate
representing the warrant to our warrant agent, with the subscription form on the
reverse side of the warrant certificate properly completed and executed,
together with payment of the exercise price. The warrants may be exercised at
any time in whole or in part at the applicable exercise price until expiration
or redemption of the warrants. No fractional shares will be issued upon exercise
of the warrants.
-55-
<PAGE>
Adjustments. The exercise price and number of shares of our common stock
purchasable upon the exercise of the warrants are subject to adjustment upon the
occurrence of certain events, including the following:
stock dividends,
stock splits,
combinations or reclassifications of our common stock, and
the issuance of rights or warrants to all holders of our common
stock to purchase or subscribe for additional shares of our
common stock or other securities convertible into common stock at
a price below the then current market price of the common stock.
Additionally, an adjustment would be made in the case of:
a capital reorganization, reclassification or exchange of our common
stock,
our consolidation or merger with or into another corporation (other
than a consolidation or merger in which we are the surviving
corporation), or
sale of all or substantially all of our assets.
These adjustments will enable warrantholders to acquire the kind and number of
shares of stock or other securities or property that the holder would have
received if he or she had exercised his or her warrants immediately prior to the
event that causes the adjustment.
No adjustment will be made until the cumulative adjustments in the exercise
price per share amount to $.01 or more. No adjustment to the number of shares
and exercise price of the shares subject to the warrants will be made for
dividends (other than stock dividends), if any, paid on our common stock or for
common stock issued pursuant to our 1996 Incentive Stock Option Plan, our 1999
Employee Stock Purchase Plan, or any other employee option plan or employee
stock plan that may be adopted in the future, or upon exercise of the warrants,
the representative's purchase option or any other option or warrant outstanding
as of the date of this prospectus.
Redemption Provisions. Commencing one year from the date of this
prospectus, or earlier with the consent of HD Brous & Co., Inc., we can redeem
the warrants at $.01 per warrant on not less than 30 nor more than 60 days'
prior written notice. The warrants may only be redeemed if:
from the date the warrants are called for redemption until the
redemption date, there is a current and effective registration
statement covering the warrants and the underlying shares,
our common stock is listed on any Nasdaq Stock Market, or the New York
or American Stock Exchange, and
the closing sales price of our common stock as reported by Nasdaq
equals or exceeds $ ________ per share on each of the 20 consecutive
trading days ending not earlier than 5 days prior to the date on which
the warrants are called for redemption.
In the event that we elect to redeem the warrants, the warrants will be
exercisable until the close of business on the day prior to the redemption date.
Any warrants that are not exercised by such time will cease to be exercisable
and the holder will be entitled only to the redemption price.
Transfer, Exchange, and Exercise. The warrants will be issued in registered
form and may be presented to our transfer and warrant agent for transfer,
exchange, or exercise at any time on or prior to their expiration or redemption.
If a market for the warrants develops, the holder may sell the warrants
-56-
<PAGE>
instead of exercising them. There can be no assurance, however, that a market
for the warrants will develop or continue.
Warrantholder is not a Shareholder. Until a holder exercises his or her
warrants, he or she will not have any voting, dividend, or other rights as a
shareholder.
Modification of Warrants. We and our warrant agent may make such
modifications to the warrant agreement as are deemed necessary and desirable
and that do not adversely affect the interests of the warrantholders. No other
modifications may be made to the warrant agreement or the warrants without the
consent of the majority of the warrantholders. Modification of the number of
securities purchasable upon the exercise of any warrant, the exercise price, and
the acceleration of the expiration date with respect to any warrant will require
the consent of the holder of such warrant.
Certain Federal Income Tax Considerations. The warrantholder will not
recognize a gain or loss upon the exercise of a warrant. If a warrantholder
sells his or her warrant or if we redeem a warrant, the holder will recognize a
gain or loss in an amount equal to the difference between the amount realized by
the holder from the sale or redemption and the holder's adjusted basis in the
warrant. Provided that the holder is not a dealer in the warrants and that the
common stock would have been a capital asset in the hands of the holder had the
warrant been exercised, any gain or loss from the sale or redemption of the
warrant will be a long-term or short-term capital gain or loss to the holder
depending on whether the warrant had been held for more than one year. Upon the
expiration of a warrant, a loss equal to the warrantholder's adjusted basis in
the warrant will be a long-term or short-term capital loss, depending on whether
the warrant has been held for more than one year.
TRANSFER AND WARRANT AGENT
We have appointed Continental Stock Transfer & Trust Company, 2 Broadway,
19th Floor, New York, NY 10004, as transfer agent for the units, common stock,
and warrants and as warrant agent for the warrants.
NASDAQ SMALLCAP MARKET LISTING
We intend to apply for listing of our units, common stock, and warrants on
the Nasdaq SmallCap Market, under the symbols "RADNU," "RADN" and "RADNW,"
respectively.
SHARES ELIGIBLE FOR FUTURE SALE
The sale, or availability for sale, of a substantial number of shares of
common stock in the public market subsequent to this offering pursuant to Rule
144 of the Securities Act or otherwise could materially adversely affect the
market price of the common stock and could impair our ability to raise
additional capital through the sale of equity securities or debt financing. Upon
completion of this offering, there will be approximately 11,651,026 shares of
common stock issued and outstanding. Of these shares, we believe that
approximately 2,087,821 would be freely transferable immediately. ST holds the
remaining 9,563,205 shares, which would be eligible for resale subject to the
volume and manner of sale limitations of Rule 144 of the Securities Act. Of the
shares held by ST, [__________] shares are "restricted securities" as that term
is defined in Rule 144.
The holders of options outstanding under our 1996 Incentive Stock Option
Plan may purchase up to an aggregate of 2,182,942 shares of common stock. All of
the shares issuable upon exercise of such options are covered by a currently
effective registration statement on Form S-8. An aggregate of 1,020,851
outstanding options are presently exercisable and an additional 779,125
outstanding options will become exercisable over the next three years. The
issuance of 1,000,000 shares of our common stock
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<PAGE>
pursuant to our 1999 Employee Stock Purchase Plan is covered by a currently
effective registration statement in Form S-8. The shares of common stock
issuable under our 1996 Incentive Stock Option Plan and 1999 Employee Stock
Purchase Plan will be freely transferable when they are issued, except for
shares that may be acquired by our affiliates. These shares will be subject to
the volume and manner of sale limitations contained in Rule 144.
The shares of common stock outstanding that are deemed to be "restricted
securities" (as that term is defined under Rule 144), or that are owned by our
affiliates may only be sold pursuant to an effective registration statement
under the Securities Act, in compliance with the exemption provisions of Rule
144 or pursuant to another exemption under the Securities Act. Restricted shares
and shares of common stock held by our affiliates that are not "restricted" will
be eligible for sale, under Rule 144, subject to certain volume and manner of
sale limitations prescribed by Rule 144. In general, under Rule 144 as currently
in effect, a person (or persons whose shares are required to be aggregated),
including a person who may be deemed an "affiliate" of the company, who has
beneficially owned restricted securities for at least one year may sell, within
any three-month period, a number of shares that does not exceed the greater of:
(1) 1% of the then outstanding shares of common stock or (2) the average weekly
trading volume of the common stock during the four calendar weeks preceding the
date on which notice of such sale was filed under Rule 144. Sales of shares held
by our affiliates that are not "restricted" are subjected to such volume
limitations, but are not subject to the holding period requirement. Sales under
Rule 144 are also subject to certain requirements as to the manner of sale,
notice and availability of current public information about our company. A
person who is not deemed to have been an affiliate of our company at any time
during the 90 days preceding a sale by such person, and who has beneficially
owned the restricted shares for at least two years, is entitled to sell such
shares under Rule 144(k) without regard to any of the restrictions described
above.
Prior to this offering, there has been no established public market for our
securities as trading in our common stock has been infrequent. Following this
offering, we cannot predict the effect, if any, that the availability of such
shares for sale will have on the market price from time to time. Nevertheless,
sales by the current shareholders of a substantial number of shares of common
stock in the public market could materially and adversely affect market price
for our common stock. In addition, the availability for sale of a substantial
number of shares of our common stock acquired through the exercise of the
warrants or outstanding options could materially adversely affect the market
price for our common stock.
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<PAGE>
UNDERWRITING
GENERAL
We intend to offer our units in the United States through HD Brous & Co.,
Inc. as the representative of the several underwriters. Subject to the terms and
conditions set forth in an underwriting agreement between us and the
underwriters, we have agreed to sell to the underwriters, and each of the
underwriters has agreed to purchase from us, the number of units listed next to
its name in the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Underwriter Number of Units
- ---------------------------------------------------------------------
<S> <C>
HD Brous & Co., Inc.
- ---------------------------------------------------------------------
Total 1,500,000
- ---------------------------------------------------------------------
</TABLE>
The underwriters have agreed, subject to the terms and conditions set forth
in the underwriting agreement, to purchase all of the units being sold under the
terms of the agreement if any of the units are sold. The units are being offered
by the underwriters, subject to prior sale, when, as and if issued to and
accepted by the underwriters and subject to approval of legal matters by counsel
and other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
We have granted an option to the underwriters to purchase up to an
additional 225,000 units at the public offering price set forth on the cover of
this prospectus, less the underwriting discount. The underwriters may exercise
this option within 45 days after the date of this prospectus solely to cover
over-allotments, if any, made on the sale of our units offered by this
prospectus. If the underwriters exercise this option, they will each purchase
additional units in approximately the same proportion as the amounts set forth
in the table above. We will pay the expenses associated with the exercise of
this over-allotment option.
The underwriters propose initially to offer the units to the public at the
public offering price set forth on the cover page of this prospectus. The
underwriters may allow to some dealers a concession of not more than $___ per
unit. The underwriters may allow, and such dealers may reallow, a discount of
not more than $_______ per unit to some other dealers. After the initial
offering, the underwriters may change the public offering price, concession, and
discount. The following table shows the per unit and total underwriting
discounts that we will pay to the underwriters. This information is assuming
either no exercise or full exercise by the underwriters of their over-allotment
option and does not include the three percent (3%) non-accountable expense
allowance payable to the representative.
<TABLE>
<CAPTION>
PAID BY
RADYNE COMSTREAM INC.
---------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Unit.................. $ $
Total..................... $ $
</TABLE>
In addition to the underwriting discount, we will pay all other expenses of the
offering, which we estimate will be $435,443.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or to contribute to payments the underwriters may be required to
make in respect of those liabilities.
-59-
<PAGE>
In connection with this offering, we have agreed to sell to the
representative, for nominal consideration, a non-redeemable option to purchase
from us up to 150,000 shares of common stock at an exercise price of $____ per
share (125% of the offering price of the units). The representative's purchase
option will be exercisable for a period of four years beginning one year after
the effective date of this prospectus. During the one year period commencing on
the date of this prospectus, the representative may not sell, transfer, assign,
or hypothecate the option, except for an assignment to any officer of the
representative, or any selling group member, or to and among any officers or
partners of any members of the selling group, all of which will be bound by such
restrictions. The holders of the representative's purchase option will have no
voting, dividend or other rights as shareholders with respect to the shares
underlying the option until they exercise such option. We have agreed to
register the option and/or the underlying stock at the representative's request
and will bear costs related thereto, other than underwriting discounts and
commissions. We also have agreed that for seven years after the effective date
of this prospectus, we will give the holders of the representative's purchase
option advance notice of our intention to file a registration statement. The
holders of the representative's purchase options may require us to include the
option and/or the underlying stock in such registration statement at our
expense.
The holders of the representative's purchase option can be expected to
exercise the option at a time when the market price for our common stock is
higher than the exercise price of the option. This could adversely affect the
terms on which we could obtain additional financing in the future. Any profit
that the underwriters receive upon the sale of the representative's purchase
option or the shares of common stock issued upon exercise of the option may be
deemed to be additional underwriting compensation.
We, our executive officers and directors, and ST have agreed that without
the prior written consent of HD Brous for a period of _______ after the date
of the prospectus we and they will not, directly or indirectly offer, pledge,
sell (including a short sale or sale against the box), contract to sell,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, grant any option, right for the sale
of, or otherwise dispose of or transfer any shares of common stock or securities
convertible into or exchangeable or exercisable for shares of common stock,
or publicly announce the intention to do any of the foregoing
Under the underwriting agreement, we have agreed that for two years after
the date of this prospectus our Board of Directors will include at least three
members who are reasonably acceptable to the representative and who are not (a)
an employee or 5% stockholder of our company or (b) an employee, officer,
director or beneficial owner of 5% or more of any person that, directly or
indirectly, beneficially owns 5% or more of our common stock. The underwriting
agreement also requires that we maintain key man life insurance policies on the
lives of Robert Fitting and Steven Eymann in the amounts of $1,000,000 and
$500,000, respectively. Such policies shall be effective for a minimum of three
years.
Prior to this offering, our common stock has traded on a limited basis on
the OTC Bulletin Board. The public offering price of the units will be
determined through negotiations between the underwriters and us. The factors to
be considered in determining the public offering price, in addition to
prevailing market conditions, include
-60-
<PAGE>
the valuation multiples of publicly traded companies that the
underwriters believe to be comparable to us,
our financial condition and results,
the history of, and the prospects for, our company and the industry in
which we compete,
an assessment of our management,
our past and present operations,
an assessment of the prospects for, and timing of, our future
revenues,
the present state of our development, and
the percentage interest of our business being sold as compared to the
valuation of our business.
We cannot assure you that an active trading market will develop for our
units, common stock, and warrants or that our units, common stock and warrants
will trade in the public market subsequent to the offering at or above the
public offering price.
The underwriters do not expect sales of our units, common stock or warrants
to any accounts over which they exercise discretionary authority to exceed 5% of
the number of units being offered under this prospectus.
Until the distribution of our units, common stock, or warrants is
completed, rules of the SEC may limit the ability of the underwriters and
selling group members to bid for and purchase our units, common stock and
warrants. As an exception to these rules, the underwriters are permitted to
engage in transactions that stabilize the price of our units, common stock or
warrants. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of our units, common stock or warrants.
If the underwriters create a short position in our units, common stock, or
warrants in connection with this offering, that is, if they sell more units
than are set forth on the cover page of this prospectus, the underwriters
may reduce that short position by purchasing our units in the open
market. The underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The representative also may impose a penalty bid on selling group members.
This means that if the underwriters purchase units in the open market to reduce
their short position or to stabilize the price of our units, the representative
may reclaim the amount of the selling concession from the selling group members
who sold those securities as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
also might have an effect on the price of our units, common stock or warrants to
the extent that it discourages resales of our units, common stock or warrants.
Neither the underwriters nor we make any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of our units, common stock or warrants. In addition,
neither the underwriters nor we make any representation that the underwriters
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
-61-
<PAGE>
LEGAL MATTERS
Dorsey & Whitney LLP, New York, New York, will pass upon the validity of
the issuance of the units, common stock and warrants offered by this prospectus
on our behalf. Greenberg Traurig, Phoenix, Arizona, will pass upon certain legal
matters in connection with this offering for the underwriters.
EXPERTS
Our restated consolidated financial statements at December 31, 1998 and for
the year then ended have been included herein in reliance upon the report of
KPMG LLP, independent certified public accountants, which is included herein,
and upon the authority of said firm as experts in accounting and auditing. The
financial statements of Radyne ComStream Inc. at December 31, 1997, for the year
then ended, for the six months ended December 31, 1996, and for the year ended
June 30, 1996, included in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is included
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing. Ernst & Young LLP,
independent auditors, have audited the consolidated financial statements of
ComStream Holdings, Inc. at December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, included in our Report on
Form 8-K/A filed with the Securities and Exchange Commission on May 5, 1999, as
set forth in their report, which is included and incorporated by reference in
this prospectus. The consolidated financial statements of ComStream Holdings,
Inc. are included and incorporated by reference in reliance on the report of
Ernst & Young LLP, given on their authority as experts in accounting and
auditing.
-62-
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information requirements of the Securities Exchange
Act of 1934 and file reports and other information with the SEC. You may read
and copy any reports or other information concerning us at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
You may also request copies of these documents upon payment of a duplicating
fee, by writing to the SEC's Public Reference Section. Please call the SEC at
l-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the Website maintained by the SEC at "http://www.sec.gov."
Information concerning us is not available from any securities exchange as our
common stock is not traded on any securities exchange.
We filed a registration statement with respect to the units, common stock,
and warrants we are offering. Pursuant to SEC rules and regulations, this
prospectus does not contain all of the information that you can find in such
registration statement. You may read and copy this information in the same way
as any other information that we file with the SEC.
Statements in this prospectus concerning any document filed as an exhibit
to this registration statement summarize all material provisions. Each of those
statements is qualified in its entirety by reference to the complete document.
For more detailed information, you should refer to the copy of the complete
document filed as an exhibit to this registration statement. These documents,
filed with the SEC, may be inspected and copied, and obtained by mail, from the
SEC as set forth above and will be available for inspection and copying at our
principal executive offices at 3138 East Elwood Street, Phoenix, Arizona 85034
during regular business hours by any interested holder of our stock or his or
her representative who has been so designated in writing.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC, including our
annual, quarterly, and current reports. This prospectus incorporates by
reference the documents set forth below, which we previously filed with the SEC.
These incorporated documents contain important information about our finances
and us. The information incorporated by reference is deemed to be part of this
prospectus, except for any information superseded by information in this
prospectus. The information incorporated by reference is an important part of
this prospectus.
We incorporate by reference into this prospectus:
our Annual Report on Form 10-K/A for the Fiscal Year Ended December
31, 1998;
our quarterly report on Form 10-Q/A for the quarter ended March 31,
1999;
our quarterly report on Form 10-Q/A for the quarter ended June 30,
1999;
our quarterly report on Form 10-Q for the quarter ended September 30,
1999; and
our current report on Form 8-K/A filed on May 5, 1999, which contains
audited financial statements of ComStream Holdings, Inc. for its
fiscal years ended December 31, 1995, 1996 and 1997; unaudited
financial statements of ComStream Holdings, Inc. for the nine months
ended September 30, 1998; and pro forma financial information for the
year ended December 31, 1997 and the nine months ended September 30,
1998 reflecting our financial performance during these periods as if
our acquisition of ComStream Holdings, Inc. had taken place effective
January 1, 1997.
Documents incorporated by reference may be obtained through the SEC and are
available from us without charge, other than exhibits, unless we have
specifically incorporated by reference an exhibit in this document. You may
obtain documents incorporated by reference in this document from us by making a
request by telephone at (602) 437-9620 or in writing at the following address:
-63-
<PAGE>
Director of Administration
Radyne ComStream Inc.
3138 East Elwood Street
Phoenix, AZ 85034.
-64-
<PAGE>
RADYNE COMSTREAM INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports.............................................................................F-2
Consolidated Financial Statements:
Consolidated Balance Sheets -- December 31, 1998 (Restated) and 1997.................................F-4
Consolidated Statements of Operations -- Years Ended December 31, 1998 (Restated) and
1997, the Six- MonthPeriod Ended December 31, 1996 and the Year Ended June 30, 1996..................F-5
Consolidated Statements of Stockholders' Capital Deficiency -- Years Ended December 31,
1998 (Restated) and 1997, the Six-Month Period Ended December 31, 1996 and the Year
Ended June 30, 1996..................................................................................F-6
Consolidated Statements of Cash Flows -- Years Ended December 31, 1998 (Restated)
and 1997, the Six- Month Period Ended December 31, 1996 and the Year Ended June 30, 1996.............F-7
Notes to Consolidated Financial Statements -- Years Ended December 31, 1998 (Restated)
and 1997, the Six- Month Period Ended December 31, 1996 and the Year Ended
June 30, 1996........................................................................................F-8
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year ended
December 31, 1998...................................................................................F-26
Notes to Unaudited Pro Forma Condensed Combined Statement of Operations.............................F-27
Condensed Consolidated Balance Sheet as of September 30, 1999 (Unaudited)...........................F-28
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 1998
and 1999 (Unaudited)................................................................................F-29
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998
and 1999 (Unaudited)................................................................................F-30
Notes to Unaudited Condensed Consolidated Financial Statements......................................F-31
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Radyne Comstream Inc.:
We have audited the accompanying restated consolidated balance sheet of Radyne
Comstream Inc. and subsidiaries (the Company) (a 90.6%-owned subsidiary of
Singapore Technologies Pte Ltd) as of December 31, 1998, and the related
restated consolidated statements of operations, stockholders' capital
deficiency, and cash flows for the year then ended. These restated consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these restated consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the restated consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December
31, 1998, and the results of their operations and their cash flows for the year
then ended, in conformity with generally accepted accounting principles.
As discussed further in Note 4, the 1998 consolidated financial statements have
been restated to reflect additional stock option compensation expense.
/s/ KPMG LLP
Phoenix, Arizona
March 19, 1999, except for
Note 4, which is as of
August 4, 1999
F-2
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Radyne ComStream Inc.
Phoenix, Arizona
We have audited the accompanying balance sheet of Radyne ComStream Inc.
(formerly Radyne Corp.) (the "Company") as of December 31, 1997, and the
related statements of operations, stockholders' capital deficiency, and cash
flows for the year ended December 31, 1997, the six-month period ended
December 31, 1996 and the year ended June 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1997, and the results of its operations and its cash flows for the year ended
December 31, 1997, the six-month period ended December 31, 1996 and the year
ended June 30, 1996 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 4, 1998
F-3
<PAGE>
RADYNE COMSTREAM INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1998
ASSETS RESTATED 1997
---------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 254,956 569,692
Accounts receivable - trade, net of allowance for doubtful accounts of $632,815
and $15,000, respectively 7,270,732 2,359,443
Other receivable 1,265,000 --
Inventories, net 9,380,478 5,389,920
Prepaid expenses 590,161 68,076
------------ ------------
Total current assets 18,761,327 8,387,131
------------ ------------
Property and equipment, net 5,533,645 1,322,551
Other assets:
Designs and drawings, net of accumulated amortization of $705,404
at December 31, 1997 -- 471,935
Purchased technology, net of accumulated amortization of $105,000
at December 31, 1998 2,395,000 --
Goodwill, net of accumulated amortization of $35,960 at December 31, 1998 2,278,300 --
Deposits and other 222,442 50,000
------------ ------------
Total other assets 4,895,742 521,935
------------ ------------
$ 29,190,714 10,231,617
============ ============
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
Current liabilities:
Note payable under line of credit agreement $ 8,000,000 5,000,000
Note payable 7,000,000 --
Current installments of obligations under capital leases 124,891 109,258
Accounts payable, trade 3,291,915 667,202
Accounts payable, affiliate 8,150 16,062
Accrued expenses 9,140,341 901,032
Taxes payable -- 38,720
------------ ------------
Total current liabilities 27,565,297 6,732,274
Notes payable to affiliates 15,618,272 --
Note payable under line of credit agreement -- 4,500,000
Obligations under capital leases, excluding current installments 88,588 93,543
Accrued stock option compensation 1,155,477 --
Taxes payable -- 55,861
------------ ------------
Total liabilities 44,427,634 11,381,678
------------ ------------
Commitments, contingent liabilities and subsequent events (notes 2, 9, 10, 11
14, 18, 19 and 20)
Stockholders' capital deficiency:
Common stock; $.002 par value - authorized, 20,000,000 shares; issued and
outstanding, 5,931,346 shares at December 31, 1998 and 1997 11,862 11,862
Additional paid-in capital 6,105,404 5,694,806
Accumulated deficit (21,354,186) (6,816,643)
Notes receivable from stockholders -- (40,086)
------------ ------------
Total stockholders' capital deficiency (15,236,920) (1,150,061)
------------ ------------
$ 29,190,714 10,231,617
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
RADYNE COMSTREAM INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH
DECEMBER 31, YEAR ENDED PERIOD ENDED YEAR ENDED
1998 DECEMBER 31, DECEMBER 31, JUNE 30,
RESTATED 1997 1996 1996
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 21,111,704 13,446,852 4,905,059 3,829,523
Cost of sales 15,808,459 8,022,262 4,052,433 2,559,350
------------ ----------- ------------ ------------
Gross profit 5,303,245 5,424,590 852,626 1,270,173
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative 5,531,213 4,242,138 1,437,971 1,843,576
Research and development 4,296,268 2,262,066 808,025 1,794,823
Stock option compensation expense 1,566,075 -- -- --
In-process research and development 3,909,000 -- -- --
Restructuring costs 3,100,000 -- -- --
Asset impairment charge 262,935 -- 421,000 --
------------ ------------ ------------ ------------
Total operating expenses 18,665,491 6,504,204 2,666,996 3,638,399
------------ ------------ ------------ ------------
Loss from operations (13,362,246) (1,079,614) (1,814,370) (2,368,226)
Other (income) expense:
Interest expense, net 1,198,777 677,102 255,604 256,871
Other (23,480) -- -- --
------------ ------------ ------------ ------------
Net loss $(14,537,543) (1,756,716) (2,069,974) (2,625,097)
============ ============ ============ ============
Basic net loss per common share $ (2.45) (0.35) (0.55) (0.70)
============ ============ ============ ============
Diluted net loss per common share $ (2.45) (0.35) (0.55) (0.70)
============ ============ ============ ============
Weighted average number of common
shares outstanding 5,931,346 5,012,664 3,750,699 3,742,227
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
RADYNE COMSTREAM INC.
Consolidated Statements of Stockholders' Capital Deficiency
Years ended December 31, 1998 and 1997, the six-month period ended
December 31, 1996 and the year ended June 30, 1996
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
------------------------- PAID-IN ACCUMULATED FROM
SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS TOTAL
---------- ------------ ------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1995 3,729,721 $ 7,459 545,842 (364,856) -- 188,445
Shares issued to Merit Microwave 20,000 40 39,960 -- -- 40,000
Net loss -- -- -- (2,625,097) -- (2,625,097)
----------- --------- ----------- ----------- --------- -----------
Balances, June 30, 1996 3,749,721 7,499 585,802 (2,989,953) -- (2,396,652)
Additional shares issued to Merit Mircrowave 10,000 20 19,980 -- -- 20,000
Net loss -- -- -- (2,069,974) -- (2,069,974)
----------- --------- ----------- ----------- --------- -----------
Balances, December 31, 1996 3,759,721 7,519 605,782 (5,059,927) -- (4,446,626)
Issuance of common stock, net of issuance
cost of $335,696 2,171,625 4,343 5,089,024 -- -- 5,093,367
Promissory notes received in connection
with issuance of stock -- -- -- -- (40,086) (40,086)
Net loss -- -- -- (1,756,716) -- (1,756,716)
----------- --------- ----------- ----------- ----------- -----------
Balances, December 31, 1997 5,931,346 11,862 5,694,806 (6,816,643) (40,086) (1,150,061)
Payments received on promissory notes -- -- -- -- 40,086 40,086
Stock option plan, restated -- -- 410,598 -- -- 410,598
Net loss, restated -- -- -- (14,537,543) -- (14,537,543)
----------- --------- ----------- ----------- ----------- -----------
Balances, December 31, 1998, restated 5,931,346 $ 11,862 6,105,404 (21,354,186) -- (15,236,920)
=========== ========= =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
RADYNE COMSTREAM INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH
DECEMBER 31, YEAR ENDED PERIOD ENDED YEAR ENDED
1998 DECEMBER 31, DECEMBER 31, JUNE 30,
RESTATED 1997 1996 1996
------------ ------------- ------------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(14,537,543) (1,756,716) (2,069,974) (2,625,097)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on disposal of assets 961,069 2,122 -- --
Depreciation and amortization 1,041,088 454,183 177,535 276,913
Asset impairment charge 262,935 -- 421,000 --
Stock option compensation 1,566,075 -- -- --
Write-off of in-process research and development 3,909,000 -- -- --
Increase (decrease) in cash resulting from changes in:
Accounts receivable (915,154) 374,459 (2,450,031) 251,806
Prepaid expenses and other current assets (179,931) 26,222 (73,872) 73,581
Employee relocation incentives and advances -- -- -- 112,353
Inventories 2,833,811 (3,398,560) (840,691) (247,843)
Deposits and other 242,787 (34,338) (7,650) --
Accounts payable, trade (985,095) (138,077) 339,848 (113,243)
Accounts payable, affiliate 113,682 (420,300) 436,362 --
Accrued expenses 1,932,071 (25,924) 545,990 (253,337)
Taxes payable (94,581) (28,487) (24,053) (56,063)
------------ ------------ ------------ ------------
Net cash used in operating activities (3,849,786) (4,945,416) (3,545,536) (2,580,930)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (543,630) (593,072) (255,118) (388,770)
Purchase of Comstream, net of cash acquired (10,007,369) -- -- --
------------ ------------ ------------ ------------
Net cash used in investing activities (10,550,999) (593,072) (255,118) (388,770)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Net borrowings from notes payable under line of credit
agreement 3,000,000 7,506,180 1,993,820 --
Payments on notes payable under line of credit agreement (4,500,000) -- -- --
Proceeds from notes payable to affiliates 15,618,272 4,600,000 6,600,000 3,052,912
Payments on note payable to affiliate -- (11,200,000) (4,594,696) --
Net proceeds from sale of common stock -- 5,053,281 -- --
Payments received on promissory notes issued in connection --
with common stock 40,086 -- -- --
Principal payments on capital lease obligations (72,309) (37,769) (12,953) (84,350)
------------ ------------ ------------ ------------
Net cash provided by financing activities 14,086,049 5,921,692 3,986,171 2,968,562
------------ ------------ ------------ ------------
Net increase (decrease) in cash (314,736) 383,204 185,517 (1,138)
Cash and cash equivalents, beginning of period 569,692 186,488 971 2,109
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 254,956 569,692 186,488 971
============ ============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 568,812 687,626 72,258 3,996
============ ============ ============ ============
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
In December 1996, the Company issued an additional 10,000 shares of common
stock in conjunction with the asset purchase from Merit Microwave, Inc.
During 1997, the Company incurred capital lease obligations of $106,512 for
new machinery and equipment.
In October 1998, the Company made an acquisition for $17,000,000 plus
$300,000 of other costs incurred in connection with the acquisition.
A summary of the acquisition was as follows:
<TABLE>
<S> <C>
Purchase price $ 17,000,000
Costs incurred 300,000
Less issuance of note payable (7,000,000)
Less cash acquired (292,631)
-----------------
Cash invested $ 10,007,369
=================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(1) ORGANIZATION AND ACQUISITION
Radyne Corp., a New York corporation, ("Radyne") was incorporated on
November 25, 1980. On August 12, 1996, Radyne became a 90.6%-owned
subsidiary of Singapore Technologies Pte Ltd ("STPL"), through its
wholly-owned subsidiary, Stetsys US, Inc. ("ST"). In 1996, Radyne changed
its fiscal year-end to December 31.
On October 15, 1998, Radyne purchased all of the outstanding shares of
common stock of Comstream Holdings, Inc. ("Comstream") for an aggregate
purchase price of $17 million, of which $10 million was paid in cash at
the closing, using funds borrowed from its controlling stockholder, and
the balance of which was in the form of a $7 million note (the "Note"),
payable nine months from the purchase date. The Note is convertible into
Radyne common stock under certain circumstances. In addition, the Company
accrued $1.6 million of severance costs as a result of the acquisition
(note 7). This acquisition was recorded in accordance with the "purchase
method" of accounting. The excess of the purchase price over the net
assets acquired was approximately $8.7 million of which $3.9 million was
allocated to in-process research and development, $2.5 million was valued
as purchased technology, which is being amortized over 6.25 years, and
$2.3 million has been recorded as goodwill, which is being amortized over
ten years. The results of operations of Comstream have been included in
the accompanying consolidated statement of operations from October 15,
1998.
The allocation to in-process research and development, for which
management was primarily responsible, represents the estimated fair value
based on risk-adjusted future cash flows related to the incomplete
projects. At the date of the acquisition, the development of these
projects had not yet reached technological feasibility and the research
and development in process had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.
The assets appraised in the valuation analysis included in-process
technology, developed technology and assembled workforce. Based upon the
nature of the assets, the income approach was considered most appropriate
for analyzing both the developed and in-process technologies. This
valuation approach considers the commercial profits and growth prospects
of the products as well as the relative investment risk of the required
complementary assets.
Products-in-development at ComStream at the time of the acquisition were
classified as in-process technology. These include the following products
with their respective estimated completion dates:
<TABLE>
<CAPTION>
Description Estimated Completion Date
----------- -------------------------
<S> <C>
A 2MB card Jan-99
"CM601" modem modifications Mar-99
"DT 8000" - a Ku-band 2 Watt earth station Dec-98
"DBR 2000" - a new data broadcast receiver Jun-99
"ABR 202" - a new audio receiver Nov-98
Set Top Box Jun-99
MediaCast Card Receiver Mar-99
</TABLE>
F-8
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Revenue streams associated with these products-in-development were used
to estimate fair value using the discounted cash flow method. The
products in development at ComStream had not attained "technological
feasibility", as that term is defined in Financial Accounting Statement
No. 86, as of the acquisition date. In other words, either the research
projects were incomplete or major technical uncertainties remained.
Technological feasibility was achieved, as expected, for two of the
products in the fourth quarter of 1998, and was expected to be achieved
for the remaining products within 1999.
It was determined that there was no alternative future use for the
in-process technology as of the acquisition date. Consideration was given
to possible other projects in which the hardware and software products
could have been put to use, but none of these projects had yet attained
"technological feasibility", and so they themselves were considered to be
in-process technology.
The discounted cash flow method began with estimates of future cash flow
using ComStream management's forecasts. In deriving these cash flows,
estimates of ComStream's future revenues, cost of goods sold, sales and
marketing, general and administrative, and research and development
expenses on a stand-alone basis were used to estimate a baseline measure
of earnings attributable to the products. By adding back non-cash charges
and deducting projected capital expenditures, a measure of debt-free cash
flow, useful for valuing ComStream's in-process technology, was derived.
From the debt-free cash flow forecasts, which represent the cash flow
return on all of ComStream's assets, returns were deducted for the use of
certain other assets: developed technology, net fixed assets, working
capital, and assembled workforce and goodwill. For this purpose, the
annual charge for core technology included in the products under
development was calculated by multiplying the unamortized book value of
the developed technology for that year by the required rate of return on
developed technology. The opening value of core technology was calculated
using a residual income approach similar to the methodology employed to
calculate the value of in-process research and development. The remaining
book value of the developed technology was calculated by amortizing its
opening fair value over 6.25 years. The total charge was allocated to the
in-process technology based on the in-process technology projects' share
of total revenue.
The cash flow returns attributable to the products (debt-free cash flow)
were reduced by the return requirement for each of the other assets
employed. The resulting residual cash flows represent the expected cash
flows attributable to the in-process technologies. A factor, based on the
stage of completion of the in-process projects, was applied to these
expected cash flows to isolate the value relating to development efforts
completed at the acquisition date. These cash flows were then discounted
at a rate of 36 percent.
The Company believes that the assumptions used in the forecasts were
reasonable at the time of the acquisition. No assurance can be given,
however, that the underlying assumptions used to estimate expected
product sales, development costs or profitability, or the events
associated with such projects, will transpire as estimated. For these
reasons, actual results may vary from the projected results. Within the
satellite communications equipment industry, there are several specific
technologies incorporated within a single product. It is therefore
difficult to relate specific revenue streams to individual technologies
or projects. As a result, instead of attempting to model each individual
project or technology, the cash flow generated by ComStream's products in
the aggregate was examined. We allocated the aggregate revenues to
developed, in-process and future technology, in a manner which we believe
is reasonable.
F-9
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Comstream operates primarily in North America in the satellite
communications industry. Comstream designs, markets and manufacturers
satellite interactive modems and earth stations. Additionally, Comstream
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.
In March 1999, Radyne changed its name to Radyne Comstream Inc.
Radyne Comstream Inc. (the "Company") has locations in Phoenix, Arizona
and San Diego, California. The Company designs, manufactures, and sells
products, systems and software used for the transmission and reception of
data over satellite and cable communication networks.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations (unaudited) as if the acquisition had
taken place on January 1, 1997. Such pro forma amounts are not
necessarily indicative of what the actual results of operations might
have been if the acquisition had been effective on January 1, 1997:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998
RESTATED 1997
-------------------- -------------------
(In thousands, except per share data)
<S> <C> <C>
Net Sales $ 50,965 69,369
==================== ===================
Gross profit $ 13,788 28,723
==================== ===================
Net loss $ (19,908) (6,826)
==================== ===================
Net loss per common share $ (3.36) (1.36)
==================== ===================
</TABLE>
(2) LIQUIDITY
The Company has incurred significant losses from operations and has a
stockholders' accumulated deficit of $21.4 million and a working capital
deficiency of $8.8 million at December 31, 1998 and has been unable to
generate a positive cash flow from operations. These matters raise doubt
about the Company's ability to continue as a going concern. Stetsys Pte
Ltd, the Company's majority stockholder, has confirmed its ability and
intent to provide such working capital as may be necessary to ensure that
the Company will continue to operate for a reasonable period into the
future. Since August 1996, the Company has been dependent on STPL to
provide cash for day-to-day operations. Management believes that, as a
result of the acquisition of Comstream and the resultant increase in
revenues, the Company can begin to generate profits. Management also
believes that with the rights offering (see note 20) expected to be
finalized in the second quarter of 1999, and through additional funding
sources, the Company will be a viable going concern. Therefore, the
accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern.
F-10
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities as of the financial statement date and the reported
amounts of revenue and expenses during the reporting period. 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. Actual results could
differ from those estimates.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany accounts
and transactions have been eliminated in the consolidation.
(c) CASH EQUIVALENTS
The Company considers all money market accounts with a maturity of
90 days or less to be cash equivalents.
(d) REVENUE RECOGNITION
The Company recognizes revenue upon shipment of product.
(e) INVENTORIES
Inventories, consisting of satellite modems and related products,
are valued at the lower of cost (first-in, first-out) or market.
(f) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment held under
capital leases is stated at the present value of future minimum
lease payments. Expenditures for repairs and maintenance are
charged to operations as incurred, and improvements which extend
the useful lives of the assets are capitalized. Depreciation and
amortization of machinery and equipment are computed using the
straight-line method over an estimated useful life of three to ten
years. Equipment held under capital leases and leasehold
improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful lives of the assets.
(g) DESIGNS AND DRAWINGS
Amortization of designs and drawings was computed using the
straight-line method over an estimated useful life of four to
seven years. During 1996, the Company recognized a design and
drawing impairment charge of $421,000, with no associated tax
benefit. During 1998, the Company recognized a design and drawing
impairment charge of $262,935, with no associated tax benefit as a
result of technology used in new products.
F-11
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(h) GOODWILL
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line
basis over ten years.
(i) PURCHASED TECHNOLOGY
In connection with the acquisition of Comstream, value was
assigned to purchased technology. Purchased technology is being
amortized on a straight-line basis over the expected period to be
benefited of 6.25 years.
(j) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amounts of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
(k) 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.
(l) RESEARCH AND DEVELOPMENT
The cost of research and development is charged to expense as
incurred.
(m) INCOME TAXES
The Company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future consequences attributed to differences
between the consolidated financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Differences between income for financial and tax reporting
purposes arise primarily from amortization of certain designs and
drawings and accruals for warranty reserves and compensated
absences. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
(n) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally accounts receivable.
The Company maintains ongoing credit evaluations of its customers
and generally does not require collateral. The Company provides
reserves for potential credit losses and such losses have not
exceeded management's expectations.
F-12
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(o) NET LOSS PER COMMON SHARE
Basic loss per share is computed by dividing loss available to
common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted loss per share reflects
the potential dilution that could occur if securities or contracts
to issue common stock were exercised or converted to common stock
or resulted in the issuance of common stock that then shared in
the earnings or loss of the Company. Assumed exercise of
outstanding stock options and warrants for all periods have been
excluded from the calculations of diluted net loss per common
share as their effect is antidilutive. Per share amounts have been
adjusted to reflect a 1-for-5 reverse stock split that occurred on
January 9, 1997.
(p) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of accounts receivable, accounts payable, and
accrued expenses approximates the carrying value due to the
short-term nature of these instruments. Management has estimated
that the fair values of the notes payable approximate the current
balances outstanding, based on currently available rates for debt
with similar terms.
(q) 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 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.
(r) SEGMENT REPORTING
The Company has only one operating business segment, the sale of
equipment for satellite and cable communications networks.
(s) RECLASSIFICATIONS
Certain reclassifications have been made to the prior years'
financial statement amounts to conform to the current year
presentation.
(t) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) which became effective for
the Company January 1, 1998. SFAS No. 130 established standards
for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements.
The Company had no items of comprehensive income. Therefore the
adoption of SFAS No. 130 had no effect on the Company.
F-13
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(4) RESTATEMENT
In October 1998, the Company amended the terms of certain stock options
to accelerate the vesting of those stock options, discussed more fully in
Note 15, which established a new compensation measurement date for such
options. The Company had originally recognized $1,155,477 of stock
compensation expense pertaining to the options' cash bonus component
coincident with the date of the amendment. Generally accepted accounting
principles require that, upon establishing a new measurement date,
compensation cost be determined based upon the market price of the
underlying stock. Accordingly, the Company has restated the accompanying
1998 consolidated financial statements to record an additional $410,598
of compensation expense in 1998, reflecting the measurement of
compensation cost based upon the market price of the underlying stock as
of the amendment date. The net loss of the Company was increased from
$14,126,945 to $14,537,543 and basic and diluted net loss per share was
increased from $2.38 to $2.45. Additionally, accumulated deficit was
increased from $20,943,588 to $21,354,186.
(5) INVENTORIES
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Raw materials and components $ 6,065,751 2,605,397
Work-in-process 4,319,338 1,124,929
Finished goods 546,858 1,950,594
------------ ------------
10,931,947 5,680,920
Obsolescence reserve (1,551,469) (291,000)
------------ ------------
$ 9,380,478 5,389,920
============ ============
</TABLE>
(6) PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Machinery and equipment $ 3,598,732 1,298,715
Furniture and fixtures 2,661,195 373,548
Leasehold improvements 312,425 --
----------- -----------
6,572,352 1,672,263
Less accumulated depreciation and amortization (1,038,707) (349,712)
----------- -----------
Property and equipment, net $ 5,533,645 1,322,551
=========== ===========
</TABLE>
F-14
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(7) ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Wages, vacation and related payroll taxes $1,355,316 486,840
Interest 803,929 183,968
Professional fees 378,817 85,500
Warranty reserve 679,964 105,000
Severance 1,282,761 --
Lease buyout (notes 10 and 16) 2,443,110 --
Other 2,196,444 39,724
---------- ----------
Total accrued expenses $9,140,341 901,032
========== ==========
</TABLE>
The severance balance included in accrued expenses at December 31, 1998
consists of approximately $688,000 associated with the restructuring
charge in the fourth quarter of 1998, discussed in note 16, and the
remaining $595,000 of severance (for 16 technical staff and management)
related to the Company's acquisition of ComStream in October 1998. This
$595,000 is part of a termination benefits cost totaling $1,600,000 (note
1); the Company paid $1,005,000 of these termination benefits prior to
December 31, 1998.
(8) NOTES PAYABLE
In 1997, the Company had a note payable under a line of credit agreement
with a bank that permitted outstanding borrowings of $4,500,000. At
December 31, 1997, outstanding borrowings against the line were
$4,500,000 plus accrued interest. In 1998, the Company repaid the note
and accrued interest with proceeds from affiliated debt (note 17).
The Company has a $20,500,000 credit agreement with a bank expiring
September 29, 1999. STPL has issued a nonbinding letter of awareness in
connection with this credit agreement. Borrowings under the line of
credit bear interest at a fluctuating rate equal to LIBOR or the bank's
Quoted Rate plus 1 percent per annum (6.125 percent and 6.938 percent as
of December 31, 1998 and 1997, respectively). At December 31, 1998 and
1997, outstanding borrowings against the line were $8,000,000 and
$5,000,000, respectively, plus accrued interest. This credit facility is
an uncommitted line of credit which the bank may modify or cancel without
prior notice. As of December 31, 1998, the Company violated one debt
covenant which was waived by the bank.
In connection with the purchase of Comstream, the Company executed a
$7,000,000 note payable to the former owner of Comstream. The note bears
interest at a rate of 8.0 percent per annum and is payable in full on
July 15, 1999. At any time prior to July 15, 1999, the holder of the note
has the option to convert 20% of the original principal balance into
shares of the Company's common stock and at any time after July 15, 1999,
prior to payment in full, the holder of the note has the option to
convert the outstanding balance into shares of the Company's common stock
at $3.73 per share.
F-15
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(9) OBLIGATIONS UNDER CAPITAL LEASES
The Company leases machinery and equipment under capital leases. The cost
and accumulated depreciation of the equipment was $501,494 and $181,645,
respectively, at December 31, 1998 and is included in property and
equipment in the accompanying balance sheets and is being depreciated
over the estimated useful lives of the machinery and equipment.
Payments on capital lease obligations due after December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999 $ 131,807
2000 55,516
2001 37,498
2002 9,952
---------
Total minimum lease payments 234,773
Less amount representing interest at rates of 4.6% to 12.3% (21,294)
---------
Present value of minimum lease payments 213,479
Less current installments 124,891
---------
Capital lease obligations due after one year $ 88,588
=========
</TABLE>
(10) COMMITMENTS
Rent expense was approximately $517,853, $94,000, $44,000 and $95,000 for
the years ended December 31, 1998 and 1997, the six-month period ended
December 31, 1996, and the year ended June 30, 1996. Future minimum
rentals under leases after December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 1,701,129
2000 1,636,703
2001 1,646,834
2002 1,712,539
2003 1,919,934
Thereafter 4,797,014
-----------
$13,414,153
===========
</TABLE>
Prior to October 15, 1998, Comstream leased two buildings (of different
size) from the same landlord under a single lease. The entire lease
remained in effect after Radyne's acquisition of the stock of ComStream
from Spar Aerospace Limited. However, Spar and Radyne agreed that
ComStream would occupy only the larger of the two buildings, while Spar
would seek to divide the lease into two separate building leases with
Spar as lessor of the smaller building. Spar agreed to indemnify Radyne
ComStream from all costs associated with the lease of the smaller
building. However, after the closing of the acquisition, a new tenant was
found for the larger building. This permitted both Spar and Radyne
ComStream to realize substantial cost savings. Accordingly on November
18, 1998, the landlord and ComStream agreed that ComStream would (i)
retain the smaller building, (ii) vacate the larger building no later
than December 15, 1998, (iii) pay $2,000,000 to the landlord, and (iv)
commence paying rent on the smaller building alone as of March 1, 1999.
Additionally, the Company negotiated a cost reimbursement of $1,265,000
from Spar, which was
F-16
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
netted against the restructuring cost discussed in note 16, resulting in
a net restructuring cost of $1.3 million for the lease buyout. The
recovery is recorded as other receivable as of December 31, 1998. The
$2,000,000 cash buyout is due in two equal installments of $1,000,000 on
March 1, 1999 and September 1, 1999. At December 31, 1998, accrued
expenses included this $2,000,000, plus $140,000 in related real estate
commissions, $273,000 of rent on the larger building through March 1999
and $30,000 of related legal and miscellaneous expenses.
The Company generally has commitments with certain suppliers and
subcontract manufacturers to purchase certain components and estimates
its non-cancelable obligations to be approximately $5,000,000 to
$8,000,000 at any give time.
(11) INCOME TAXES
Income tax expense amounted to $0 for the years ended December 31, 1998
and 1997, the six-month period ended December 31, 1996 and the year ended
June 30, 1996. The actual tax expense (benefit) for these periods differs
from "expected" tax expense for those periods as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH
DECEMBER 31 YEAR ENDED PERIOD ENDED YEAR ENDED
1998 DECEMBER 31, DECEMBER 31, JUNE 30,
RESTATED 1997 1996 1996
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Computed "expected" tax expense
$(4,943,000) (597,000) (704,000) (893,000)
State tax benefit (541,000) (64,000) (75,000) (95,000)
Change in valuation allowance 5,190,000 613,000 775,000 988,000
Other adjustments 294,000 48,000 4,000 --
----------- -------- -------- --------
Total $ -- -- -- --
=========== ======== ======== ========
</TABLE>
Deferred tax assets at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Cumulative tax effect of net operating loss carryforwards $ 8,459,000 4,620,000
Tax credits 155,000 210,000
Temporary differences 3,734,000 (107,000)
Valuation allowance (12,348,000) (4,723,000)
------------ ------------
$ -- --
============ ============
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1998 and 1997 was $7,625,000 and $613,000, respectively. At
December 31, 1998, the Company has net operating loss carryforwards of
approximately $22,608,000 expiring in various years through 2013 and
general business credit carryforwards of $155,000 expiring in various
years through 2004 for utilization against taxable income/taxes payable
of future periods, if any. Approximately $6,200,000 of the Company's
net operating
F-17
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
loss and tax credit carryforwards are subject to an annual limitation
under Internal Revenue Code Section 382, in future years, as a result of
changes in ownership of the Company's stock. Management believes that the
inability to utilize net operating loss and tax credit carryforwards to
offset future taxable income within the carryforward periods under
existing tax laws and regulations is more likely than not. Accordingly, a
100 percent valuation allowance has been recorded against the net
deferred tax assets as of December 31, 1998 and 1997.
(12) SIGNIFICANT CUSTOMERS AND EXPORT SALES
During 1998, no customers represented greater than 10 percent of net
sales. During 1997, one customer represented 14.5 percent of net sales.
For the six-month period ended December 31, 1996, two different customers
represented 18.3 percent and 15.6 percent of net sales; the latter
customer represented 12.7% of net sales for the year ended June 30, 1996.
Export sales were 50 percent, 55 percent, 66 percent and 50 percent of
net sales for the years ended December 31, 1998 and 1997, the six-month
period ended December 31, 1996, and the year ended June 30, 1996,
respectively. Export sales (based on shipping destination) are comprised
of the following:
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED YEAR ENDED ENDED DECEMBER 31, YEAR ENDED JUNE 30,
DECEMBER 31, 1998 DECEMBER 31, 1997 1996 1996
------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Europe 63% 13% -- 38%
Latin America 18% 22% 37% --
Asia 14% 58% 46% 46%
Other 5% 7% 17% 16%
------------------- ------------------- -------------------- --------------------
100% 100% 100% 100%
=================== =================== ==================== ====================
</TABLE>
The Company does not track sales by customer by country. Therefore, this
information is not available.
The Company has two primary product lines: 1) satellite modems and
earthstations, and 2) broadcast products. The sales of satellite modems
and earthstations accounted for approximately 75% of 1998 net sales.
Information concerning the breakout of sales by these two product lines
for periods prior to 1998 is not available.
F-18
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(13) LOSS PER SHARE
A summary of the reconciliation from basic loss per share to diluted loss
per share follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX-MONTH YEAR
--------------------------- PERIOD ENDED ENDED
1998 DECEMBER 31, JUNE 30,
RESTATED 1997 1996 1996
----------- -------- ------------ --------
<S> <C> <C> <C> <C>
Income (loss) available to
common stockholders $(14,537,543) (1,756,716) (2,069,974) (2,625,097)
============ ========== ========== ==========
Basic EPS-weighted average
shares outstanding 5,931,346 5,012,664 3,750,699 3,742,227
============ ========== ========== ==========
Basic loss per share $ (2.45) (.35) (.55) (.70)
============ ========== ========== ==========
Basic EPS-weighted average
shares outstanding 5,931,346 5,012,664 3,750,699 3,742,227
Effect of dilutive securities -- -- -- --
------------ ---------- ---------- ----------
Dilutive EPS-weighted average
shares outstanding 5,931,346 5,012,664 3,750,699 3,742,227
============ ========== ========== ==========
Diluted loss per share $ (2.45) (.35) (.55) (.70)
============ ========== ========== ==========
Stock options not included in
diluted EPS since
antidilutive 691,559 169,818 72,563 --
============ ========== ========== ==========
</TABLE>
(14) EMPLOYEE BENEFIT PLAN
The Company has a qualified contributory 401(k) plan that covers all
employees in Phoenix, Arizona, who have attained the age of 18 and are
employed at the enrollment date. Matching contributions were $31,690,
$30,230, $8,576 and $11,606 for the years ended December 31, 1998 and
1997, the six-month period ended December 31, 1996, and the year ended
June 30, 1996, respectively. Each participant may elect to contribute up
to 15 percent of his or her gross compensation up to the maximum amount
allowed by the Internal Revenue Service. The Company matches up to 1
percent of the employee's salary.
The Company has a qualified contributory 401(k) plan that covers all
full-time employees in San Diego, California, who have been employed
continuously for at least 30 days before enrollment date. Matching
contributions were $30,450 for the period October 15, 1998 through
December 31, 1998. Each participant may elect to contribute up to 15
percent of his or her gross compensation up to the maximum amount allowed
by the Internal Revenue Service. The Company matches $.35 for every
dollar up to 7 percent of the participant's contribution.
F-19
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(15) STOCK OPTIONS
In November 1996, the Board of Directors adopted the 1996 Incentive Stock
Option Plan (the "Plan"), which was approved by the stockholders on
January 8, 1997. The Plan provided for the grant of options to employees
of the Company to purchase up to 1,282,042 shares of common stock. The
option price per share under the Plan may not be less than the fair
market value of the stock (110 percent of the fair market value for an
optionee who is a 10 percent stockholder) on the day the option is
granted. In November 1998, the Plan was amended to increase the options
available by 900,000, providing a total of 2,182,042 options available to
purchase shares of common stock.
RIGHTS OFFERING - In November 1996, the Board of Directors approved the
distribution to stockholders, other than the Company's principal
stockholder, ST, of subscription rights for the purchase of up to 215,833
shares of the Company's common stock at a price of $2.50 per share. The
Board of Directors further approved the distribution of subscription
rights to an affiliate of ST to purchase up to 2,040,000 shares of the
Company's common stock at a price of $2.50 per share. This Rights
Offering became effective on May 12, 1997 and was concluded in June 1997.
ST's affiliate exercised 1,976,000 of its rights and individuals
associated with such affiliate exercised another 34,000. An additional
51,525 rights issued to stockholders other than ST were exercised. In a
related offering under the Company's Incentive Stock Option Plan, 110,100
shares of the Company's common stock were purchased by employees at $2.50
per share. Total proceeds received from the Rights Offering were
partially offset by approximately $336,000 of associated costs. The
proceeds from the exercise of these rights were used, in part, to satisfy
notes payable to affiliates shown on the accompanying consolidated
balance sheet at December 31, 1996.
At December 31, 1997, the Company had 690,665 options outstanding at an
exercise price of $2.50 per share. 30,500 options were exercisable at the
rate of 25 percent per year on each of the first four anniversaries of
the grant date and expire on the tenth anniversary of the grant date.
During 1998, 3,208 of these stock options were forfeited. The remaining
656,957 options have been allocated among a group of 30 key employees.
These options carry the right to a cash bonus of $1.72 per purchased
share, payable upon exercise. These options were originally exercisable,
if and when the Company's earnings before interest and taxes (calculated
without regard to any charge for compensation paid or payable under the
Plan) exceeded certain levels. The 656,957 options receive variable plan
accounting that requires the Company to recognize compensation cost based
upon the market price of the underlying stock when those specific
earnings levels are probable of being achieved or at certain other
measurement dates. In October 1998, the Company amended the terms of the
656,957 stock options to accelerate vesting of the awards, thereby
creating a new compensation measurement date and, accordingly, recognized
compensation costs amounting to $1,566,075 (restated). The Company
recognized no compensation cost relative to these stock options in 1997
or 1996.
At December 31, 1998, the Company had 1,205,957 options outstanding at
exercise prices ranging from $2.50 to $3.125 per share.
The Company applies APB Opinion 25 in accounting for its Plan, and
accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements. Had the Company
F-20
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net loss and loss
per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998
RESTATED 1997
----------- ------------
<S> <C> <C> <C>
Net loss As reported $(14,537,543) $(1,756,716)
Pro forma $(15,293,957) $(2,028,121)
Loss per Share-Basic As reported $ (2.45) $ (.35)
Pro forma $ (2.58) $ (.40)
Loss per Share-Diluted As Reported $ (2.45) $ (.35)
Pro forma $ (2.58) $ (.40)
</TABLE>
The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting
period of three years.
The fair value of options granted under the Plan was estimated on the
date of grant with vesting periods ranging from one to three years using
the Black-Scholes option-pricing model with the following weighted
average assumptions used: no dividend yield, expected volatility of 105
percent - 118 percent, risk free interest rate of 6.125 percent - 5.87
percent, and expected lives of five years.
A summary of the aforementioned stock plan activity follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER
NUMBER SHARE
------ ----------
<S> <C> <C>
Balance, December 31, 1996 684,395 $2.50
Granted 15,500 2.50
Forfeited (9,230) 2.50
--------- -----
Balance, December 31, 1997 690,665 2.50
Granted 553,000 2.89
Forfeited (37,708) 2.50
--------- -----
Balance, December 31, 1998 1,205,957 $2.68
========= =====
</TABLE>
F-21
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
A summary of stock options granted at December 31, 1998 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------- --------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICES 12/31/98 CONTRACTUAL LIFE PRICE 12/31/98 PRICE
--------------------- ---------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$ 2.50 676,957 1 year 2.50 591,957 2.50
$ 2.50 6,500 2 years 2.50 3,250 2.50
$2.50 to 3.125 522,500 3 years 2.91 130,375 2.90
--------- ----- ------- -----
1,205,957 $2.82 725,582 $2.57
========= ===== ======= =====
</TABLE>
(16) RESTRUCTURING COSTS
In November 1998, the Company announced a corporate restructuring
cost-cutting initiative, and provided a restructuring charge of
approximately $3,100,000. Included in this restructuring charge was
approximately $1,100,000 in termination benefits for 38 technical, sales
and administrative staff. The Company paid $412,000 of these termination
benefits prior to December 31, 1998 and $688,000 is included in accrued
expenses as of December 31, 1998. The remaining $2,000,000 was comprised
of $1,300,000 for the net cost of the lease buyout discussed in note 10
and $700,000 of leasehold improvements that were abandoned upon movement
to a new building in San Diego, California. At December 31, 1998, the
remaining balance in the accrued expenses related to the restructuring
costs comprises remaining termination benefits and costs associated with
the lease buyout.
(17) RELATED PARTY TRANSACTIONS
Sales to a subsidiary of STPL for the years ended December 31, 1998 and
1997, the six-month period ended December 31, 1996 and the year ended
June 30, 1996 were $50,000, $152,500, $307,300 and $311,600,
respectively.
Sales to Agilis Communication Technologies Pte Ltd ("Agilis"), an
affiliate of ST, amounted to $65,000, $540,000, $375,000 and $118,900 for
the years ended December 31, 1998 and 1997, the six-month period ended
December 31, 1996 and the year ended June 30, 1996, respectively.
Prior to 1997, a former majority stockholder of the Company provided
management services to the Company, for which it charged the Company
$60,000 and $120,000 for the six-month period ended December 31, 1996 and
the year ended June 30, 1996, respectively.
Interest expense on notes payable to affiliates was $581,000, $148,000,
$205,900 and $248,400 for the years ended December 31, 1998 and 1997, the
six-month period ended December 31, 1996 and the year ended June 30,
1996, respectively, of which $581,000, $0 and $152,400 were included in
accrued expenses in the accompanying balance sheet as of December 31,
1998, 1997 and 1996, respectively.
During 1998, an ST affiliate made loans of $5,618,272 to the Company. The
loans bear interest at rates ranging from 6.625 percent to 6.844 percent
per annum with the principal and accrued interest due in March 2000. The
proceeds of the loans were used in part by the Company to repay a note
payable under a line of credit agreement which was outstanding at
December 31, 1997 (note 8).
F-22
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
During August 1998 the Company executed a note to ST for $10,000,000 the
proceeds of which were used for the purchase of Comstream. This note
bears interest at a rate of 6.375 percent per annum. The note, plus any
accrued interest, is due March 31, 2000.
The Company had notes receivable from stockholders totaling $40,086 at
December 31, 1997. These notes had an interest rate of 4 percent and were
paid in June 1998.
(18) CONTINGENCIES
The Internal Revenue Service is currently conducting examinations of the
Company with respect to income tax for the calendar year ended December
31, 1995. The State of California Board of Equalization is currently
conducting examinations with respect to personal property tax and sales
tax for the calendar years ended December 31, 1995, 1996 and 1997. The
examinations are currently in process and management does not expect a
material adverse effect on the financial position of the Company
resulting from the resolutions of the examinations. Accordingly, no
provision has been made in the accompanying consolidated financial
statements for losses, if any, that might ultimately result from the
examinations.
The Company is involved in litigation and claims arising in the normal
course of operations. In the opinion of management based on consultation
with legal counsel, losses, if any, from this litigation are covered by
insurance or are immaterial; therefore, no provision has been made in the
accompanying consolidated financial statements for losses, if any, that
might result from the ultimate outcome of these matters.
(19) YEAR 2000 PROBLEM
In 1998, the Company developed a plan to deal with the Year 2000 problem.
The plan provides for the conversion efforts to be completed by September
30, 1999. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year.
The Company has identified all internal mission critical systems and
plans to begin remediation efforts, consisting of system upgrades, in the
second quarter of 1999. The Company has also determined that its core
products do not contain date-sensitive components; however, the Company
expects to begin communicating with its customers on the status of its
products in the second quarter of 1999. Management is currently assessing
the Year 2000 remediation efforts of the Company's significant suppliers.
Although management believes its efforts minimize the potential adverse
effects on the Company of a supplier's failure to be Year 2000 compliant
on time, there can be no absolute assurance that all its suppliers will
become Year 2000 compliant on time or in a way that will be compatible
with the Company's systems. The Company does not believe expenditures to
be Year 2000 compliant will cost in excess of $100,000, and is expensing
all costs associated with these systems changes as the costs are
incurred. However, there can be no assurance that the Company will be
able to completely resolve all Year 2000 issues or that the ultimate cost
to identify and implement solutions to all Year 2000 problems will not be
material to the Company.
(20) SUBSEQUENT EVENTS
In January and February 1999, the Company had additional draws on the
line of credit totaling $1,500,000 at interest rates ranging from 5.97%
to 6.06%.
In January 1999, the Company filed a Form S-2 with the Securities and
Exchange Commission to register a rights offering of 4,745,076 shares of
common stock at a price of $3.73 per share. Each stockholder of record
will be entitled to purchase four shares of common stock for every five
shares currently owned.
F-23
<PAGE>
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(21) QUARTERLY FINANCIAL DATA - UNAUDITED
A summary of the quarterly data for the years ended December 31, 1998 and
1997 follows:
<TABLE>
<CAPTION>
FOURTH
FIRST SECOND THIRD QUARTER TOTAL
QUARTER QUARTER QUARTER RESTATED RESTATED
------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1998:
Total revenues $ 3,949 2,718 3,307 11,138 21,112
============ ============ ============= ============= ============
Gross profit $ 1,194 48 1,027 3,034 5,303
============ ============ ============= ============= ============
Operating expenses $ 1,506 1,577 1,384 14,198 18,665
============ ============ ============= ============= ============
Loss before interest expense $ (312) (1,529) (357) (11,164) (13,362)
============ ============ ============= ============= ============
Net loss $ (490) (1,727) (550) (11,771) (14,538)
============ ============ ============= ============= ============
Basic loss per common share $ (.08) (.29) (.09) (1.99) (2.45)
============ ============ ============= ============= ============
Diluted loss per common share $ (.08) (.29) (.09) (1.99) (2.45)
============ ============ ============= ============= ============
1997:
Total revenues $ 2,741 2,812 4,434 3,460 13,447
============ ============ ============= ============= ============
Gross profit $ 1,061 1,158 2,036 1,170 5,425
============ ============ ============= ============= ============
Operating expenses $ 1,363 1,499 1,788 1,854 6,504
============ ============ ============= ============= ============
Income (loss) before interest expense $ (302) (341) 248 (684) (1,080)
============ ============ ============= ============= ============
Net income (loss) $ (474) (504) 86 (865) (1,757)
============ ============ ============= ============= ============
Basic loss per common share $ (.13) (.11) .01 (.12) (.35)
============ ============ ============= ============= ============
Diluted loss per common share $ (.13) (.11) .01 (.12) (.35)
============ ============ ============= ============= ============
</TABLE>
F-24
<PAGE>
RADYNE COMSTREAM INC
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1998 (Unaudited)
(in thousands except per share data).
<TABLE>
<CAPTION>
RADYNE COMSTREAM COMSTREAM ADJUSTMENTS NOTES PRO FORMA
AUDITED UNAUDITED COMBINED
------------------ --------------- -------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Sales $21,112 $29,853 $ $ 50,965
Cost of sales 15,809 21,368 37,177
------- ------- ------
Gross profits 5,303 8,485 13,788
Operating expenses
Selling, general & administrative 5,531 9,493 (787) a 14,868
Research and development 4,296 7,227 11,523
Stock option compensation expense 1,156 1,156
In-process research and development 3,909 (3,909) b
Restructuring costs 3,100 3,100
Asset impairment charge 263 263
------ --------- ------
Total operating expenses 18,255 16,720 (4,065) 30,910
------ ------ ------
Operating loss (12,952) (8,235) (4,065) (17,122)
Interest expense 1,199 3,240 (3,240) c 2,399
1,200 c
Other (24) (24)
-------- ---------- --------
Net loss $(14,127) $(11,475) $(6,105) $(19,497)
========= ========= ======== =========
Basic net loss per common share $(2.38) d $(3.29)
======= =======
Diluted net loss per common share $(2.38) d $(3.29)
======= =======
Weighted average number of common
shares outstanding 5,931,346 5,931,346
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements
F-25
<PAGE>
Radyne ComStream Inc.
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 statement of operations for the year
ended December 31, 1998 is presented using the Radyne ComStream Inc. audited
statement of operations for the year ended December 31, 1998 combined with the
ComStream unaudited consolidated statement of operations for the period from
January 1, 1998 through October 14, 1998, as if the transaction had taken place
on January 1, 1998.
The pro forma condensed combined financial statement should be read in
conjunction with the audited financial statements and notes thereto of Radyne
ComStream Inc. for the year ended December 31, 1998.
The pro forma combined statement of operations is not necessarily indicative of
the future results of operations of Radyne ComStream or the results of
operations which would have resulted had Radyne and ComStream been combined
during the period presented. In addition, the pro forma results are not intended
to be a projection of future results.
(2) Pro Forma Condensed Combined Statement of Operations
The accompanying pro forma adjustments reflect adjustments for the following
items:
a) 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 10 years, respectively.
b) The fair value of acquired in-process research and development of
$3,909,000 was expensed in the period in which the acquisition was
completed. This amount was shown as an increase in the accumulated deficit
and not as an expense in the accompanying pro forma condensed combined
statement of operations.
c) Interest expense incurred by ComStream, primarily relating 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.
from $5,500,000 to $20,500,000.
d) At December 31, 1998 pro forma loss per share would have been $1.90
after giving effect to the use of proceeds of the previously announced
rights offering, where the Company will capitalize approximately $15.6
million of debt now owed to its majority stockholder and issue 4,300,800
additional shares of common stock to that stockholder.
F-26
<PAGE>
FINANCIAL INFORMATION
RADYNE COMSTREAM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
Unaudited Audited
<S> <C> <C>
Current assets:
Cash & cash equivalents $ 1,622,256 $ 254,956
Accounts receivable - trade, net of allowance
for doubtful accounts of $784,958 and $632,815 6,827,761 7,270,732
Other receivable 0 1,265,000
Inventories, net 8,238,202 9,380,478
Prepaids and other current assets 430,536 590,161
------------------------------------------------
Total current assets 17,118,755 18,761,327
------------------------------------------------
Property and equipment - net 3,961,371 5,533,645
------------------------------------------------
Other assets 3,888,029 4,895,742
------------------------------------------------
Total assets $ 24,968,155 $ 29,190,714
================================================
Liabilities and stockholders' capital/(deficiency)
Current liabilities:
Notes payable under line of credit agreement $ 12,920,000 $ 8,000,000
Note payable 0 7,000,000
Current installments of obligations under capital leases 64,561 124,891
Accounts payable - trade 2,512,724 3,291,915
Accounts payable - affiliates 0 8,150
Accrued expenses 7,255,518 9,140,341
Income taxes payable 15,000 0
------------------------------------------------
Total current liabilities 22,767,803 27,565,297
Notes payable to affiliates 0 15,618,272
Obligations under capital leases, excluding current installments 76,572 88,588
Accrued stock option compensation 1,108,804 1,155,477
------------------------------------------------
Total liabilities 23,953,179 44,427,634
------------------------------------------------
Stockholders' capital/(deficiency)
Common stock, $.002 par value, 20,000,000 shares authorized,
Shares issued and outstanding, 10,151,026 at September 30, 1999
and 5,931,340 at December 31, 1998. 20,303 11,862
Additional paid-in capital 21,435,312 6,105,404
Accumulated deficit (20,440,639) (21,354,186)
------------------------------------------------
Total stockholders' capital/(deficiency) 1,014,976 (15,236,920)
------------------------------------------------
Total $ 24,968,155 $ 29,190,714
================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-27
<PAGE>
RADYNE COMSTREAM INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
1999 1998
<S> <C> <C>
Net sales $ 39,261,814 $ 9,973,611
Cost of sales 21,090,713 7,704,856
----------------------------------------------------
Gross profit 18,171,101 2,268,755
----------------------------------------------------
Operating expenses:
Selling, general and administrative 9,138,897 2,543,986
Research and development 6,730,223 1,944,809
----------------------------------------------------
Total operating expenses 15,869,120 4,488,795
----------------------------------------------------
Income (loss) from operations before interest expense
and extraordinary income 2,301,981 (2,220,040)
----------------------------------------------------
Interest expense, net 1,561,616 568,592
----------------------------------------------------
Net Income (loss) before extraordinary income and taxes 740,365 (2,788,632)
Extraordinary income 188,182 0
----------------------------------------------------
Net Income (loss) before provision for income taxes 928,547 (2,788,632)
----------------------------------------------------
Provision for income taxes 15,000 0
----------------------------------------------------
Net income (loss) available for common stockholders $ 913,547 $ (2,788,632)
====================================================
Basic Earnings (loss) per share:
Income (loss) before extraordinary items $ .12 $ (0.47)
Extraordinary item .03 --
====================================================
Net income (loss) $ .15 $ (0.47)
Diluted Earnings (loss) per share:
Income (loss) before extraordinary items $ .11 $ (0.47)
Extraordinary item .03 --
====================================================
Net income (loss) .14 (.47)
====================================================
Weighted average shares used in computation
Basic 5,961,937 5,931,340
====================================================
Diluted 6,401,161 5,931,340
====================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-28
<PAGE>
RADYNE COMSTREAM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 913,547 $ (2,788,632)
Adjustments to reconcile net income (loss) to cash flows used
in operating activities:
Forgiveness of interest on debt (188,182) 0
Depreciation and amortization 1,812,551 395,653
Increase (decrease) in cash resulting from changes in:
Accounts and other receivables 1,707,971 161,417
Inventories 1,142,276 1,120,380
Prepaids and other current assets 159,625 (384,813)
Other assets 35,024 0
Accounts payable - trade (779,191) 354,746
Accounts payable - affiliates (8,150) (16,062)
Accrued expenses (1,884,823) 223,070
Accrued stock option compensation (46,673) 0
Income taxes payable 15,000 (40,736)
--------------------------------------
Net cash (used in) provided by operating activities 2,873,975 (974,977)
--------------------------------------
Cash flows from investing activities:
Investment in restricted cash 0 (10,000,000)
Net proceeds from sale of fixed assets 144,597 0
Capital expenditures (256,404) (390,098)
--------------------------------------
Net cash used in investing activities (111,807) (10,390,098)
--------------------------------------
Cash flows from financing activities:
Net borrowing (payment) on notes payable under
line of credit agreements 4,920,000 (4,000,000)
Proceeds from notes payable to affiliates 0 15,618,272
Payment of Rights Offering costs (363,629) 0
Payments on note payable (5,962,599) 0
Notes receivable - employees 0 40,086
Net proceeds from sale of common stock 83,706 0
Principal payments on capital lease obligations (72,346) (87,143)
======================================
Net cash (used in) provided by financing activities (1,394,868) 11,571,215
--------------------------------------
Net increase in cash 1,367,300 206,140
Cash and cash equivalents, beginning of year 254,956 569,692
======================================
Cash and cash equivalents, end of period $ 1,622,256 $ 775,832
======================================
Supplemental disclosure of cash flow information:
Interest paid $ 813,096 $ 698,201
Purchase price adjustment to notes payable and goodwill $ 515,940 $ 0
Conversion of notes payable to affiliate to common stock in
connection with rights offering $ 15,618,272 $ 0
======================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-29
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 IS UNAUDITED)
1. BUSINESS
Radyne Comstream Inc. (the "Company") was incorporated on November 25,
1980 and commenced operations on May 22, 1981. On August 12, 1996 the Company
became a majority owned subsidiary of Singapore Technologies Pte Ltd, through
its wholly owned subsidiary, Stetsys US, Inc.
On October 15, 1998, Radyne purchased all of the outstanding shares of
common stock of Comstream Holdings, Inc. ("Comstream") for an aggregate purchase
price of $17 million, of which $10 million was paid in cash at the closing,
using funds borrowed from its controlling stockholder, and the balance of which
was in the form of a $7 million note (the "Note"), payable nine months from the
purchase date. This acquisition was recorded in accordance with the "purchase
method" of accounting. The excess of the purchase price over the net assets
acquired was approximately $8.7 million of which $3.9 million was allocated to
in-process research and development, $2.5 million was valued as purchased
technology, which is being amortized over 6.25 years, and $2.3 million has been
recorded as goodwill, which is being amortized over ten years. On September 29,
1999, the Company negotiated a reduction in the note due to the seller. This
reduction is discussed in Note 9, and resulted in a $516,000 reduction to the
purchase price, therefore reducing the original goodwill balance of $2.3 million
to $1.784 million.
Comstream operates primarily in North America in the satellite
communications industry. Comstream designs, markets and manufactures satellite
interactive modems and earth stations. Additionally, Comstream 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.
In March 1999, Radyne Corp. changed its name to Radyne Comstream Inc.
The Company's principal locations are in Phoenix, Arizona and San Diego,
California. The Company designs, manufactures, and sells products, systems and
software used for the transmission and reception of data over satellite and
cable communication networks.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations (unaudited) as if the acquisition had taken
place on January 1, 1998. Such pro forma amounts are not necessarily indicative
of what the actual results of operations might have been if the acquisition had
been effective on January 1, 1998:
<TABLE>
<CAPTION>
Nine months Ended
September-30-1998
-----------------
(in thousands except per share data)
<S> <C>
Net sales 39,825
=======
Gross profit 10,738
=======
Net loss (12,186)
=======
Net loss per common share (2.05)
=======
</TABLE>
F-30
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The interim unaudited condensed consolidated financial statements
furnished reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of financial
position as of September 30, 1999 and the results of operations
for the three and nine months ended September 30, 1999 and 1998
and cash flows for the nine months ended September 30, 1999 and
1998. Such adjustments are of a normal recurring nature. This
information should be read in conjunction with the restated
consolidated financial statements included in the Company's Form
10-K/A for the twelve month period ended December 31, 1998.
The results of operations for the interim period are not
necessarily indicative of the results to be expected for the full
year.
(b) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities as of the financial statement date and the reported
amounts of revenue and expenses during the reporting period.
Rapid technological change and short product life cycles
characterize the industry in which the Company operates. As a
result, estimates are required to provide for product
obsolescence and warranty returns as well as other matters.
Actual results could differ from those estimates.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany accounts
and transactions have been eliminated in the consolidation.
(d) Cash Equivalents
The Company considers all money market accounts with a maturity
of 90 days or less to be cash equivalents.
(e) Revenue Recognition
The Company recognizes revenue upon shipment of product.
(f) Inventories
Inventories, consisting of satellite modems and earth stations,
frequency converters, broadcast receivers and related products,
are valued at the lower of cost (first-in, first-out) or market.
(g) Property and Equipment
Property and equipment are stated at cost. Equipment held under
capital leases is stated at the present value of future minimum
lease payments. Expenditures for repairs and maintenance are
charged to operations as incurred, and improvements that extend
the useful lives of the assets are capitalized. Depreciation and
amortization of machinery and equipment are computed using the
straight-line method over an estimated useful life of three to
ten years. Equipment held under capital leases and leasehold
improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful lives of the
assets.
(h) Goodwill
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line
basis over ten years.
(i) Purchased Technology
In connection with the acquisition of Comstream, value was
assigned to purchased technology. Purchased technology is being
amortized on a straight-line basis over the expected period to be
benefited of 6.25 years.
F-31
<PAGE>
(j) Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amounts of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount, or fair value, less costs to sell.
(k) 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.
(l) Research and Development
The cost of research and development is charged to expense as
incurred.
(m) Income Taxes
The Company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future consequences attributed to differences
between the consolidated financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Differences between income for financial and tax reporting
purposes arise primarily from accruals for warranty reserves and
compensated absences. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(n) Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are principally accounts
receivable. The Company maintains ongoing credit evaluations of
its customers and generally does not require collateral. The
Company provides reserves for potential credit losses and such
losses have not exceeded management's expectations.
(o) Net Income/(Loss) Per Common Share
Basic income/(loss) per share is computed by dividing
income/(loss) available to common stockholders by the
weighted-average number of common shares outstanding for the
period. Diluted income/(loss) per share reflects the potential
dilution that could occur if securities or contracts to issue
common stock were exercised or converted to common stock or
resulted in the issuance of common stock that then shared in the
earnings or income/(loss) of the Company. Assumed exercise of
outstanding stock options and warrants for the three and nine
months ended September 30, 1998 have been excluded from the
calculations of diluted net loss per common share as their effect
is antidilutive.
(p) Fair Value of Financial Instruments
The fair value of accounts receivable, accounts payable and
accrued expenses approximates the carrying value due to the
short-term nature of these instruments. Management has estimated
that the fair values of the notes payable approximate the current
balances outstanding, based on currently available rates for debt
with similar terms.
(q) 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 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
F-32
<PAGE>
option grant, over the exercise price of the option. The deferred
compensation is amortized over the vesting period of the option.
(r) Segment Reporting
The Company has only one operating business segment, the sale of
equipment for satellite and cable communications networks.
(s) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS No. 130) which became effective for
the Company January 1, 1998. SFAS No. 130 established standards
for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements.
The Company had no items of comprehensive income. Therefore, the
adoption of SFAS No. 130 had no effect on the Company.
3. RIGHTS OFFERING (1999)
In October 1998 the Board of Directors approved the distribution
to stockholders, other than the Company's principal stockholders,
Stetsys US, Inc and Stetsys Pte Ltd ("ST"), of subscription
rights for the purchase of up to 444,276 shares of the Company's
common stock at a price of $3.73 per share. The Board of
Directors further approved the distribution of subscription
rights to ST to purchase up to 4,300,800 shares of the Company's
common stock at a price of $3.73 per share. This Rights Offering
became effective on September 30, 1999 upon the approval by the
Securities and Exchange Commission of the amended Form S-2
Registration Statement which was filed on September 24, 1999. ST
instructed the Company to capitalize the entire $15,618,272
principal amount of the debt owed to ST's wholly owned
subsidiary, Stetsys US, Inc., in partial exercise of its rights.
Subsequent to the end of the period reported on herein, ST
exercised the balance of its rights by paying cash to the Company
in the amount of $423,700. The Company used these funds, along
with $932,200 of cash on hand to pay the accrued interest due to
ST as of September 30, 1999.
<TABLE>
<CAPTION>
4. INVENTORIES SEPTEMBER 30, 1999 DECEMBER 31, 1998
Unaudited Audited
<S> <C> <C>
Inventories consist of the following:
Raw materials and components $ 5,177,165 $ 6,065,751
Work in process 3,192,695 4,319,338
Finished goods 971,552 546,858
---------------------------------------------------------
9,341,412 10,931,947
---------------------------------------------------------
Obsolescence reserve (1,103,210) (1,551,469)
=========================================================
Total $ 8,238,202 $ 9,380,478
=========================================================
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
5. PROPERTY AND EQUIPMENT SEPTEMBER 30, 1999 DECEMBER 31, 1998
Unaudited Audited
<S> <C> <C>
Property and equipment consist of the following:
Machinery and equipment $ 3,492,200 $ 3,598,732
Furniture and fixtures 2,417,613 2,661,195
Leasehold improvements 445,127 312,425
---------------------------------------------------------
6,354,940 6,572,352
---------------------------------------------------------
Less accumulated depreciation & amortization (2,393,569) (1,038,707)
=========================================================
Total $ 3,961,371 $ 5,533,645
=========================================================
</TABLE>
6. RESTRUCTURING COST
The accrued restructuring costs in the accompanying condensed consolidated
balance sheet at September 30, 1999 which are included in the accrued
liabilities include the cost of involuntary employee termination benefits for
certain employees of the Company and costs associated with the lease buyout of a
building located in San Diego, California.
These accrued restructuring costs at September 30, 1999 principally consist of
the following;
<TABLE>
<CAPTION>
Total Accrued Restructuring Costs
---------------------------------
<S> <C>
Balance at December 31, 1998 $ 3,130,166
Cash paid for lease buyout (2,443,110)
Cash paid for employee termination benefits (577,132)
------------
Unaudited balance at September 30, $ 109,924
============
</TABLE>
The $110,000 accrued restructuring charge remaining at September 30, 1999
consists of severance costs (termination of 38 of the technical, sales and
administrative staff completed in December 1998) all of which the Company
expects to be paid out in the fourth quarter of 1999.
<TABLE>
<CAPTION>
7. ACCRUED EXPENSES SEPTEMBER 30, 1999 DECEMBER 31, 1998
Unaudited Audited
<S> <C> <C>
Accrued expenses consist of the following:
Wages and related payroll taxes $ 1,341,191 $ 1,355,316
Interest expense 1,432,699 803,929
Professional fees 576,253 378,817
Warranty reserve 762,086 679,964
Severance 220,731 1,282,761
Lease buyout 0 2,443,110
Customer deposits 363,539 306,462
Other 2,559,019 1,889,982
---------------------------------------------------------
Total $ 7,255,518 $ 9,140,341
=========================================================
</TABLE>
The severance balance included in accrued expenses at September 30,
1999 consists of approximately $110,000 associated with the restructuring charge
in the fourth quarter of 1998, discussed in Note 6, and the remaining $111,000
of severance (for 16 technical staff and management) related to the Company's
acquisition of ComStream in October 1998. This $110,000 is part of a termination
benefits cost totaling $1,600,000; the Company
F-34
<PAGE>
paid $1,005,000 of these termination benefits prior to December 31, 1998 and an
additional $485,000 prior to September 30, 1999.
8. RELATED PARTY TRANSACTIONS
Sales to Agilis Communication Technologies Pte Ltd, a company under
common control with Radyne ComStream, for the three months ended September 30,
1999 and 1998 were $29,000 and $14,000, respectively. Cost of such sales for the
same periods were $15,000 and $5,000, respectively. For the nine months ended
September 30, 1999 and 1998 sales were $69,000 and $163,000, respectively. Cost
of such sales for the same periods were $28,000 and $87,000, respectively.
Accounts receivable from affiliates at September 30, 1999 and December
31,1998 was $5,000 and $52,000, respectively.
Notes payable to ST and affiliates outstanding at September 30, 1999
and December 31, 1998 were $0 and $15,618,000 respectively. These notes carried
interest at rates from 6.375% to 6.844% and were capitalized as part of the
Rights Offering.
Interest expense on notes payable to affiliates was $261,000 and
$100,000 for the three months ended September 30, 1999 and 1998, respectively.
For the nine months ended September 30, 1999 and 1998, interest expense on notes
payable to affiliates was $732,000 and $266,000, respectively.
Accrued interest on notes payable to affiliates was $1,355,000 at
September 30, 1999 compared to $581,000 at December 31, 1998.
9. NOTES PAYABLE
The Company has a $20,500,000 credit agreement with Citibank, N.A. that
includes $20,000,000 available under an uncommitted line of credit facility and
facilities for bank guarantees and/or standby letters of credit up to $500,000.
An affiliate of ST has issued a nonbinding letter of awareness in connection
with this credit agreement. Borrowings under the line of credit bear interest at
a fluctuating rate equal to LIBOR plus 1% per annum or an alternative Citibank
Quoted Rate plus 1% per annum (rates varied from 5.97 % to 6.94% on balances
owed at September 30, 1999). The credit agreement requires the Company to
maintain certain financial leverage ratios. At September 30, 1999, the Company
was in violation of one such covenant which was waived by the bank. The
availability of additional borrowings under the credit agreement expired
September 29, 1999, but has been extended verbally, pending preparation of a
renewal agreement. The Company owed principal of $12,920,000 under the line of
credit as of September 30, 1999 and $8,000,000 as of December 31, 1998.
Notes payable to affiliate (ST) outstanding at September 30, 1999 and
December 31, 1998 were $0 and $15,618,272 respectively. These notes accrued
interest at rates ranging from 6.375% to 6.844% and were paid from the proceeds
of the Rights Offering. Of the amount owed at December 31, 1998, $10,000,000 was
borrowed in September 1998 for the acquisition of ComStream Holdings, Inc.
The Company also had a note payable to Spar Aerospace Limited in the
amount of $7,000,000. This note was issued on October 15, 1998 as partial
consideration for the acquisition of ComStream Holdings, Inc. The note matured
on July 15, 1999 with interest at 8% per annum. The Company negotiated a
reduction in the note balance due to Spar for the following reasons: (i) a
$521,000 reduction for the Company's assumption of $115,000 of liabilities from
Spar and the waiver of Spar's obligation to indemnify the Company against a
$406,000 claim by a product assembly contractor for costs incurred on
ComStream's behalf prior to the acquisition, and (ii) a $516,000 reduction in
the note for certain inventory and furniture and equipment erroneously carried
on ComStream's pre-closing balance sheet. Because these discrepancies were
identified prior to the purchase price allocation, no portion of the Company's
purchase price for ComStream was allocated to such inventory, furniture and
equipment. Therefore, this $516,000 reduction has resulted in a reduction in
goodwill. The note was paid during the quarter ended September 30, 1999. In
addition, the Company negotiated a $278,000 reduction in interest on the note
($188,000 of which had been accrued in prior periods and so has been reported as
extraordinary income in the current period).
F-35
<PAGE>
The purpose of all of the above described loans has been to finance or
refinance the capital needs associated with the Company's acquisition of
ComStream Holdings, Inc., recent rapid sales and backlog growth and the cost of
research and development. To date, the Company's capital resources (as
supplemented by loans from ST and its affiliates) have been sufficient to fund
its operations and increased level of business. The Company believes that its
bank credit lines and cash from operations are likely to be sufficient to fund
its planned future operations and capital requirements for continued growth for
the next twelve months.
10. INCOME/(LOSS) PER SHARE
A summary of the reconciliation from basic income/ (loss) per share to diluted
income/ (loss) per share follows:
<TABLE>
<CAPTION>
---------------------------------------------------------
Nine Months Nine Months
Ended Ended
September September
1999 1998
---------------------------------------------------------
<S> <C> <C>
Net Earnings (Loss) 913,547 (2,788,632)
=========================================================
Basic EPS - Weighted Average Shares Outstanding 5,961,937 5,931,340
=========================================================
Basic Earnings (Loss) Per Share 0.15 (0.47)
=========================================================
Basic Weighted Average Shares 5,961,937 5,931,340
Effect of diluted stock options 439,224 --
---------------------------------------------------------
Diluted EPS - Weighted Average Shares Outstanding 6,401,161 5,931,340
=========================================================
Diluted Earnings (Loss) Per Share 0.14 (0.47)
=========================================================
Stock Options not included in Diluted EPS
Since Antidilutive 1,026,086 830,559
=========================================================
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
<S> <C>
You should rely only on the information contained in 1,500,000 UNITS
this prospectus. Neither the underwriters nor we have
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. Neither [Logo]
the underwriters nor we are making an offer to sell these
securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information
appearing in this prospectus is accurate as of the date on
the front cover of this prospectus only. Our business,
financial condition, results of operations and prospects may
have changed since that date.
RADYNE COMSTREAM INC.
TABLE OF CONTENTS
Page
----
Summary..............................................1 CONSISTING OF 1,500,000 SHARES OF
Risk Factors.........................................6 COMMON STOCK
Use Of Proceeds.....................................15 AND 1,500,000 REDEEMABLE COMMON
Dividend Policy.....................................15 STOCK PURCHASE WARRANTS
Capitalization......................................16 TO PURCHASE 1,500,000 SHARES OF
Price Range of Common Stock.........................17 COMMON STOCK
Dilution............................................18
Selected Financial Data.............................19
Management's Discussion and Analysis of Financial ____________________
Condition and Result of Operations..................22
Business............................................33 PROSPECTUS
Management..........................................45 ____________________
Principal Shareholders..............................52
Certain Transactions................................52
Description of Securities...........................54
Shares Eligible for Future Sale.....................56 ____, 1999
Underwriting........................................57
Legal Matters.......................................60
Experts.............................................60 HD BROUS & CO., INC.
Where You Can Find More Information.................61
Index to Financial Statements......................F-1
==================================================================================================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Except as set forth below, the following fees and expenses will be paid by
Radyne ComStream Inc. in connection with the issuance and distribution of the
securities registered hereby and do not include underwriting commissions and
discounts. All such expenses, except for the SEC registration, NASD filing and
Nasdaq listing fees, are estimated.
<TABLE>
<S> <C>
SEC registration fee ....................................... $ 4,805
NASD filing fee ............................................ $ 1,138
Nasdaq SmallCap Market listing fee ......................... $ 10,000
Legal fees and expenses .................................... $225,000
Blue Sky legal and filing fees.............................. $ 27,500
Accounting fees and expenses ............................... $ 80,000
Transfer and Warrant Agents' fees .......................... $ 3,500
Printing and engraving expenses ............................ $ 73,500
Miscellaneous............................................... $ 10,000
-------------
Total............................................... $435,443
=============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
New York Business Corporation Law, Article 7, enables a corporation in its
original certificate of incorporation, or an amendment thereto validly approved
by shareholders, to eliminate or limit personal liability of members of its
Board of Directors for violations of a director's fiduciary duty of care.
However, the elimination or limitation shall not apply where there has been bad
faith, intentional misconduct or a knowing violation of law, the payment of a
dividend or approval of a stock repurchase which is deemed illegal, any other
violation of Section 719 of the New York Business Corporation Law, or a
financial profit or other advantage to which the director was not legally
entitled. Radyne ComStream's Certificate of Incorporation includes the following
language:
"SEVENTH: A director of the Corporation shall not be personally liable
to the Corporation or its shareholders for damages for any breach of
duty as a director; provided that, except as hereinafter provided,
this Article SEVENTH shall neither eliminate nor limit liability: (a)
if a judgment or final adjudication adverse to the director
establishes that (i) the director's acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of
law, (ii) the director personally gained in fact a financial profit or
other advantage to which the director was not legally entitled, or
(iii) the director's acts violated Section 719 of the New York
Business Corporation Law; or (b) for any act or omission prior to the
effectiveness of this Article SEVENTH. If the Corporation hereafter
may by law be permitted to further eliminate or limit the personal
liability of directors, then pursuant hereto the liability of a
director of the Corporation shall, at such time, automatically be
further eliminated or limited to the fullest extent permitted by law.
Any repeal of or modification to the provisions of this Article
SEVENTH shall not adversely affect any right or protection of a
director of the
II-1
<PAGE>
Corporation existing pursuant to this Article SEVENTH immediately
prior to such repeal or modification.
EIGHTH: The Corporation may, to the fullest extent permitted by
Sections 721 through 726 of the Business Corporation Law of New York,
indemnify any and all directors and officers whom it shall have power
to indemnify under the said sections from and against any and all of
the expenses, liabilities or other matters referred to in or covered
by such section of the Business Corporation Law, and the
indemnification provided for herein shall not be deemed exclusive of
any other rights to which the persons so indemnified may be entitled
under any By-Law, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his/her official capacity
and as to action in another capacity by holding such office, and shall
continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators
of such a person."
ITEM 16. EXHIBITS
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
1.1 Form of Underwriting Agreement
2.1* Stock Purchase Agreement dated August 28, 1998 between Spar Aerospace Limited and
Radyne ComStream Inc.
4.1 Form of Common Stock Certificate
4.2 Form of Warrant Agreement
4.3 Form of Warrant Certificate
4.4 Form of Representative's Purchase Option
4.5 Form of Lock-Up Agreement
5.1+++ Form of Opinion of Dorsey & Whitney LLP
10.1** 1996 Incentive Stock Option Plan
10.2*** Employment Agreement with Robert C. Fitting and Steven W. Eymann (Radyne Termsheet)
10.3**** Lease for facility in Phoenix, Arizona
10.4***** Amendment to 1996 Incentive Stock Option Plan
10.5+ Lease between ADI Communication Partners, L.P. and ComStream dated April 23, 1997
10.6+ First Amendment to lease between ADI Communication Partners L.P. and ComStream dated July 16, 1997
10.7+ Second Amendment to Lease between Kilroy Realty, L.P. and ComStream dated November 18, 1998
10.8+ Indemnity Agreement between Pacific Bell Corporation and ComStream dated November 18, 1998
10.9+ Letter Agreement between Spar and Radyne ComStream Inc. dated November 18,1998
13.1++ Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998
13.2++ Report on Form 10-Q/A for the quarter ended March 31,1999
13.3++ Report on Form 10-Q/A for the quarter ended June 30, 1999
13.4++ Report on Form 10-Q for the quarter ended September 30, 1999
23.1 Consent of KPMG LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Dorsey & Whitney LLP (contained in the opinion filed as Exhibit 5.1)
24.1 Power of Attorney (contained in signature section of Registration Statement)
</TABLE>
II-2
<PAGE>
- -------------------------------------------------------------------------------
* Incorporated by reference from Registrant's Form 8-K filed on August
28, 1998.
** Incorporated by reference from Registrant's Registration Statement on
Form S-8, dated and declared effective on March 12, 1997 (File No.
333-23159).
*** Incorporated by reference from Registrant's amended Registrant
Statement on Form S-1, dated May 8, 1997 and declared effective on May
12, 1997 (File No. 333-18811).
**** Incorporated by reference from Registrant's Annual Report on Form 10-K
for the year Ended December 31, 1997.
***** Incorporated by reference from Registrant's Registration Statement on
Form S-8, dated and declared effective on November 18, 1998 (File No.
333-67469).
+ Incorporated by reference from Registrant's amended Registration
Statement on Form S-2, filed on January 11, 1999 and declared
effective on September 30, 1999 (File No. 333-70403).
++ Previously filed with Commission and incorporated by reference from
Registrant's previously filed documents.
+++ To be filed by amendment.
- -------------------------------------------------------------------------------
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers of sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(30) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration
statement;"
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statements.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer and the terms of any subsequent reoffering
thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Phoenix, state of Arizona on November 9, 1999.
RADYNE COMSTREAM INC.
By: /s/ Robert C. Fitting
-----------------------------------
Robert C. Fitting, President and Chief
Executive Officer
By: /s/ Garry Kline
-----------------------------------
Garry Kline, Vice President-Finance
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Robert C. Fitting and Ming Seong Lim or any one of
them, his true lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place, and stead, in
any and all capacities, to sign any and all pre- or post-effective amendments to
this Registration Statement, to sign any registration statement and amendments
thereto for the same offering pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Robert C. Fitting Chief Executive Officer, President, and
- -------------------------------- Director (Principal Executive Officer) November 9, 1999
Robert C. Fitting
/s/ Garry D. Kline Vice President-Finance, Chief Financial
- -------------------------------- Officer and Secretary (Principal Financial November 9, 1999
Garry D. Kline and Accounting Officer)
/s/ Robert A. Grimes Director November 9, 1999
- -----------------------------------------
Robert A. Grimes
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Ming Seong Lim Chairman of the Board of Directors November 9, 1999
- -----------------------------------
Ming Seong Lim
/s/ Yip Loi Lee Director November 9, 1999
- -----------------------------------
Yip Loi Lee
/s/ Kum Chuen Tang Director November 9, 1999
- -----------------------------------
Kum Chuen Tang
/s/ Dennis Elliott Director November 9, 1999
- -----------------------------------
Dennis Elliott
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
1.1 Form of Underwriting Agreement
4.1 Form of Common Stock Certificate
4.2 Form of Warrant Agreement
4.3 Form of Warrant Certificate
4.4 Form of Representative's Purchase Option
4.5 Form of Lock-Up Agreement
23.1 Consent of KPMG LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Dorsey & Whitney LLP (contained in the Opinion filed as Exhibit 5.1)
24.1 Power of Attorney (contained in signature section of Registration Statement)
</TABLE>
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as.......................... 'TM'
The registered trademark symbol shall be express as................. 'r'
<PAGE>
1,500,000 Units
RADYNE COMSTREAM, INC.
1,500,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK WARRANT
UNDERWRITING AGREEMENT
---------------, ----
HD Brous & Co., Inc.
As Representative of the Several
Underwriters referred to herein
40 Cuttermill Road
Great Neck, New York 11021
Ladies and Gentlemen:
Radyne ComStream, Inc., a New York corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representative (the
"Representative") an aggregate of 1,500,000 units (the "Units"), each Unit
consisting of one share of Common Stock (the "Common Stock") and one redeemable
common stock warrant (the "Warrant") (together, the "Firm Securities"). The
respective amounts of the Firm Securities to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto. The
Company also proposes to sell, at the Underwriters' option, an aggregate of up
to 225,000 additional units (the "Option Securities") as discussed more fully in
Section 2 below. The Company further agrees to issue, upon the Closing Date as
hereafter defined in Section 2, the Representative's Purchase Option more fully
discussed in Section 4(o) below (the "Representative's Purchase Option").
The Representative has advised the Company that (a) it is authorized to
enter into this Agreement on behalf of the several Underwriters; and (b) the
several Underwriters are willing, acting severally and not jointly, to purchase
the numbers of Firm Securities set forth opposite their respective names in
Schedule 1, plus their pro rata portion of the Option Securities if the
Representative elects to exercise the over-allotment option in whole or in part
for the accounts of the several Underwriters. The Firm Securities, the Option
Securities (to the extent the
<PAGE>
aforementioned option is exercised), the shares of Common Stock issuable upon
exercise of the Warrants, the Representative's Purchase Option and the shares of
Common Stock issuable upon exercise of the Representative's Purchase Option are
herein collectively called the "Securities."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants and agrees as follows:
(a) FILING OF REGISTRATION STATEMENT. A registration statement on
Form S-2 (File No. ________) with respect to the Securities has been prepared by
the Company in conformity with the requirements of the Securities Act of 1933,
as amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder and has been filed with the Commission under the Act. Copies of such
registration statement, including any pre-effective and post-effective
amendments thereto, the preliminary prospectuses (meeting the requirements of
Rule 430A of the Rules and Regulations) contained therein and the exhibits,
financial statements and schedules, as finally amended and revised, have
heretofore been delivered by the Company to the Representative. Such
registration statement, herein referred to as the "Registration Statement,"
after effectiveness and upon filing of the Prospectus referred to below with the
Commission, if required, shall be deemed to include all information incorporated
therein by reference and omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below and also any registration
statement filed pursuant to Rule 462(b) of the Rules and Regulations with
respect to the Securities (a "Rule 462(b) Registration Statement"). The
Registration Statement has been declared effective by the Commission under the
Act and no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. The form of prospectus first filed by the
Company with the Commission pursuant to Rule 424(b) (or if no such filing is
required, the form of final prospectus included in the Registration Statement on
the effective date) and Rule 430A is herein referred to as the "Prospectus."
Each preliminary prospectus included in the Registration Statement prior to the
time it becomes effective is herein referred to as a "Preliminary Prospectus."
(b) ORGANIZATION AND QUALIFICATION. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of New York, with full corporate power and authority to
conduct all activities conducted by it, to own or lease its properties, and to
conduct its business as described in the Registration Statement and Prospectus.
The Company is duly qualified to transact business in all jurisdictions in which
the conduct of its business requires such qualification, except where the
failure to qualify would not have a material adverse effect upon the business or
property of the Company.
(c) NO SUBSIDIARIES. The Company does not have any subsidiaries,
does not control, directly or indirectly, or have any direct or indirect
interest or investment in any corporation, firm, partnership, association,
limited liability company, business trust or other business organization, and
does not own any shares of stock or any other securities of (other than bank
certificates of deposit, shares or units of interest in "money market" funds, or
as set forth in the Prospectus) and the Company has not made any loans (other
than advances to employees in
2
<PAGE>
the ordinary course of business, none of which are material or made to officers
or directors) to or guaranteed any obligations of, any other corporation, firm,
partnership, association, limited liability company, business trust or other
business organization.
(d) CAPITALIZATION AND LEGALITY OF SECURITIES. The Company has
authorized and outstanding capital stock as set forth under the heading
"Capitalization" in the Prospectus; the outstanding shares of Common Stock of
the Company have been duly authorized and validly issued, are fully paid and
nonassessable and have been issued in compliance with all applicable federal and
state securities laws; all of the Securities to be issued and sold by the
Company pursuant to this Agreement have been duly authorized and, when issued
and paid for as contemplated herein, will be validly issued, fully paid and
nonassessable; no preemptive rights of stockholders exist with respect to any of
the Securities or the issue and sale thereof; no stockholder of the Company has
any right pursuant to any agreement which has not been waived or honored to
require the Company to register the sale of any shares owned by such stockholder
under the Act in the public offering contemplated herein except as disclosed in
the Registration Statement; and all necessary and proper corporate proceedings,
including the reservation of a sufficient number of shares of Common Stock for
issuance upon exercise of the Warrants and the Representative's Purchase Option,
have been taken to validly authorize the issuance and sale of such Securities
and no further approval or authority of the stockholders or the Board of
Directors of the Company is required for the issuance and sale of the Securities
to be sold by the Company as contemplated herein.
(e) DESCRIPTION OF SECURITIES; RIGHTS TO ACQUIRE SHARES. The
Securities conform with the statements concerning them in the Registration
Statement in all material respects. Except as specifically disclosed in the
Registration Statement and the financial statements of the Company and the
related notes thereto, the Company does not have outstanding any options or
warrants to purchase, any preemptive rights or other rights to subscribe for or
to purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell shares of its capital stock or any such options,
warrants, rights, convertible securities or obligations. The descriptions of the
Company's stock option and other stock-based plans, and of the options or other
rights granted and exercised thereunder, as set forth in the Prospectus, are
accurate summaries and fairly present the information required to be shown with
respect to such plans and rights in all material respects. The Company and its
affiliates are not currently offering any securities other than the Securities,
nor have they offered or sold any of the Company's securities except as
described in the Registration Statement.
(f) USE AND ACCURACY OF REGISTRATION STATEMENT, PRELIMINARY
PROSPECTUSES, AND PROSPECTUS. The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus relating to the proposed
offering of the Securities nor instituted or, to the best knowledge of the
Company, threatened or contemplated instituting proceedings for that purpose.
The Registration Statement contains, and the Prospectus and any amendments or
supplements thereto will contain, all statements that are required to be stated
or incorporated by reference therein by the Act and the Rules and Regulations
and in all respects conform or will conform, as the case may be, to the
requirements of the Act and the Rules and Regulations. Neither the Registration
Statement nor any amendment thereto, and neither the Prospectus nor any
supplement thereto, contains or will contain, as the case may be,
3
<PAGE>
any untrue statement of a material fact or omits or will omit 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; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representative specifically for use in
the preparation thereof.
(g) FINANCIAL STATEMENTS. The financial statements of the Company,
together with related notes and schedules, as set forth in or incorporated by
reference into the Registration Statement or the Prospectus present fairly in
all material respects the financial position and the results of operations and
cash flows of the Company at the indicated dates and for the indicated periods.
Such financial statements, schedules, and related notes have been prepared in
accordance with generally accepted accounting principles, consistently applied
throughout the periods involved, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary and
selected financial and statistical data and schedules included in or
incorporated by reference into the Registration Statement or the Prospectus
present fairly the information shown or incorporated by reference therein and
have been compiled on a basis consistent with the financial statements presented
therein. No other financial statements or schedules are required to be included
in or incorporated by reference into the Registration Statement.
(h) LITIGATION. There is no action, suit, investigation or
proceeding pending or, to the best knowledge of the Company, after due inquiry,
threatened against the Company or any of its officers in their capacity as such,
before any arbitrator, court or regulatory, governmental or administrative
agency, authority or body that might result in a material adverse change in
the business, assets or condition of the Company, except as set forth in the
Registration Statement. The Company is not subject to the provisions of any
injunction, judgment, decree or order of any court, regulatory body,
administrative agency, or other governmental body or arbitral forum that might
result in a material adverse change in the business, assets or condition of
the Company.
(i) TITLE TO PROPERTY. The Company has good and marketable title to,
and valid and enforceable leasehold estates in, all items of property described
in the Registration Statement or Prospectus as owned or leased by it, as the
case may be, or that are material to the conduct of the Company's business, free
and clear of all liens, encumbrances, claims, security interests, and other
restrictions, other than those described in the Prospectus and those that,
individually or in the aggregate, would not have a material adverse effect on
the Company. The leases, licenses or other contracts or instruments under which
the Company leases, holds or is entitled to use any property, real or personal,
are valid, subsisting, and enforceable with only such exceptions as are not
material and do not interfere with the use of such property made, or proposed to
be made, by the Company, and all rentals, royalties or other payments accruing
thereunder that became due prior to the date of this Agreement have been duly
paid, and neither the Company nor, to the best of its knowledge, any other party
is in default thereunder and, to the best of the Company's knowledge, no event
has occurred which, with the passage of time or the giving of notice, or both,
would constitute a default thereunder. The Company has not received notice of
any violation of any applicable law, ordinance, regulation, order or requirement
4
<PAGE>
relating to its owned or leased properties except any such violation that would
not have a material adverse effect on the Company.
(j) TAXES. The Company has filed all federal, state, local, and
foreign income tax returns that have been required to be filed and has paid all
taxes indicated by said returns and has paid all tax assessments received by it.
There is no income, sales, use, transfer or other tax deficiency or assessment
that has been or might reasonably be expected to be asserted or threatened
against the Company which might result in a material adverse change in the
business or condition of the Company. The Company has paid all sales, use,
transfer and other taxes applicable to it and its business and operations.
(k) MATERIAL LOSS. Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, as they
may be amended or supplemented, and except as set forth or contemplated in the
Prospectus (i) there has not been and will not have been any adverse change or
any development involving the likelihood of a future material adverse change in
or affecting the condition, financial or otherwise, of the Company or the
earnings, business affairs, management, or business prospects of the Company,
whether or not occurring in the ordinary course of business, (ii) there has not
been and will not have been any transaction entered into by the Company, other
than transactions in the ordinary course of business or transactions
specifically described in the Registration Statement and Prospectus as it may
be amended or supplemented, (iii) the Company has not sustained any material
loss or interference with its businesses or properties from strike, fire, flood,
windstorm, accident or other calamity, (iv) the Company has not paid and will
not have paid or declared any dividends or other distribution with respect to
its capital stock and the Company is not in default in the payment of principal
of or interest on any outstanding debt obligations, and (v) there has not been
and will not have been any change in the capital stock (other than the sale of
the Securities or the exercise of outstanding stock options or warrants as
described in the Registration Statement) or material increase in indebtedness
of the Company. The Company does not have any material contingent obligation
that is not disclosed in the Registration Statement and Prospectus (or
contained or incorporated by reference in the financial statements or related
notes thereto), as such may be amended or supplemented.
(l) COMPLIANCE WITH CORPORATE DOCUMENTS AND CONTRACTS. The Company
is not in violation or default under any provision of its Certificate of
Incorporation or Bylaws or any of its agreements, leases, license, contracts,
franchises, mortgages, permits, deeds of trust, indentures or other instruments
or obligations to which the Company is a party or by which it or any of its
properties is bound or may be affected (collectively, "Contracts").
(m) AUTHORIZATION OF AGREEMENTS. The Company has the legal right,
corporate power, and authority to enter into this Agreement, the Warrant
Agreement with respect to the Warrants (the "Warrant Agreement"), and the
Representative's Purchase Option and to perform the transactions contemplated
hereby and thereby. Each of this Agreement, the Warrant Agreement, and the
Representative's Purchase Option has been duly authorized, executed, and
delivered by the Company and each is legally binding upon and enforceable
against the Company in accordance with its terms. The execution, delivery,
and performance of this Agreement, the Warrant Agreement, and the
Representative's Purchase Option and the consummation of the transactions
herein and therein contemplated do not and will not conflict
5
<PAGE>
with or result in a breach of, or violation of, any of the terms or provisions
of, or constitute, either by itself or upon notice or the passage of time or
both, a default under, any Contract to which the Company is a party or by which
the Company or any of its property may be bound or affected, except where such
breach, violation or default would not have a material adverse effect on the
business or financial condition of the Company, or violate any of the provisions
of the Certificate of Incorporation or Bylaws of the Company, or violate any
order, judgment, statute, rule or regulation applicable to the Company of any
court or of any regulatory, administrative or governmental body or agency or
arbitral forum having jurisdiction over the Company or any of its property.
(n) APPROVALS AND CONSENTS. Each approval, registration,
qualification, license, permit, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body or agency necessary in connection with the execution and
delivery by the Company of this Agreement, the Warrant Agreement, and the
Representative's Purchase Option and the consummation of the transactions herein
or therein contemplated (except such additional actions as may be required by
the National Association of Securities Dealers, Inc. (the "NASD") or as may be
necessary to qualify the Securities for public offering under state securities
or Blue Sky laws) has been obtained or made and each is in full force and
effect.
(o) INTELLECTUAL PROPERTIES. The Company owns or possesses adequate
and sufficient rights by license agreement or otherwise to use and enjoy the
full rights in and to all patents, patent rights, trade secrets, license or
royalty arrangements, trademarks and trademark rights, service marks, trade
names, copyrights, know how or proprietary techniques or rights thereto of
others, and governmental, regulatory or administrative authorizations, orders,
permits, certificates and consents necessary for the conduct of the business of
the Company, including, without limitation, for each of the technologies
described in the Prospectus. The Company is not aware of any pending or
threatened action, suit, proceeding or claim by others, either domestically or
internationally, that the Company is violating any patents, patent rights,
copyrights, trademarks or trademark rights, inventions, service marks, trade
names, licenses or royalty arrangements, trade secrets, know how or proprietary
techniques or rights thereto of others, or governmental, regulatory or
administrative authorizations, orders, permits, certificates and consents. The
Company is not aware, after due diligence, of any rights of third parties to, or
any infringement of, any of the Company's patents, patent rights, trademarks or
trademark rights, copyrights, licenses or royalty arrangements, trade secrets,
know how or proprietary techniques (including but not limited to the
technologies described in the Prospectus) as well as processes and substances,
or rights thereto of others, which could materially adversely affect the use
thereof by the Company or which would have a material adverse affect on the
Company. The Company is not aware, after due diligence, of any pending or
threatened action, suit, proceeding or claim by others challenging the validity
or scope of any of such patents, patent rights, trademarks or trademark rights,
copyrights, licenses or royalty arrangements, trade secrets, know how, or
proprietary techniques or rights thereto of others. The Company possesses those
patents that have been previously disclosed to the Representative in writing,
and such patents remain in full force and effect.
6
<PAGE>
(p) DESCRIPTION OF CONTRACTS. There are no Contracts or other
documents required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement by the Act or by the Rules and
Regulations which have not been described or filed as required.
(q) COMPLIANCE WITH LAW. The Company is conducting its business in
compliance with all applicable laws, rules, and regulations of the jurisdictions
in which it is conducting its business, including, without limitation, all
applicable local, state, federal, and foreign environmental laws and
regulations, except where the failure to so comply would not have a material
adverse effect on the business or financial condition of the Company. The
Company possesses adequate certificates or permits issued by the appropriate
federal, state, local, and foreign regulatory authorities necessary to conduct
its business and to retain possession of its properties. The Company has not
received any notice of any proceeding relating to the revocation or modification
of any of these certificates or permits.
(r) TRANSACTIONS WITH AFFILIATES. All transactions among the Company
and the officers, directors, and affiliates of the Company have been accurately
disclosed in the Prospectus, to the extent required to be disclosed in the
Prospectus in accordance with the Act and the Rules and Regulations. Except as
disclosed in the Prospectus, the Company does not have outstanding any
indebtedness to any officer, director, or beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of 5% or more of the Company's Common Stock. As used in this Agreement,
the term "affiliate" shall mean a person or entity controlling, controlled by
or under common control with any specified person or entity, or the ability to
direct, directly or indirectly, the management or policies of the controlled
person or entity, whether through the ownership of voting securities, by
contract, positions of employment, family relationships, service as an officer,
director or partner of the person or entity, or otherwise.
(s) PROHIBITED PAYMENTS. Neither the Company nor any of its
directors or officers acting in any capacity on behalf of the Company nor, to
the Company's knowledge after due inquiry, any of its foreign sales agents,
directly or indirectly, has (i) used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; (iv) made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment or (v) failed to disclose
any such contributions, gifts, or other payments in violation of applicable law.
(t) INDEPENDENT ACCOUNTANTS. Each of KPMG Peat Marwick, LLP,
Deloitte & Touche LLP, and Ernst & Young, LLP, who have certified the financial
statements filed with the Commission as part of or incorporated by reference
into the Registration Statement, are independent public accountants as required
by the Act and the Rules and Regulations.
(u) INTERNAL ACCOUNTING CONTROLS. The Company maintains a system of
internal accounting controls which, taken as a whole, is sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial
7
<PAGE>
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. Except as specifically disclosed in the Prospectus, neither the
Company nor any of its employees or agents has made any payment or transfer of
any funds or assets of the Company, conferred any personal benefit by the use of
the assets of the Company or received any funds, assets, or personal benefit in
violation of any law, rule, or regulation, which is required to be stated in the
Prospectus or necessary to make the statements therein not misleading.
(v) INSURANCE. The Company maintains insurance of the types and in
the amounts that it deems adequate for its business and which is customary for
companies in its industry, including, but not limited to, general liability
insurance and insurance covering all real and person property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect.
(w) LOCK-UP AGREEMENTS. The Company has taken all appropriate steps
reasonably necessary or appropriate to assure that no offering, sale or other
disposition of any Common Stock of the Company or securities exercisable or
convertible into Common Stock of the Company will be made for a period of
__________ after the date of this Agreement, directly or indirectly, by the
Company, or any of its affiliates, directors or executive officers, otherwise
than hereunder or with the prior written consent of the Representative.
(x) BOARD OF DIRECTORS. The Company's Board of Directors consists of
those persons listed in the Prospectus. Except as disclosed in the Prospectus,
none of such persons is employed by the Company nor is any of them affiliated
with the Company, except for service on its Board of Directors.
(y) ELIGIBILITY TO USE FORM S-2. The Company is eligible to use Form
S-2 for the registration of the Securities.
(z) DIRECTED OFFERS. Neither the Company, nor to its knowledge,
after due and diligent inquiry, any person other than any Underwriter, has made
any representation, promise or warranty, whether verbal or in writing, to
anyone, whether an existing shareholder or not, that any of the Securities will
be reserved for or directed to them during the proposed public offering.
(aa) STABILIZATION. Neither the Company nor any person that controls,
is controlled by or is under common control with the Company has taken or will
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in the stabilization or manipulation of the
price of any security in order to facilitate the sale or resale of any of the
Securities.
(bb) UNAUTHORIZED ARRANGEMENTS. The Company has not, since the filing
of the Registration Statement (i) sold, bid for, purchased, attempted to induce
any person to purchase, or paid anyone any compensation for soliciting purchases
of, its capital stock, or (ii)
8
<PAGE>
paid or agreed to pay to any person any compensation for soliciting another
person to purchase any securities of the Company, except for the sale of
Securities under this Agreement.
(cc) FINDER OR BROKER. The Company has not retained or dealt with any
broker or finder with respect to the transactions contemplated hereby, and the
Company knows of no outstanding claims for services in the nature of a finder's
fee or origination fee with respect to the sale of the Securities. The Company
will indemnify and hold harmless the Underwriters with respect to any claim for
a finder's fee by any party claiming to be owed such fee based on contacts,
conversations or arrangements with the Company.
(dd) EMPLOYMENT AGREEMENTS. The employment agreements between the
Company and its officers named under the caption "Management -- Employment
Agreements" in the Prospectus are binding and enforceable obligations upon the
respective parties thereto in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws or arrangements affecting creditors' rights
generally and subject to principles of equity, and public policy considerations.
Except for such employment agreements, the Company does not have any employment,
severance or similar agreement with any officers, directors or employees.
(ee) CLASSIFICATION AS A "C" CORPORATION. The Company is classified
as a "C" corporation with the Internal Revenue Service.
(ff) NASD AFFILIATIONS. Except as previously disclosed in writing by
the Company to the Representative or in the Registration Statement, no officer,
director or stockholder of the Company has any NASD affiliation and the Company
has no management or financial consulting agreement with any third party.
(gg) COMPANY NOT AN INVESTMENT COMPANY. The Company is not, and upon
receipt of the proceeds from the sale of the Securities will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
(hh) OFFERING MATERIALS. The Company has not distributed and will not
distribute prior to the Closing Date or the Option Closing Date, as the case may
be, any offering material in connection with the offering and sale of the
Securities other than the Registration Statement, any Preliminary Prospectus,
the Prospectus, and the other materials permitted by the Act.
(ii) EXCHANGE ACT REGISTRATION AND NASDAQ LISTING. As of the
Effective Date (as defined in Section 6(a)) each of the Units, the Common Stock,
and the Warrants have been or will be registered under Section 12(g) of the
Exchange Act and have been or will be approved for listing and trading on The
Nasdaq Stock Market Inc. ("Nasdaq") SmallCap Market.
9
<PAGE>
2. PURCHASE, SALE, AND DELIVERY OF THE SECURITIES.
(a) PURCHASE AND SALE OF THE FIRM SECURITIES. On the basis of the
representations, warranties, and covenants herein contained, and subject to the
conditions herein set forth, the Company agrees to sell to the Underwriters and
each Underwriter agrees, severally and not jointly, to purchase on the Closing
Date (as defined in Section 2(c)), at the gross price per Unit indicated in the
Prospectus (the "Initial Price") less the Underwriters' discount of nine percent
(9%) of the Initial Price, the number of Firm Securities set forth opposite the
name of each Underwriter in Schedule I hereof, subject to adjustments in
accordance with Section 9 hereof.
(b) PURCHASE AND SALE OF THE OPTION SECURITIES. In addition, on the
basis of the representations and warranties herein contained and subject to the
terms and conditions herein set forth, the Company grants an option to the
several Underwriters to purchase the Option Securities at the Initial Price,
less the Underwriters' discount of nine percent (9%) of the Initial Price. The
maximum number of Option Securities to be sold by the Company is equal to
225,000 Units, subject to adjustment as provided in Section 9. The option
granted hereby may be exercised in whole or in part, but only once, and at any
time upon written notice given within 45 days after the Effective Date by the
Representative on behalf of the several Underwriters, to the Company setting
forth the number of Option Securities as to which the several Underwriters are
exercising the option, the names and denominations in which the Option
Securities are to be registered, and the time and date at which such
certificates are to be delivered. The closing for the Option Securities shall
occur no earlier than either the Closing Date or the second business day after
the exercise of such option and no later than the tenth business day after the
date of such exercise (such date being herein referred to as the "Option Closing
Date"). Except as otherwise agreed by the Underwriters in writing, the number of
Option Securities to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Securities being purchased as the
number of Firm Securities being purchased by such Underwriter bears to the total
number of the Firm Securities, adjusted by the Representative in such manner as
to avoid fractional shares. The option with respect to the Option Securities
granted hereunder may be exercised solely to cover over-allotments in the sale
of the Firm Securities by the Underwriters or to permit purchases by the
Underwriters to the extent permitted by law. The Representative, on behalf of
the several Underwriters, may cancel such option at any time, in whole or in
part, prior to its expiration, by giving written notice of such cancellation to
the Company.
(c) PAYMENT FOR AND DELIVERY OF THE SECURITIES. Payment for the Firm
Securities to be sold hereunder is to be made by certified or bank cashier's
check(s) drawn to the order of the Company and payable in New York clearing
house funds or similar next day funds, or by wire transfer of next day funds to
an account specified in writing by the Company, against delivery of certificates
for the Firm Securities to the Representative for the several accounts of the
Underwriters. Such payment and delivery are to be made at the offices of
Greenberg Traurig, One East Camelback Rd., Phoenix, Arizona 85012 at 10:00 a.m.,
Eastern time, on ___________, ____, or at such other time and date as the
Representative shall designate, such time and date being herein referred to as
the "Closing Date." As used herein, the term "business day" means a day on which
the New York Stock Exchange, Inc. is open for trading and on which banks in
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New York are open for business and not permitted by law or executive order to
be closed. The certificates for the Firm Securities shall be in definitive form
with engraved borders and will be delivered in such denominations and in such
registrations as the Representative requests in writing not later than the two
business days prior to the Closing Date, and will be made available for
inspection by the Representative not later than 2:00 p.m., Eastern time, on the
business day immediately preceding the Closing Date at the offices of Greenberg
Traurig noted above. To the extent, if any, that the option described in Section
2(b) is exercised, payment for and delivery of the Option Securities shall be
made on the Option Closing Date in the manner and at the times and places
described above for the Closing Date with respect to the Firm Securities.
3. OFFERING BY THE UNDERWRITERS. It is understood that the several
Underwriters are to make a public offering of the Firm Securities as soon as the
Representative deems it advisable to do so. The Firm Securities are to be
initially offered to the public at the Initial Price set forth in the
Prospectus. The Representative may from time to time thereafter change the
public offering price and other selling terms. To the extent, if at all, that
any Option Securities are purchased pursuant to Section 2 hereof, the
Underwriters will offer them to the public on the foregoing terms.
It is further understood that the Representative will act on behalf of
the Underwriters in the offering and sale of the Securities, in accordance with
a Agreement Among Underwriters entered into by the Representative and the
several other Underwriters on or prior to the date hereof. The Representative
shall have the right to associate with other underwriters and dealers as it may
determine and shall have the right to grant to such persons such concessions out
of the underwriting discount to be received by the Underwriters as it may
determine, under and pursuant to a Selected Dealers' Agreement.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
several Underwriters that:
(a) RULE 424(b) PROSPECTUS AND AMENDMENTS TO REGISTRATION STATEMENT.
The Company shall (i) prepare and timely file with the Commission under Rule
424(b) of the Rules and Regulations a prospectus containing information
previously omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations and (ii) not file any
amendment to the Registration Statement or supplement to the Prospectus of which
the Representative shall not previously have been advised and furnished with a
copy or to which the Representative shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations.
(b) NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT AND STOP
ORDERS. The Company shall advise the Representative promptly and shall confirm
such advice in writing (i) when the Registration Statement has become effective,
(ii) of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional information,
or (iii) of the issuance by the Commission or any state securities commission of
any stop order suspending the effectiveness of the Registration Statement or the
use of the Prospectus or of the institution of any proceedings for that purpose,
and the Company shall use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to obtain as
soon as possible the lifting thereof, if issued.
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(c) BLUE SKY QUALIFICATIONS. The Company shall cooperate with the
Representative in endeavoring to qualify the Securities for sale under the
securities laws of such jurisdictions as the Representative may have designated
in writing and shall make such applications, file such documents, furnish such
information and take such other actions as may be required by federal or state
securities laws or regulations (including but not limited to complying with any
stock escrow requirements and appointing additional independent directors)
whether before, during or after the offering. The Company shall, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representative may request for distribution of the Securities.
(d) FILINGS UNDER THE ACT AND EXCHANGE ACT. The Company shall file
such registration statements and take such other action as may be necessary to
register the Units, the Common Stock, and the Warrants pursuant to Section 12(g)
of the Exchange Act, such registration statement to become effective
simultaneously with the effectiveness of the Registration Statement, and shall
thereafter keep such registration effective. The Company shall file such
amendments or supplements to the Registration Statement or such subsequent
registration statements as may be necessary to maintain, at all times during the
term of the Warrant Agreement, a current and effective registration statement
covering the issuance of the shares of Common Stock upon exercise of the
Warrants. The Company shall comply with the Act, the Rules and Regulations, the
Exchange Act, the rules and regulations promulgated under the Exchange Act, the
applicable rules and regulations of Nasdaq, and applicable state securities laws
so as to permit the continuance of sales of and dealings in the Securities in
compliance with applicable provisions of such laws, rules, and regulations,
including the filing with the Commission and Nasdaq of all reports required to
be so filed, and the Company will deliver to the holders of the Securities all
reports required to be provided to such holders pursuant to such laws, rules, or
regulations.
(e) NASDAQ LISTING. The Company shall qualify the Securities,
including the Units, the Common Stock, and the Warrants, for trading on the
Nasdaq SmallCap Market and shall use its best efforts to maintain such
qualification for not less than five (5) years, unless the Securities are
subsequently listed on the Nasdaq National Market, the American Stock Exchange,
or the New York Stock Exchange.
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(f) COPIES OF PROSPECTUSES AND REGISTRATION STATEMENT. The Company
will deliver to, or upon the order of, the Representative, from time to time, as
many copies of any Preliminary Prospectus as the Representative may request. The
Company will deliver to, or upon the order of, the Representative, during the
period when delivery of a Prospectus is required under the Act, as many copies
of the Prospectus in final form, or as thereafter amended or supplemented, as
the Representative may request. The Company will deliver to the Representative,
at or before the Closing Date, five signed copies of the Registration Statement
and all amendments thereto, including all exhibits filed therewith, and any
information incorporated by reference therein, and will deliver to the
Representative such number of copies of the Registration Statement, without
exhibits, but including any information incorporated by reference, and of all
amendments thereto, as the Representative may request.
(g) COMPLIANCE WITH THE ACT AND THE EXCHANGE ACT. Within the time
during which a Prospectus relating to the Securities is required to be delivered
under the Act, the Company shall use its best efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as such acts may
from time to time be hereafter amended, and by the rules and regulations
promulgated under such acts, as from time to time in force to permit the
continuance of sales of or dealings in the distribution of the Securities as
contemplated by the provisions therein, in this Agreement, and in the
Prospectus. If during such period any event as to which the Company has
knowledge occurs as a result of which the Prospectus as then amended or
supplemented includes an untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, or if during such period it is
necessary to amend the Registration Statement or to supplement the Prospectus to
comply with the Act, the Company shall notify the Representative promptly and
shall amend the Registration Statement or supplement the Prospectus (at the
expense of the Company) so as to comply with the Act or to correct such
statement or omission or otherwise to effect such compliance, and will furnish
without charge to the Representative as many copies of such amended or
supplemented Prospectus as the Representative may from time to time reasonably
request.
(h) LISTING IN SECURITIES MANUAL; INVESTOR RELATIONS FIRM. The
Company shall, as soon as practicable after the Closing Date, use its reasonable
best efforts to obtain listing on an expedited basis in Standard and Poor's
Corporation Records or such other recognized securities manuals for which it may
qualify for listing, and the Company shall use its reasonable best efforts to
maintain such listings for at least five (5) years after the Closing Date. The
Company further agrees at any time during the five (5) year period following the
Closing Date, to engage within sixty (60) days of a written request by the
Representative, the services of an investor relations firm reasonably acceptable
to the Representative, which will act as investor relations liaison during such
five (5) year period, which spokesperson is not required to be the same person
during the duration of the five (5) year period, to consult with and advise the
Company regarding communications and relations with stockholders and the
financial and investment communities.
(i) SECTION 11(a) EARNINGS STATEMENT. The Company will make
generally available to its stockholders, as soon as it is practicable to do so,
but in any event not later than 15 months after the effective date of the
Registration Statement, an earnings statement in reasonable detail covering a
period of at least 12 consecutive months beginning after the effective date of
the Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise the Representative in writing when such statement
has been so made available and will furnish the Representative with a true and
correct copy thereof.
(j) INFORMATION TO THE REPRESENTATIVE. The Company will, for a
period of five years from the Closing Date, deliver to the Representative copies
of annual reports and copies of all other documents, reports and information
furnished by the Company to its stockholders or filed with any securities
exchange or Nasdaq pursuant to the requirements of such exchange or Nasdaq or
with the Commission pursuant to the Act or the Exchange Act. The Company will
deliver to the Representative similar reports with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations, which are
not consolidated in
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the Company's financial statements. The Company will also use its best efforts
to cause its officers, directors and beneficial owners of 10% or more of any of
its registered securities to deliver to the Representative a copy of any of the
Commission Forms 3, 4, and 5 filed with the Commission and the Company shall
deliver to the Representative copies of all such forms received by it.
(k) USE OF PROCEEDS. The Company shall apply the net proceeds of the
sale of the Securities sold by it in accordance with the statements under the
caption "Use of Proceeds" in the Prospectus. The Company shall not apply any
portion of the proceeds of the offering to pay any amount to any officer,
director, or 5% stockholder of the Company.
(l) RESTRICTIONS ON SALES. For a period of _________ from the
Effective Date the Company shall not sell or otherwise dispose of any Common
Stock (or securities convertible into or exercisable for Common Stock) of the
Company or any subsidiary of the Company without the Representative's prior
written consent. The Company shall cause each of its officers, directors, and
five percent (5%) stockholders listed on Schedule II hereto to agree in writing
that such person (i) will not, during the _________ period immediately following
the Effective Date, offer, pledge, sell (which term includes a short sale or
sale against the box), contract to sell, grant any option for the sale of, or
otherwise transfer or dispose of, directly or indirectly, any shares of the
Company's Common Stock, without the Representative's prior written approval. The
Company shall furnish the Representative with an executed copy of each such
agreement in the form attached as Exhibit "A" hereto (the "Lock-up Agreements").
(m) INSPECTION OF DOCUMENTS. The Company shall make original
documents and other information relating to the Company's affairs available upon
request to the Underwriters and to their counsel at the Company's office for
inspection and copies of any such documents will be furnished upon request to
the Underwriters and to their counsel. Included within the documents made
available have been at least the Certificate of Incorporation and all amendments
thereto, the Bylaws and all amendments thereto, minutes of all of the meetings
of the incorporators, directors and stockholders, all financial statements and
copies of all Contracts to which the Company is a party or in which the Company
has an interest.
(n) TRANSFER AND WARRANT AGREEMENT. The Company has appointed
Continental Stock Transfer & Trust Company as the Company's transfer and warrant
agent. Unless the Representative otherwise consents in writing, the Company will
continue to retain a transfer and warrant agent reasonably satisfactory to the
Representative for a period of five years following the Closing Date. The
Company will make arrangements to have available at the office of the transfer
and warrant agent sufficient quantities of the Company's common stock and
warrant certificates as may be needed for the quick and efficient transfer of
the Securities as contemplated hereunder and for the five-year period following
the Closing Date.
(o) REPRESENTATIVE'S PURCHASE OPTION. At the Closing, the Company
shall, for an aggregate of $100, deliver to the Representative the
Representative's Purchase option in the form attached hereto as Appendix "B" to
purchase in the aggregate of 150,000 shares of Common Stock. The
Representative's Purchase Option will be exercisable for a four-year term,
commencing one year from the Effective Date of the offering, at an exercise
price
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equal to 125% of the Initial Price of the Firm Securities. The Representative's
Purchase Option shall not be redeemable by the Company.
(p) INDEPENDENT DIRECTORS. The Company shall, for a period of two
years after the Effective Date, cause at least three persons who are reasonably
acceptable to the Representative and who are not otherwise "affiliated" with the
Company to serve as directors of the Company (the "Outside Directors").
Furthermore, for a period of two years after the Closing Date the Company shall
cause at least one Outside Director to serve as the chair of each committee of
the Company's Board of Directors. For purposes of this Section 4(p), a person
shall be deemed to be "affiliated" with the Company if (i) that person is an
employee or officer (other than Chairman of the Board of the Company) of the
Company or (ii) that person, directly or indirectly, beneficially owns (as
defined in Rule 13d-3 under the Exchange Act) 5% or more of the Company's Common
Stock or (iii) that person is an employee, officer, director, or any
beneficial owner of 5% or more of any person that, directly or indirectly,
beneficially owns 5% or more of the Company's Common Stock.
(q) UNDERTAKINGS. The Company will comply with the provisions of all
undertakings contained in the Registration Statement or made in connection with
any application to register or qualify any of the Securities under state
securities or Blue Sky laws.
(r) KEY PERSON LIFE INSURANCE. The Company shall use its best
efforts to obtain on or before the Closing Date and to maintain thereafter for
the greater of (i) three years, or (ii) the term of their respective employment
with the Company, key person life insurance policies insuring the lives of
Robert L. Fitting and Steven W. Eymann, with the Company named as sole
beneficiary, in a policy amount of not less than $1,000,000 and $500,000,
respectively.
5. COSTS AND EXPENSES. The Company will pay all costs, expenses, and
fees in connection with the offering or incident to the performance of the
obligations of the Company under this Agreement, including, without limiting the
generality of the foregoing, the following: (a) all expenses (including any
transfer taxes) incurred in connection with the delivery to the several
Underwriters of the Securities sold hereunder; (b) all fees and expenses
(including, without limitation, fees, disbursements, and expenses of the
Company's accountants, counsel, and other experts, but excluding fees and
expenses of counsel for the Underwriters) in connection with the preparation,
printing, filing, delivery, and shipping of the Registration Statement
(including the financial statements included or incorporated by reference
therein and all amendments and exhibits thereto), Preliminary Prospectuses, and
the Prospectus as amended or supplemented, this Agreement, the Warrant
Agreement, the Representative's Purchase Option, and other underwriting
documents including Underwriters' Questionnaires, Underwriters' Power of
Attorney, Blue Sky Memoranda, Agreement Among Underwriters, Selected Dealers'
Agreement, Invitation Telecopy, and any letters transmitting the offering
materials to the Underwriters or selling group members (including costs of
mailing and shipment), the stock and warrant certificates, and any supplements
or amendments thereto; (c) all Blue Sky and other regulatory filing fees and
fees and disbursements of counsel to the Company and counsel to the Underwriters
incurred in connection with the qualification of the Securities and their
components under the applicable state securities laws; (d) filing and listing
fees of the Commission, NASD, Nasdaq, and any other similar entity in connection
with the offering; (e) the cost of printing
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certificates representing the Securities comprising the Units and issuable upon
the exercise of the Warrants; (f) the fees, disbursements, costs, and charges of
any transfer agent, warrant agent, and registrar; (g) the costs of advertising
(such as "tombstone ads"), including but not limited to the Wall Street Journal,
as well as any other advertising undertaken at the Company's request; (h) the
costs of preparing, printing, and distributing two bound volumes to each of the
Representative and its counsel; (i) all costs of holding informational meetings
and "road shows;" and (j) all other costs and expenses incident to the
performance of its obligations under this Agreement that are not otherwise
provided for in this Section 5. The Company shall use a printer and warrant
agent acceptable to the Representative. Any transfer taxes imposed on the sale
of the Securities to the several Underwriters will be paid by the Company. The
Company shall pay to the Representative a non-accountable expense allowance of
three percent (3%) of the gross amount to be raised hereunder, including upon
the sale of any Option Securities, payable at the closing(s). The Company has
advanced, on a nonaccountable basis, Ten Thousand Dollars ($10,000.00) to the
Representative on or before the date hereof (the "Deposit"), which shall be
credited to the allowance noted above. This expense allowance is in addition to
the Underwriters' discount. The Underwriters shall be responsible for the fees
and disbursements of their counsel, except as noted otherwise in this Section 5.
The Company shall not be required to pay for any of the Underwriters' other
expenses, except that if this offering shall not be consummated because the
conditions in Section 7 hereof are not satisfied, or because this Agreement is
terminated by the Representative pursuant to Section 6 hereof, or by reason of
any failure, refusal or inability on the part of the Company to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on its part to be performed, then the Company shall reimburse
the several Underwriters for out-of-pocket expenses, including fees and
disbursements of counsel, incurred in connection with investigating, marketing,
and proposing to market the Securities or in contemplation of performing their
obligations hereunder, up to a maximum of Thirty Thousand Dollars ($30,000.00).
In the event that this offering shall not be consummated or this Agreement is
terminated as described in the preceding sentence and the Deposit exceeds the
Underwriters' out-of-pocket expenses, the Representative shall promptly refund
such excess to the Company.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several
obligations of the Underwriters to purchase the Firm Securities on the Closing
Date and the Option Securities, if any, on the Option Closing Date are subject
to the accuracy, as of the Closing Date or the Option Closing Date, as the case
may be, of the representations and warranties of the Company contained herein,
and to the performance by the Company of its covenants and obligations hereunder
and to the following additional conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement shall have become effective not later than 5:30 p.m., Eastern time, on
the date of this Agreement, or such later date and time as may be consented to
in writing by the Representative (the "Effective Date"). No stop order
suspending the effectiveness of the Registration Statement, as amended from time
to time, shall have been issued and no proceedings for that purpose shall have
been taken or, to the best knowledge of the Company, after due inquiry, shall be
contemplated by the Commission or any state securities commission. Any request
of the Commission or any such authorities for additional information to be
included in the Registration
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Statement or Prospectus or otherwise shall have been complied with to the
reasonable satisfaction of counsel for the Representative.
(b) REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH AGREEMENT. The
representations and warranties of the Company in this Agreement shall be true
and correct on and as of the Closing Date or the Option Closing Date, as the
case may be, with the same effect as if made on the Closing Date or the Option
Closing Date, as the case may be, and the Company shall have complied with all
the agreements and satisfied all the obligations required to be performed or
satisfied by it at or prior to the Closing Date or the Option Closing Date, as
the case may be.
(c) NO UNTRUE STATEMENTS. The Registration Statement and the
Prospectus and any amendments or supplements thereto shall contain all
statements that are required to be stated or incorporated by reference
therein by the Act and the Rules and Regulations and in all respects shall
conform to the requirements of the Act and the Rules and Regulations. The
Registration Statement and the Prospectus and any amendments or supplements
thereto shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading, and, since the Effective Date, there shall not
have occurred any event required to be set forth in an amended or supplemented
Prospectus that has not been so set forth (except any such statement or
omission based upon information furnished in writing by or on behalf of any
Underwriter through the Representative for inclusion in the Registration
Statement).
(d) NO MATERIAL CHANGE. Subsequent to the respective dates as of
which information is given in the Registration Statement and Prospectus, as
they have been amended or supplemented, and except as set forth or contemplated
in the Prospectus, (i) there has not been any adverse change or any development
involving the likelihood of a future material adverse change in or affecting
the condition, financial or otherwise, of the Company or the earnings, business
affairs, management, or business prospects of the Company, whether or not
occurring in the ordinary course of business, (ii) there has not been any
transaction entered into by the Company, other than the transactions in the
ordinary course of business or transactions specifically described in the
Registration Statement and Prospectus as it may be amended or supplemented,
(iii) the Company has not sustained any material loss or interference with
its business or properties from strike, fire, flood, windstorm, accident or
other calamity, (iv) the Company has not paid or declared any dividends or
other distribution with respect to its capital stock and the Company is not in
default in the payment of principal of or interest in any outstanding debt
obligations, (v) there has not been any change in the capital stock (other
than the sale of the Securities or the exercise of outstanding stock options
or warrants as described in the Registration Statement) or material increase
in indebtedness of the Company, and (vi) except as set forth in the Prospectus,
there have been no actions, suits, proceedings or investigations pending
before any arbitrator, court or regulatory, governmental or administrative
agency, authority or body or, to the knowledge of the Company, threatened,
to which the Company is a party or of which the business or property of the
Company is the subject and which, if adversely decided, could have a material
adverse affect on the business, property, condition (financial or otherwise),
results of operations or general affairs of the Company, and there shall have
been no material adverse development in any such suits, actions, proceedings
or investigations. The Company does not have any material contingent obligation
that is not disclosed in the Registration Statement and Prospectus (or
contained or incorporated by reference in the financial statements or related
notes thereto), as such may be amended or supplemented.
(e) NASD. The NASD shall have indicated that it has no objection to
the underwriting arrangements pertaining to the sale of the Securities by the
Underwriters. No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date,
or the Option Closing Date, as the case may be,
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for any member firm of the NASD to execute transactions (as principal or as
agent) in the Securities and no proceedings for the purpose of taking such
action shall have been instituted or shall be pending, or, to the best of the
Underwriters' or the Company's knowledge, shall be contemplated by the
Commission or the NASD. The Company represents at the date of this Agreement,
and shall represent as of the Closing Date or Option Closing Date, as the case
may be, that it has no knowledge that any such action is in fact contemplated by
the Commission or the NASD.
(f) OPINION OF COMPANY COUNSEL. The Representative shall have
received on the Closing Date or the Option Closing Date, as the case may be, the
opinion of Dorsey & Whitney LLP, counsel for the Company, dated the Closing Date
or the Option Closing Date, as the case may be, addressed to the Underwriters to
the effect that:
(i) The Company (A) has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate
power and corporate authority to own or lease its properties
and conduct its business as described in the Registration
Statement and Prospectus, and (B) is duly qualified as a
foreign corporation to transact business in all jurisdictions
in which the conduct of its business requires such
qualification, except where the failure to qualify would not
have a material adverse affect upon the business or financial
condition of the Company.
(ii) The Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the
Prospectus; all of the outstanding shares of Common Stock of
the Company (A) have been duly authorized and validly issued
and are fully paid and nonassessable, (B) conform to the
description set forth in the Prospectus, (C) do not have any,
and were not issued in violation of any, preemptive rights
under the Company's Certificate of Incorporation or Bylaws or
any other agreement known to such counsel, and (D) have been
issued in compliance with all federal and state securities
laws.
(iii) The Company has authorized and reserved for issuance
the shares of Common Stock issuable (A) upon exercise of all
outstanding options or warrants (other than the Warrants) in
accordance with the terms of the applicable options or
warrants, (B) upon exercise of the Warrants, pursuant to the
terms of the Warrants and the Warrant Agreement, and (C) upon
exercise of the Representative's Purchase Option. All of the
Securities to be issued and sold by the Company pursuant to
this Agreement, the Warrant Agreement, and the
Representative's Purchase Option have been duly authorized
and, when issued and paid for as contemplated herein or upon
exercise of the Warrants or the Representative's Purchase
Option, will be validly issued, fully paid and nonassessable.
Further, (X) no preemptive rights of stockholders exist with
respect to any of the Securities or the issue and sale or
exercise thereof; (Y) no stockholder of the Company has any
right pursuant to any agreement which has not been waived or
honored to require the Company to register the sale of any
shares owned by such stockholder under the Act in the public
offering
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contemplated herein; and (Z) no further approval or authority
of the stockholders or the Board of Directors of the Company
is required for the issuance and sale of the Securities to be
sold by the Company as contemplated herein.
(iv) The certificates evidencing the Securities to be
delivered hereunder are in due and proper form under New York
law and the Securities conform in all material respects to the
description thereof contained in the Prospectus.
(v) Except as specifically disclosed in the Registration
Statement and the financial statements of the Company and the
related notes thereto, to the best of such counsel's
knowledge, after due inquiry, the Company does not have
outstanding any options or warrants to purchase, or any
preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or
any contracts or commitments, to issue or sell shares of its
capital stock or any such options, or warrants, rights,
convertible securities or obligations. The descriptions of the
Company's stock option and other stock-based plans, and any
other options or warrants heretofore granted by the Company,
set forth in the Prospectus are accurate summaries and fairly
present the information required to be shown with respect to
such plans and rights in all material respects.
(vi) The Registration Statement has become effective under
the Act and no stop order proceedings with respect thereto
have been instituted or are pending or threatened under the
Act and nothing has come to such counsel's attention to lead
them to believe that such proceedings are contemplated; any
required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and Regulations has been
made in the manner and within the time period required by such
Rule 424(b).
(vii) The Registration Statement, all Preliminary
Prospectuses, the Prospectus and each amendment or supplement
thereto comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations (except
that such counsel need express no opinion as the financial
statements, schedules, and other financial and statistical
information included or incorporated by reference therein).
(viii) Such counsel does not know of any Contracts or
other documents required to be filed as exhibits to the
Registration Statement or described in the Registration
Statement or the Prospectus which are required to be filed or
described, which are not so filed or described as required,
and such Contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized
in all material respects.
(ix) To the best of such counsel's knowledge, there is no
action or suit pending before any court of the United States
or any foreign jurisdiction of a character required to be
disclosed in the Prospectus pursuant to the Act and the Rules
and Regulations; there is no action, suit or proceeding
threatened against the Company before any U.S. or foreign
court or regulatory, governmental or
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administrative agency or body or arbitral forum of a character
required to be disclosed in the Prospectus pursuant to the Act
and the Rules and Regulations; to the best of such counsel's
knowledge, the Company is not a party or subject to the
provisions of any injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other
governmental body or agency or arbitral forum. During the
course of its ordinary due diligence, which does not include
knowledge of the Company's day-to-day operations, nothing has
come to the attention of such counsel that would suggest that
the Company is not conducting business in compliance with all
applicable laws, statutes, rules, and regulations of the State
of New York of the United States of America, or any other
jurisdiction in which the Company conducts its business,
except where the failure to so comply would not have a
material adverse effect on the business or financial condition
of the Company.
(x) The execution and performance of this Agreement, the
Warrant Agreement, and the Representative's Purchase Option
and the consummation of the transactions herein and therein
contemplated do not and will not conflict with or result in
the breach of, or violation of, any of the terms or provisions
of, or constitute, either by itself or upon notice or the
passage of time or both, a default under, any Contract to
which the Company is a party or by which the Company or any of
its property may be bound or affected, except where such
breach, violation or default would not have a material adverse
effect on the business or financial condition of the Company,
or violate any of the provisions of the Certificate of
Incorporation or Bylaws of the Company or, to the best of such
counsel's knowledge, violate any statute, judgment, decree,
order, rule or regulation known to such counsel or any court
or of any governmental, regulatory or administrative body or
agency or arbitral forum having jurisdiction over the Company
or any its property.
(xi) The Company is not in violation or default under any
provision of any of its Certificate of Incorporation or
Bylaws, and, to the best of such counsel's knowledge, the
Company is not in violation or of default under any Contracts
to which the Company is a party or by which it or any of its
properties is bound or may be affected, except where such
violation or default would not have a material adverse effect
on the business or financial condition of the Company.
(xii) The Company has the legal right, power, and authority
to enter into this Agreement, the Warrant Agreement, and the
Representative's Purchase Option on behalf of itself and to
perform the transactions contemplated hereby and thereby. Each
of this Agreement, the Warrant Agreement, and the
Representative's Purchase Option has been duly authorized,
executed, and delivered by the Company. Each of this
Agreement, the Warrant Agreement, and the Representative's
Purchase Option is the legal, valid, and binding obligation of
the Company, enforceable in accordance with its terms, subject
to customary exceptions for bankruptcy, insolvency, and
equitable principles, except to the
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extent that the enforceability of the indemnification
provisions of this Agreement and the Representative's Purchase
Option may be limited by consideration of public policy under
federal and state securities laws.
(xiii) To the best of such counsel's knowledge, all
approvals, consents, orders, authorizations, designations,
registrations, permits, qualifications, licenses, declarations
or filings by or with any regulatory, administrative or
governmental body necessary in connection with the execution
and delivery by the Company of this Agreement, the Warrant
Agreement, and the Representative's Purchase Option and the
consummation of the transactions herein and therein
contemplated (other than as may be required by the NASD, as to
which such counsel need express no opinion) have been obtained
or made and are in full force and effect.
(xiv) To the extent described in the Prospectus, the
Company owns or possesses adequate and sufficient rights by
license agreements or otherwise to use and enjoy the full
rights in and to all patents, patent rights, trade secrets,
licenses or royalty arrangements, trademarks and trademark
rights, service marks, trade names, copyrights, know how or
proprietary techniques, or rights thereto of others, including
without limitation for each of the technologies described in
the Prospectus, and governmental, regulatory or administrative
authorizations, orders, permits, certificates, and consents
necessary for the conduct of the business of the Company,
except where the failure to possess the same would not have a
material adverse effect on the business or financial condition
of the Company; to the best of such counsel's knowledge, the
Company possesses all governmental, regulatory or
administrative authorizations, orders, permits, certificates
and consents necessary for the conduct of the business of the
Company, except where the failure to possess the same would
not have a material adverse effect on the business or
financial condition of the Company; such counsel is not aware
of any pending or threatened action, suit, proceeding or claim
by others, either domestically or internationally, that the
Company is violating any patents, patent rights, copyrights,
trademarks or trademark rights, service marks, trade names,
licenses or royalty arrangements, trade secrets, know how or
proprietary techniques, or rights thereto of others, such
counsel is not aware of any rights of third parties to, or any
infringement of, any of the Company's patents, patent rights,
trademarks or trademark rights, copyrights, licenses or
royalty arrangements, trade secrets, know how or proprietary
techniques (including, without limitation, each of the
technologies described in the Prospectus), the existence of
which would have a material adverse affect on the business or
financial condition of the Company; and such counsel is not
aware of any pending or threatened action, suit, proceeding or
claim by others challenging the validity or scope of any of
such patents, patent rights, trademarks or trademark rights,
copyrights, license or royalty arrangements, trade secrets,
know how, or proprietary techniques or rights thereto of
others, the existence of which would have a material adverse
effect on the business or financial condition of the Company.
The Company has the patents disclosed to the Representative,
and such patents remain in full force and effect.
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(xv) No transfer taxes are required to be paid under any
applicable state law in connection with the sale and delivery
of the Securities to the Underwriters hereunder.
(xvi) Upon the Closing, the Company will be classified as a
"C" corporation with the Internal Revenue Service.
In rendering such opinion such counsel may rely as to matters governed
by the laws of states other than New York and federal laws of the United States
of America on local counsel in such jurisdictions, provided that such counsel
shall state that they believe that they and the Underwriters are justified in
relying on such other counsel. As to factual matters, such counsel may rely on
certificates obtained from directors and officers of the Company, its
stockholders, and from public officials. Matters stated to counsel's knowledge
shall be made after due and diligent inquiry, and the opinion shall so note that
requirement. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that they have participated in the preparation
of the Registration Statement and the Prospectus and nothing has come to the
attention of such counsel which leads them to believe that the Registration
Statement, or any amendment thereto, at the time the Registration Statement or
amendment became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or the Prospectus or any amendment or
supplement thereto, at the time it was filed pursuant to Rule 424(b) or at the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (except that such
counsel need express no view as to financial statements, schedules and other
financial information and statistical data and information included or
incorporated by reference therein). Such counsel shall permit Greenberg Traurig
to rely upon such opinion in rendering its opinion under Section 6(g).
(g) OPINION OF REPRESENTATIVE'S COUNSEL. The Representative shall
have received from Greenberg Traurig, counsel for the Representative, an opinion
dated the Closing Date or the Option Closing Date, as the case may be,
substantially to the effect that: (i) the Company is a validly organized and
existing corporation under the laws of the State of New York; (ii) to the best
of such counsel's knowledge, the Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus; to the
best of such counsel's knowledge, the outstanding shares of the Company's Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable; all of the Securities conform to the description thereof
contained in the Prospectus; the Securities to be sold by the Company pursuant
to this Agreement have been duly authorized and will be validly issued, fully
paid and nonassessable when issued and paid for as contemplated by this
Agreement; and to the best of such counsel's knowledge, no preemptive rights of
stockholders exist with respect to any of the Securities or the issue and sale
thereof; (iii) the Registration Statement has become effective under the Act
and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act; (iv) the Registration Statement, all Preliminary Prospectuses, the
Prospectus and each amendment or supplement thereto comply as to form in all
material respects with the requirements of the Act
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and the applicable Rules and Regulations thereunder (except that such counsel
need express no opinion as to the financial statements, schedules, and other
financial or statistical information included or incorporated by reference
therein); and (v) this Agreement has been duly authorized, executed and
delivered by the Company. In rendering such opinion, Greenberg Traurig may rely
as to all matters governed other than by federal laws on the opinion of counsel
referred to in Section 6(f). In addition to the matters set forth above, such
opinion shall also include a statement to the effect that they have participated
in the preparation of the Registration Statement and the Prospectus and nothing
has come to the attention of such counsel which leads them to believe that the
Registration Statement, the Prospectus or any amendment thereto contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or the Prospectus or any amendment or supplement thereto, at the time it was
filed pursuant to Rule 424(b) or at the Closing Date or the Option Closing Date,
as the case may be, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (except that such counsel need express no view as to financial
statements, schedules, and other financial information included or incorporated
by reference therein). With respect to such statement, Greenberg Traurig may
state that their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(h) BLUE SKY MEMORANDUM. The Representative and the Company shall
have received from Greenberg Traurig, at or prior to the Closing Date, a
memorandum or summary, in form and substance satisfactory to the Representative,
with respect to the qualification for offering and sale by the Underwriters of
the Securities under the state securities or Blue Sky laws of such jurisdictions
as the Representative may have designated to the Company.
(i) ACCOUNTANTS' LETTER. The Representative shall have received on
the date hereof and on the Closing Date and the Option Closing Date, as the case
may be, a signed letter from each of KPMG Peat Marwick, LLP, Deloitte & Touche
LLP, and Ernst & Young, LLP, auditors for the Company, dated the date hereof,
the Closing Date, and the Option Closing Date, as the case may be, which shall
confirm, on the basis of a review in accordance with the procedures set forth in
the letter signed by such firm and dated and delivered to the Representative on
the date noted above the following matters:
(i) They are independent public accountants with respect
to the Company within the meaning of the Act and the
applicable Rules and Regulations.
(ii) The financial statements and schedules included in
the Registration Statement and Prospectus or incorporated by
reference therein and covered by their reports therein set
forth comply as to form in all material respects with the
applicable accounting requirements of the Act and the
applicable Rules and Regulations.
(iii) On the basis of procedures (but not an examination
in accordance with generally accepted auditing standards)
consisting of a reading of the minutes
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of meetings and consents of the stockholders and Board of
Directors of the Company and the committees of such board
subsequent to __________, as set forth in the minute books of
the Company, inquiries of officers and other employees of the
Company who have responsibilities for financial and accounting
matters with respect to transactions and events subsequent to
__________, and such other specified procedures and inquires
to a date not more than five days prior to the date of such
letter, nothing has come to their attention which in their
judgment would indicate that (A) with respect to the period
subsequent to ___________________, there were, as of the date
of the most recent available monthly consolidated financial
statements of the Company and, as of a specified date not more
than five days prior to the date of such letter, any changes
in the capital stock or long-term indebtedness of the Company
or payment or declaration of any dividend or other
distribution, or decrease in net current assets, total assets
or net stockholder's equity, in each case as compared with the
amounts shown in the most recent audited consolidated
financial statements included in or incorporated by reference
into the Registration Statement and the Prospectus, except for
changes or decreases which the Registration Statement and the
Prospectus disclose have occurred or may occur or which are
set forth in such letter or (B) during the period from
__________, to the date of the most recent available monthly
unaudited consolidated financial statements of the Company and
to a specified date not more than five days prior to the date
of such letter, there was any decrease, as compared with the
corresponding period in the prior fiscal year, in total
revenues or total or per share net income, except for
decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur or which are set forth in
such letter.
(iv) Stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings and other financial information pertaining to the
Company set forth in or incorporated by reference into the
Registration Statement and the Prospectus, which have been
specified by the Representative, to the extent that such
amounts, numbers, and percentages and information may be
derived from the general accounting and financial records of
the Company and its subsidiaries or from schedules furnished
by the Company, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained
from the application of specified reasonings, inquiries, and
other appropriate procedures specified by the Representative
(which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set
forth in such letter heretofore delivered, and found them to
be in agreement.
(v) Such other matters as may be reasonably requested by
the Underwriters. All such letters shall be in form and
substance satisfactory to the Representative and its counsel.
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<PAGE>
(j) OFFICERS' CERTIFICATES. The Representative shall have received
on the Closing Date or the Option Closing Date, as the case may be, a
certificate or certificates of the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that, as of the Closing Date or
the Option Closing Date, as the case may be, each of them jointly and severally
represents as follows:
(i) The Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for
such purpose have been taken or are, to the best of their
knowledge, after due inquiry, contemplated or threatened by
the Commission or any state securities commissions.
(ii) They do not know of any investigation, litigation, or
proceeding instituted or threatened against the Company of a
character required to be disclosed in the Registration
Statement which is not so disclosed; they do not know of any
Contract or other document required to be filed as an exhibit
to the Registration Statement which is not so filed; and the
representations and warranties of the Company contained in
Section 1 hereof are true and correct in all material respects
as of the Closing Date or the Option Closing Date, as the case
may be, as if such representations and warranties were made as
of such date.
(iii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion, as of the
effective date of the Registration Statement, the statements
contained in the Registration Statement were and are correct,
in all material respects, and such Registration Statement and
Prospectus do not omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein not misleading and, in their opinion, since the
effective date of the Registration Statement, no event has
occurred which should be set forth in a supplement to or an
amendment of the Prospectus which has not been so set forth in
such supplement or amendment.
(k) EXCHANGE ACT REGISTRATION AND NASDAQ LISTING. On each of the
Effective Date, the Closing Date, and the Option Closing Date, each of the
Units, the Common Stock, and the Warrants shall be (i) registered under Section
12(g) of the Exchange Act, and (ii) listed for trading on the Nasdaq SmallCap
Market.
(l) LOCK-UP AGREEMENTS. The Representative shall have received the
Lock-up Agreements, in form and substance satisfactory to the Representative, as
required by Section 4(l) of this Agreement.
(m) OTHER AGREEMENTS. The Company shall have executed and delivered
to the Representative the Warrant Agreement and the Representative's Purchase
Option.
(n) FURTHER ASSURANCES. The Company shall have furnished to the
Representative such further certificates and documents confirming the
representations, warranties and covenants contained herein and related matters
as the Representative may reasonably have requested.
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The opinions, certificates, and other documents described in this
Agreement shall be deemed to be in compliance with the provisions hereof only if
they are in all respects satisfactory to the Representative and to Greenberg
Traurig, counsel for the Representative.
If any of the conditions herein provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representative by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be. In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company to sell and deliver the Securities required to be delivered as and when
specified in this Agreement are subject to the conditions that at the Closing
Date or the Option Closing Date, as the case may be, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and in
effect or proceedings therefor initiated or threatened.
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless each Underwriter and its respective affiliates, directors,
officers, partners, employees, agents, counsel, and representatives,
(collectively, "Underwriter Parties") against any losses, claims, damages or
liabilities to which such Underwriter Parties or any one or more of them may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any failure by the Company or any of its affiliates,
directors, officers, employees, agents, counsel, and representatives
(collectively, the "Company Parties") to perform any obligation hereunder or any
other agreement among any of the Company Parties and any of the Underwriter
Parties, (ii) any untrue statement or alleged untrue statement of any material
fact contained in or incorporated by reference in the Registration Statement,
any Preliminary Prospectus, the Prospectus, any Rule 462(b) Registration
Statement, or any amendment or supplement thereto, or (iii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances under which they were made, and will reimburse each Underwriter
Party for any legal or other expenses incurred by such Underwriter Party in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that (X) the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement, or alleged
untrue statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, any Rule 462(b)
Registration Statement, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through the
Underwriters specifically for use in the preparation thereof (which the parties
hereto agree is limited solely to that information contained on the cover page
of the Prospectus or Preliminary Prospectus and in the section thereof entitled
"Underwriting"), and (Y) such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter Party from whom the
person asserting any such loss, claim, damage or liability
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<PAGE>
purchased the Securities which are the subject thereof if such person did not
receive a copy of the Prospectus (or the Prospectus as amended or supplemented)
at or prior to the confirmation of the sale or such Securities to such person in
any case where such delivery is required by the Act and the untrue statement or
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented). This
indemnity agreement will be in addition to any liability that the Company may
otherwise have.
(b) INDEMNIFICATION BY THE UNDERWRITERS. Each Underwriter will
severally indemnify and hold harmless the Company Parties against any losses,
claims, damages or liabilities to which the Company Parties or any one or more
of them may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any failure by the Underwriter Parties to
perform any obligations hereunder or any other agreement among any of the
Underwriter Parties and any of the Company Parties, (ii) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, any Rule 462(b)
Registration Statement, or any amendment or supplement thereto, or (iii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and will reimburse any
legal or other expense reasonably incurred by the Company Parties in connection
with investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, any Rule
462(b) Registration Statement, or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Company by or
through such Underwriter specifically for use in the preparation thereof (which
the parties hereto agree is limited solely to that information contained on the
cover page of the Prospectus or Preliminary Prospectus and in the section
thereof entitled "Underwriting"). This indemnity agreement will be in addition
to any liability that such Underwriter may otherwise have.
(c) CLAIMS. In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or 8(b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give such notice,
but the failure to give such notice shall not relieve the indemnifying party or
parties from any liability that it or they may have to the indemnified party for
contribution or otherwise than on account of the provisions of Section 8(a) or
8(b). In case any such proceeding shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such
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<PAGE>
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred the fees and expenses of the counsel
retained by the indemnified party in the event (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm for all such indemnified parties.
Such firm shall be designated in writing by the Representative in the case of
parties indemnified pursuant to Sections 8(a) and by the Company in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 8 is unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or 8(b) above in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law or if the indemnified party failed to give the
notice required under Section 8(c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting fees and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to above in this Section 8(d).
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The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Subsection 8(d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Securities purchased by such Underwriter, and (ii) no person
guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) CONSENT TO VENUE AND SERVICE OF PROCESS. In any proceeding
relating to the Registration Statement, any Preliminary Prospectus, the
Prospectus or any supplement or amendment thereto, each party against whom
contribution may be sought under this Section 8 hereby consents to the
jurisdiction of any court having jurisdiction over any other contributing party,
agrees that process issuing from such court may be served upon him, her, or it
by any other contributing party, and consents to the service of such process and
agrees that any other contributing party may join him, her, or it as an
additional defendant in any such proceeding in which such other contributing
party is a party.
9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option
Closing Date, as the case may be, any Underwriter shall fail to purchase and pay
for the portion of the Securities that such Underwriter has agreed to purchase
and pay for on such date (otherwise than by reason of any default on the part of
the Company or the failure to occur of a condition precedent to the closing),
the Representative on behalf of the Underwriters, shall use its best efforts to
procure as soon as possible but not later than five business days thereafter one
or more of the other Underwriters, or any others, to purchase from the Company
such amounts as may be agreed upon and upon the terms set forth herein, the Firm
Securities or Option Securities, as the case may be, that the defaulting
Underwriter or Underwriters failed to purchase. If during such period the
Representative shall not have procured such other Underwriters, or any others,
to purchase the Firm Securities or Option Securities, as the case may be, agreed
to be purchased by the defaulting Underwriter or Underwriters then (a) if the
aggregate number of Securities with respect to which such default shall occur
does not exceed 10% of the Firm Securities or Option Securities, as the case may
be, covered hereby, the other Underwriters shall be obligated, severally, to
take up and pay for (in the respective proportions that the aggregate amount of
Securities set forth opposite their respective names in Schedule I hereto bears
to the aggregate amount of Securities set forth opposite the names of all the
remaining Underwriters) the Firm Securities or Option Securities, as the case
may be, that such defaulting Underwriter or Underwriters failed to purchase, or
(b) if the aggregate number of Securities with respect to which such default
shall occur exceeds 10% of the Firm Securities or Option Securities, as the case
may be, covered hereby, the Company or the Representative on behalf of the
Underwriters will have the right, by written notice given within the next
24-hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the nondefaulting Underwriters of the Company,
except to the extent provided in Section 8 and Section 5 hereof. In the event of
a default by any Underwriter or Underwriters, as set forth in this Section 9,
the
29
<PAGE>
Closing Date or Option Closing Date, as the case may be, may be postponed for
such period, not exceeding seven days, as the Representative may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. NOTICES. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered, telecopied, or
telegraphed and confirmed as follows: if to the Underwriters, to HD Brous & Co.,
Inc., 40 Cuttermill Road, Great Neck, New York 11021; Telephone: (516) 773-1800;
Fax: (516) 773-1829; Attention: Mr. Howard D. Brous, with a copy to Greenberg
Traurig, One East Camelback Rd., Suite 1100, Phoenix, Arizona 85012-1656;
Telephone: (602) 263-2300; Fax: (602) 263-2350; Attention: Robert S. Kant, Esq.;
if to the Company, to Radyne ComStream, Inc., 3138 E. Elwood Street, Phoenix,
Arizona 85034; Telephone: (602) 437-9620; Fax: (602) 437-4811; Attention: Robert
L. Fitting, Chief Executive Officer, with a copy to Dorsey & Whitney, 250 Park
Avenue, New York, New York 10177; Telephone: (212) 415-9311; Fax: (212)
953-7201; Attention: John B. Wade, III, Esq.
11. TERMINATION. This Agreement may be terminated by the Representative
by notice to the Company as follows:
(a) at any time prior to the earlier of (i) the time the Securities
are released by the Representative for sale by notice to the Underwriters, or
(ii) 11:30 a.m., New York time, on the first business day following the date of
this Agreement; or
(b) at any time prior to the Closing itself if any of the following
has occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company, or the earnings, business
affairs, management or business prospects of the Company, whether or not arising
in the ordinary course of business, including a material decline in the price of
Company's Common Stock on or prior to the Closing Date; (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change on the financial markets or economic conditions would, in
reasonable judgment of the Representative, make the offering or delivery of the
Securities impracticable; (iii) suspension of trading in securities on the New
York Stock Exchange, Inc. or the Nasdaq Stock Market, Inc. or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on such exchange or trading market; (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority that in the reasonable
opinion of the Representative materially and adversely affects or will
materially or adversely affect the business or operations of the Company; (v)
declaration of a banking moratorium by either federal or New York authorities;
or (vi) the taking of any action by any federal, state, local, or foreign
government or agency in respect of its monetary or fiscal affairs that in the
reasonable opinion of the
30
<PAGE>
Representative has a material adverse effect on the securities markets in the
United States or the prospects of the Company; or
(c) as provided in Sections 6 and 9 of this Agreement.
This Agreement also may be terminated by the Representative, by notice
to the Company, as to any obligation of the Underwriters to purchase the Option
Securities, upon the occurrence at any time at or prior to the Option Closing
Date of any of the events described in Section 11(b) above or as provided in
Sections 6 and 9 of this Agreement.
12. SUCCESSORS. This Agreement has been and is made solely for the
benefit of the Underwriters and the Company and their respective successors,
executors, administrators, heirs and assigns, and the Underwriter Parties and
Company Parties referred to herein, and no other person will have any right or
obligation hereunder. The term "successors" shall not include any purchaser of
the Securities merely because of such purchase.
13. MISCELLANEOUS. The reimbursement, indemnification, and contribution
agreements contained in Sections 5 and 8 of this Agreement and the
representations and warranties contained in Section 1 of this Agreement shall
remain in full force and effect regardless of (a) any termination of this
Agreement, (b) any investigation made by or on behalf of any Underwriter Party,
or by or on behalf of any Company Party, and (c) delivery of and payment for the
Securities under this Agreement.
This Agreement and any notices delivered hereunder may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement and
any and all notices may be delivered by telecopy and shall be effective upon
receipt, with the original of such document to be deposited promptly in the U.S.
Mail.
This Agreement and all disputes and controversies relating hereto or in
connection with the transactions contemplated hereby shall be governed by, and
construed in accordance with, the laws of the State of Arizona.
If the foregoing agreement is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
RADYNE COMSTREAM, INC.
By:_________________________________
Robert L. Fitting,
Chief Executive Officer
31
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
____________, ____.
HD Brous & Co., Inc.
As Representative of the
several Underwriters listed
on Schedule I
HD Brous & Co., Inc.
By:___________________________________
Howard D. Brous,
Chairman
32
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF FIRM SECURITIES TO BE PURCHASED
- ----------- -----------------------------------------
<S> <C>
HD Brous & Co., Inc.
---------
Total 1,500,000
<PAGE>
SCHEDULE II
OFFICERS, DIRECTORS, AND STOCKHOLDERS WHO
SHALL SIGN LOCK-UP AGREEMENTS
Robert C. Fitting
Steven W. Eymann
Garry D. Kline
Ming Seong Lim
Yip Loi Lee
Kip Chuen Tang
Robert A. Grimes
Dennis W. Elliott
[Alan Potter]
[Dave Koblinski]
[John Restiuo]
[Brian Duggan]
Singapore Technologies Pte Ltd
Stetsys Pte Ltd
<PAGE>
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
_______________, 1999
HD Brous & Co., Inc.
As Representative of the Several Underwriters
c/o HD Brous & Co., Inc.
40 Cuttermill Road
Great Neck, New York 11021
RE: RADYNE COMSTREAM, INC. (THE "COMPANY")
Ladies & Gentlemen:
The undersigned is or may become an owner of record or beneficially of
certain shares of Common Stock of the Company ("Common Stock") or securities
convertible into or exchangeable or exercisable for Common Stock. The Company
proposes to carry out a public offering of Units consisting of Common Stock and
Warrants (the "Offering") for which you will act as the representative of the
underwriters. The undersigned recognizes that the Offering will be of benefit to
the undersigned and will benefit the Company by, among other things, raising
additional capital for its operations. The undersigned acknowledges that you and
the other underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not, without the prior written consent of HD Brous & Co.,
Inc. (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract, or grant any option to sell (including
without limitation any short sale), pledge, transfer, establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Securities
Exchange Act of 1934, or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for, or convertible into, shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date after the date of the Prospectus. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock,
<PAGE>
or securities convertible into, or exchangeable or exercisable for Common Stock
held by the undersigned except in compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.
By:______________________________________________
(Print name of stockholder)
Signature:_______________________________________
Indicate how shares held:________________________
_________________________________________________
_________________________________________________
_________________________________________________
(indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
<PAGE>
EXHIBIT B
FORM OF
REPRESENTATIVE'S PURCHASE OPTION
<PAGE>
Void after 5:00 p.m. New York Time, on ______________, 2005.
Option to Purchase 150,000 Shares of Common Stock.
REPRESENTATIVE'S PURCHASE OPTION
OF
RADYNE COMSTREAM, INC.
This is to certify that, FOR VALUE RECEIVED, HD BROUS & CO.,
INC., or assigns (the "Holder"), is entitled to purchase, subject to the
provisions of this Option, from RADYNE COMSTREAM, INC., a New York corporation
(the "Company"), 150,000 fully paid, validly issued, and nonassessable shares of
the Company's Common Stock, par value $.002 per share ("Common Stock") at a
price of $__________ per share at any time or from time to time during the
period from ____________, 2001 to ____________, 2005, but not later than 5:00
p.m. New York City Time, on ____________, 2005. The number of shares of Common
Stock to be received upon the exercise of this Option and the price to be paid
for each share of Common Stock may be adjusted from time to time as hereinafter
set forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Option
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price." This Option, together with options of like tenor, constituting
in the aggregate options (the "Options") to purchase 150,000 shares of Common
Stock, was originally issued pursuant to an underwriting agreement between the
Company and HD Brous & Co., Inc. ("Brous"), in connection with a public offering
through Brous of 1,500,000 shares of Common Stock and warrants to purchase
1,500,000 shares of Common Stock, in consideration of $100 for the Options.
1. EXERCISE OF OPTION.
(a) This Option may be exercised in whole or in part at any time or
from time to time on or after ____________, 2001 and until ____________, 2005
(the "Exercise Period"), subject to the provisions of Section 10(b) hereof;
provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then
on the next succeeding day which shall not be such a day, and (ii) in the
event of any merger, consolidation or sale of substantially all the assets
of the Company as an entirety, resulting in any distribution to the Company's
stockholders, prior to ____________, 2005, the Holder shall have the right
to exercise this Option commencing at such time through ____________, 2005
into the kind and amount of shares of stock and other securities and property
(including cash) receivable by a holder of the number of shares of Common Stock
into which this Option might have been exercisable immediately prior thereto.
This Option may be exercised by presentation and surrender hereof to the Company
at its principal office, or at the
<PAGE>
office of its stock transfer agent, if any, with the Purchase Form attached as
Exhibit A hereto duly executed and accompanied by payment of the Exercise Price
for the number of Option Shares specified in such form. As soon as practicable
after each such exercise, but not later than seven (7) days from the date of
such exercise, the Company shall issue and deliver to the Holder a certificate
or certificate for the Option Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Option should be exercised in
part only, the Company shall, upon surrender of this Option for cancellation,
execute and deliver a new Option evidencing the rights of the Holder thereof to
purchase the balance of the Option Shares purchasable thereunder. Upon receipt
by the Company of this Option at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Holder.
(b) At any time during the Exercise Period, the Holder may, at its
option, exchange this Option, in whole or in part (an "Option Exchange"), into
the number of Option Shares determined in accordance with this Section 1(a),
by surrendering this Option at the principal office of the Company or at the
office of its stock transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Option Shares to be
exchanged, and the date on which the Holder requests that such Option Exchange
occur (the "Notice of Exchange"). The Option Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Option Exchange and, if applicable, a new Option of
like tenor evidencing the balance of the shares remaining subject to this
Option, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any Option
Exchange, this Option shall represent the right to subscribe for and acquire the
number of Option Shares (rounded to the next highest integer) equal to (i) the
number of Option Shares specified by the Holder in its Notice of Exchange (the
"Total Number") less (ii) the number of Option Shares equal to the quotient
obtained by dividing (A) the product of the Total Number and the existing
Exercise Price by (B) the current market value of a share of Common Stock.
Current market value shall have the meaning set forth Section 3 below, except
that for purposes hereof, the date of exercise, as used in such Section 3,
shall mean the Exchange Date.
2. RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Option such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Options.
3. FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Option. With respect
to any fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the current market value of a share, determined as follows:
(a) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq
2
<PAGE>
National Market, the current market value shall be the last reported sale price
of the Common Stock on such exchange or market on the last business day prior to
the date of exercise of this Option or if no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange or market; or
(b) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq Small Cap Market, the current
Market Value shall be the average of the closing bid and asked prices for such
day on such market and if the Common Stock is not so traded, the current market
value shall be the mean of the last reported bid and asked prices reported by
the OTC Bulletin Board or the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Option; or
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Option, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF OPTION. This Option is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Common Stock
purchasable hereunder. This Option is not transferable (other than by will or
pursuant to the laws of descent and distribution) and may not be assigned or
hypothecated for a period of one year from ____________, 2000, except to and
among the officers of Brous, any member of the selling group, or to and among
the officers or partners of any member of the selling group. Commencing on
____________, 2001, this Option and the securities issuable upon exercise of
this Option may be transferred without restriction as long as such transfer is
in compliance with applicable federal and state securities laws. Upon surrender
of this Option to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Assignment Form attached as Exhibit B
hereto duly executed and funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Option in the name of the
assignee named in such instrument of assignment and this Option shall promptly
be cancelled. This Option may be divided or combined with other Options that
carry the same rights upon presentation hereof at the principal office of
the Company or at the office of its stock transfer agent, if any, together with
a written notice specifying the names and denominations in which new Options are
to be issued and signed by the Holder hereof. The term "Option" as used herein
includes any Options into which this Option may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Option, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Option, if mutilated, the Company will execute and deliver
a new Option of like tenor and date. Any such new Option executed and delivered
shall constitute an additional contractual obligation on the part of the
Company, whether or not this Option so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
3
<PAGE>
5. RIGHTS OF THE HOLDER. Until the Holder exercises this Option
pursuant to Section 1, the Holder shall not, by virtue hereof, be entitled to
any rights of a shareholder in the Company, either at law or equity, and the
rights of the Holder are limited to those expressed in this Option and are not
enforceable against the Company except to the extent set forth herein.
6. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Options shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively whenever any
event listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of each Option
is adjusted pursuant to Section 6(a) above, the number of Option Shares
purchasable upon exercise of this Option shall simultaneously be adjusted by
multiplying the number of Option Shares initially issuable upon exercise of this
Option by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(c) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least one cent
($0.01) in such price; provided, however, that any adjustments which by reason
of this Section 6(c) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 6 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 6 to the contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise Price, in addition
to those required by this Section 6, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any federal income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including Options).
(d) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Shares issuable upon exercise of each
Option, and, if requested, information describing the transactions giving rise
to such adjustments, to be mailed to the Holders at their last addresses
appearing in the Option Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a firm of
independent certified public
4
<PAGE>
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 6, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(e) In the event that at any time, as a result of an adjustment made
pursuant to Section 6(a) above, the Holder of this Option thereafter shall
become entitled to receive any shares of capital stock of the Company other than
Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Option shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Sections 6(a) to 6(d), inclusive above.
(f) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Option, Options
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Options initially
issuable pursuant to this Agreement.
7. OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section 6, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and
the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the holder or
any holder of a Option executed and delivered pursuant to Section 1 and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
8. NOTICES TO OPTION HOLDERS. So long as this Option shall be
outstanding, (a) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (b) if the Company shall offer to the holders of Common
Stock for subscription or purchase by them any share of any class or any other
rights or (c) if any capital reorganization of the Company, reclassification of
the capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least 15 days prior the date specified in (x)
or (y) below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken for
the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
9. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock
5
<PAGE>
of the Company, or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Option) or in case
of any sale, lease or conveyance to another corporation of the property of the
Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder shall have
the right thereafter by exercising this Option at any time prior to the
expiration of the Option, to purchase the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been purchased
upon exercise of this Option immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Option. The foregoing
provisions of this Section 9 shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common Stock, any such issue
shall be treated as an issue of Common Stock covered by the provisions of
Section 6 hereof.
10. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(a) The Company shall advise the Holder of this Option or of the Option
Shares or any then holder of Options or Option Shares (such persons being
collectively referred to herein as "Holders") by written notice at least thirty
(30) days prior to the filing of any post-effective amendment to the Company's
Registration Statement No. 000-_____ on Form S-2 ("Registration Statement"),
declared effective by the Securities and Exchange Commission on ____________,
2000 or of any new registration statement or post-effective amendment thereto
under the Securities Act of 1933 (the "Act") covering securities of the Company
and will for a period of six years, commencing one year from the effective date
of the Registration Statement, upon the request of any such Holder, include in
any such post-effective amendment or registration statement such information as
may be required to permit a public offering of the this Option and/or the Option
Shares. The Company shall supply prospectuses and other documents as the Holder
may reasonably request in order to facilitate the public sale or other
disposition of this Option and/or the Option Shares, qualify this Option and/or
the Option Shares for sale in such states as any such Holder designates and do
any and all other acts and things which may be necessary or desirable to enable
such Holders to consummate the public sale or other disposition of this Option
and/or the Option Shares, and furnish indemnification in the manner as set forth
Section 10(c)(iii). Such Holders shall furnish information and indemnification
as set forth in Section 10(c)(iv), except that the maximum amount which may be
recovered from the Holder shall be limited to the amount of net proceeds
received by the Holder from the sale of this Option and/or the Option Shares.
6
<PAGE>
(b) If any majority holder (as defined in Section 10(d) below) shall
give notice to the Company at any time during the four-year period commencing
one year from the effective date of the Registration Statement to the effect
that such holder contemplates (i) the transfer of this Option and/or all or any
part of his, her, or its Option Shares, or (ii) the exercise and/or conversion
of all or any part of his, her, or its Options and the transfer of this Option
and/or all or any part of the Option Shares under such circumstances that a
public offering (within the meaning of the Act) of this Option and/or Option
Shares will be involved, and desires to register under the Act this Option
and/or the Option Shares, then the Company shall, within thirty (30) days after
receipt of such notice, file a post-effective amendment to the Registration
Statement or a new registration statement on Form S-1, S-3 or such other form as
the holder requests, pursuant to the Act, to the end that this Option and/or the
Option Shares may be sold under the Act as promptly as practicable thereafter
and the Company will use its best efforts to cause such registration to become
effective and continue to be effective (current) (including the taking of such
steps as are necessary to obtain the removal of any stop order) until the holder
has advised the Company that this Option and/or all of the Option Shares have
been sold; provided that such Holders shall furnish the Company with appropriate
information (relating to the intentions of such Holders) in connection therewith
as the Company shall reasonably request in writing. Subject to applicable state
law, in the event the registration statement is not declared effective under the
Act within 150 days after the majority holder first gives notice to the Company
of his, her, or its desire to register this Option and/or Option Shares under
the Act, then at the Holders' request, the Company shall purchase the Options
from the Holders for a per share price equal to the fair market value of the
Common Stock less the per share Exercise Price. The Holder may, at its option,
request the registration of this Option and/or the Option Shares in a
registration statement made by the Company as contemplated by Section 10(a) or
in connection with a request made pursuant to this Section 10(b) prior to the
acquisition of the Option Shares upon exercise of the Options and even though
the Holder has not given notice of exercise of the Options. If the Company
determines to include securities to be sold by it in any registration statement
originally requested pursuant to this Section 10(b), such registration shall
instead be deemed to have been a registration under Section 10(a) and not under
this Section 10(b). The Holder may thereafter at its option, exercise the
Options at any time or from time to time subsequent to the effectiveness under
the Act of the registration statement in which the Option Shares were included.
(c) The following provision of this Section 10 shall also be
applicable:
(i) Within ten days after receiving any such notice pursuant to
Section 10(b), the Company shall give notice to the other Holders of Options and
Option Shares, advising that the Company is proceeding with such post-effective
amendment or registration statement and offering to include therein Option
Shares of such other Holders, provided that they shall furnish the Company with
such appropriate information (relating to the intentions of such Holders) in
connection therewith as the Company shall reasonably request in writing.
Following the effective date of such post-effective amendment or registration,
the Company shall upon the request of any owner of Options and/or Option Shares
forthwith supply such a number of prospectuses meeting the requirements of the
Act, as shall be requested by such owner to permit such Holder to make a public
offering of all Options and/or Option Shares from time to time offered or sold
to such Holder, provided that such Holder shall from time to time furnish the
7
<PAGE>
Company with such appropriate information (relating to the intentions of such
Holder) in connection therewith as the Company shall request in writing. The
Company shall also use its best efforts to qualify the Option Shares for sale in
such states as such majority Holder shall designate.
(ii) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Section 10(a) notwithstanding
that Options and/or Option Shares subject to this Option may be included in any
such registration. The Company shall also comply with one request for
registration made by the majority holder pursuant to Section 10(b) at its own
expense and without charge to any Holder of any Options and/or Option Shares;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 10(b) if the
registration request is subsequently withdrawn at the request of the majority
holder, in which case the Holders participating in such offering and favoring
such withdrawal shall bear such expenses; provided further, however, that if
such registration request has been withdrawn by virtue of a material adverse
change in the condition, business, or prospects of the Company from that known
to the majority holder at the time of its request, then the Holders shall not be
required to pay any of such expenses and shall retain their rights pursuant to
Section 10(b). The Company shall comply with one additional request made by the
majority holder pursuant to Section 10(b) (and not deemed to be pursuant to
Section 10(a)) at the sole expense of such majority holder. Any Holder whose
Options and/or Option Shares are included in any such registration statement
pursuant to this Section 10 shall, however, bear the fees of his, her, or its
own counsel and any registration fees, transfer taxes or underwriting discounts
or commissions applicable to the Options and/or Option Shares sold by him, her,
or it pursuant thereto.
(iii) The Company shall indemnify and hold harmless each such
Holder and each underwriter, within the meaning of the Act, who may purchase
from or sell for any such Holder any Options and/or Option Shares from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereto or any
registration statement under the Act or any prospectus included therein required
to be filed or furnished by reason of this Section 10 or caused by 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, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or alleged untrue statement or omission or alleged omission
based upon information furnished or required to be furnished in writing to the
Company by such Holder or underwriter expressly for use therein, which
indemnification shall include each person, if any, who controls any such Holder
or underwriter within the meaning of such Act provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Holder or any other Holder, specifically for use
in the preparation thereof.
8
<PAGE>
(iv) Each Holder severally, but not jointly, shall indemnify and
hold harmless the Company and each person who controls the Company, within the
meaning of the Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereto or any registration statement under the Act or any prospectus
included therein required to be filed or furnished by reason of this Section 10
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided, however, that each Holder will be liable in any such case
to the extent, but only to the extent, that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Holder specifically for use in the preparation thereof. In no event,
however, shall the liability of any Holder for indemnification under this
Section 10 exceed the net proceeds received by such holder from the sale of such
Holder's Options and/or Option Shares.
(v) Neither the giving of any notice by any such majority holder
nor the making of any request for prospectuses shall impose upon such majority
holder making such request any obligation to sell any Options and/or Option
Shares, or exercise any Options.
(d) The term "majority holder" as used in this Section 10 shall
include any owner or combination of owners of Options or Option Shares in any
combination if the holdings of the aggregate amount of (i) the Options held by
him, her, or among them, plus (ii) the Options which he, she, or they would be
holding if the Options for the Option Shares owned by him, her, or among them
had not been exercised, would constitute a majority of the Options originally
issued.
The Company's agreements with respect to Options or Option Shares in this
Section 10 shall continue in effect regardless of the exercise and surrender of
this Option.
11. OPTIONS NOT REDEEMABLE. Except as otherwise set forth herein, the
Company shall not have the right to redeem this Option without the consent of
the Holder.
IN WITNESS WHEREOF, the Company has caused this Option to be executed by a
duly authorized officer as of this _____ day of ____________, 2000.
RADYNE COMSTREAM, INC.
By:___________________________
Its:__________________________
9
<PAGE>
EXHIBIT A
PURCHASE FORM
Dated ____________, ____
The undersigned hereby irrevocably elects to exercise the
within Option to the extent of purchasing _______ shares of Common Stock and
hereby makes payment of _______ in payment of the actual exercise price thereof.
________________
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name ___________________________________________
(Please typewrite or print in block letters)
Address ______________________________
______________________________
______________________________
Signature _____________________________
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, _____________________________________
hereby sells, assigns and transfers unto
Name ___________________________________________
(Please typewrite or print in block letters)
Address ______________________________
______________________________
______________________________
the right to purchase Common Stock represented by this Option to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _______________________________ as attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Date ____________, ____
Signature _____________________________
Signature(s) guaranteed by:*
- ----------------------------
*THE SIGNATURE(S) MUST BE GUARANTEED BY A BANK, SAVINGS AND LOAN ASSOCIATION,
STOCKBROKER, OR CREDIT UNION WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTY
MEDALLION PROGRAM PURSUANT TO SECURITIES EXCHANGE ACT RULE 17Ad-15. NOTARIZATION
BY A NOTARY PUBLIC IS NOT ACCEPTABLE.
<PAGE>
REPRESENTATIVE'S PURCHASE OPTION
TO PURCHASE COMMON STOCK OF
RADYNE COMSTREAM, INC.
</TABLE>
<PAGE>
SPECIMEN
NOT NEGOTIABLE
- ---------- ----------
NUMBER SHARES
RCS
- ---------- ----------
[RADYNE COMSTREAM LOGO]
RADYNE COMSTREAM INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
SEE REVERSE FOR
CERTAIN DEFINITIONS
COMMON STOCK CUSIP 750611 40 2
THIS CERTIFIES THAT:
is owner of
FULLY PAID AND N0N-ASSESSABLE SHARES OF COMMON STOCK OF $.002 PAR VALUE EACH OF
RADYNE COMSTREAM INC.
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of New York,
and to the Articles of Incorporation and Bylaws of the Corporation, as now or
hereafter amended. This certificate is not valid until countersigned by the
Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED:
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
NEW YORK, NY
TRANSFER AGENCY
BY:
AUTHORIZED OFFICER
GARY KLINE ROBERT FITTING
SECRETARY PRESIDENT
RADYNE COMSTREAM INC.
CORPORATE
SEAL
1980
NEW YORK
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ..............................
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common
Act ..............
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, _____________ hereby sell, assign and transfer into
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint ________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________
__________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST
COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK
EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM.
________________________________________________________________________________
STOCK MARKET INFORMATION EXCHANGE
www.stockinformation.com
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Agreement") is dated as of this ____
day of ____________, 2000, by and between Radyne ComStream, Inc., a New York
corporation (the "Company") and Continental Stock Transfer & Trust Company, as
Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 1,500,000
units (the "Units"), each Unit consisting of one share of common stock, par
value $.002 per share (the "Common Stock") and one Redeemable Common Stock
Purchase Warrant (the "Warrants") to purchase one share of Common Stock,
pursuant to an underwriting agreement (the "Underwriting Agreement") dated as of
____________, 2000, between the Company and HD Brous & Co., Inc. (the
"Representative"), the Company may issue up to 1,500,000 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange, and redemption of the
Warrants, the issuance of certificates representing the Warrants, the exercise
of the Warrants, and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the Company,
the holders of certificates representing the Warrants, and the Warrant Agent,
the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date of this Agreement
at 2 Broadway, 19th floor, New York, New York 10004.
(b) "Effective Date" shall mean the date that the
Registration Statement is declared effective by the Securities and Exchange
Commission (the "Commission").
(c) "Exercise Date" shall mean, as to any Warrant, the date
on which the Warrant Agent shall have received both (i) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (ii)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the Purchase Price; provided, however, that, subject to Section 5 of this
Agreement, if payment shall be made by personal or corporate check, the exercise
of the Warrant shall not be effective until the Warrant Agent shall be satisfied
that the check shall have cleared;
1
<PAGE>
provided, further, that if such payment is made prior to the Warrant Expiration
Date or the expiration of a period during which a reduced Purchase Price is in
effect pursuant to Section 10(f) of this Agreement and the check shall not have
cleared until after the Warrant Expiration Date or expiration of such period of
a reduced Purchase Price, then the Warrant shall be deemed to have been
exercised immediately prior to 5:00 p.m. Eastern time on the Warrant Expiration
Date expiration of such period of a reduced Purchase Price.
(d) "Purchase Price" shall mean the purchase price per
share to be paid upon exercise of each Warrant in accordance with the terms
hereof, which price shall be ____________________ dollars ($______) per share,
subject to adjustment from time to time pursuant to the provisions of Section 10
of this Agreement.
(e) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms of
this Agreement, which price shall be one cent ($.01) per Warrant. The Redemption
Price shall not be subject to adjustment pursuant to this Agreement.
(f) "Registration Statement" shall mean the Company's
registration statement on Form S-2, File No. 000-_____, which was declared
effective by the Commission on ____________, 2000.
(g) "Registered Holder" shall mean, as to any Warrant and
as of any particular date, the person in whose name the certificate representing
the Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Section 7 of this Agreement.
(h) "Transfer Agent" shall mean Continental Stock Transfer
& Trust Company, as the Company's transfer agent, or its authorized successor,
as such.
(i) "Warrant Certificate" shall mean the certificates for
the Warrants in the form attached as Exhibit A to this Agreement.
(j) "Warrant Expiration Date" shall mean 5:00 p.m. Eastern
time on the first to occur of (i) ____________, 2005, or (ii) the business day
immediately preceding the Redemption Date, as defined in Section 9(c) of this
Agreement; provided that if such date shall in the State of New York be a
holiday or a day on which banks are authorized or required to close, the Warrant
Expiration Date shall be the next day which is not such a date. The Company
shall have the right to extend the Warrant Expiration Date upon notice to all
Registered Holders.
(k) "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
2. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints
the Warrant Agent to act as agent of the Company for the Warrants, and the
Warrant Agent hereby accepts such appointment and agrees to perform the same in
accordance with the terms and conditions set forth in this Agreement.
2
<PAGE>
3. WARRANTS AND ISSUANCE OF WARRANTS CERTIFICATES.
(a) Each Warrant initially shall entitle the Registered
Holder of the Warrant Certificate representing such Warrant to purchase upon the
exercise thereof one share of Common Stock, subject to modification and
adjustment as provided in Section 10 of this Agreement, at any time after the
Warrants shall be separately transferable from the Units, which shall not be
until 9:00 a.m., Eastern time, on ________________, 2000 (180 days from the date
of the definitive prospectus) or such earlier date as determined by the
Representative, until 5:00 p.m., Eastern time, on the Warrant Expiration Date.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants initially issuable pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary or
its Treasurer or an Assistant Treasurer, the Warrant Certificates shall be
countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date,
the Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing the shares of Common Stock issuable upon
the exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date,
the Warrant Agent shall countersign Warrant Certificates in required whole
number denominations and deliver to the persons entitled thereto in connection
with any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued hereunder
or otherwise issuable pursuant to the Underwriting Agreement; (ii) those issued
on or after the date of this Agreement, upon the exercise of fewer than all
Warrants represented by any Warrant Certificate, to evidence any unexercised
Warrants held by the exercising Registered Holder; (iii) those issued upon any
transfer or exchange pursuant to Section 7 of this Agreement; (iv) those issued
in replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 8 of this Agreement; and (v) at the option of the Company,
in such form as may be approved by the Board of Directors to reflect any
adjustment or change in the Purchase Price or the number of shares of Common
Stock purchasable upon exercise of the Warrants made pursuant to Section 10 of
this Agreement. In addition, at the discretion of the Company, the Company may
authorize the issuance of additional Warrants, which shall be subject to the
provisions of this Agreement.
4. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be in registered form
only. The text of the Warrant Certificates shall be substantially in the form
attached as Exhibit A to this Agreement, the provisions of which are hereby
incorporated herein, and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or
3
<PAGE>
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or trading market on which the Warrants may be listed, or to conform to
usage or to the requirements of Section 4(b) of this Agreement. The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer or exchange in lieu of mutilated, lost, stolen, or destroyed
Warrant Certificates) and issued in registered form. Warrant Certificates shall
be numbered serially with the letter R or other letters acceptable to the
Company and the Warrant Agent.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed the Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 5 of this Agreement.
5. EXERCISE. Each Warrant may be exercised by the Registered
Holder thereof at any time after the issuance thereof, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder of those securities upon the exercise of
the Warrant as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date, the Warrant Agent shall deposit the
proceeds received from the exercise of a Warrant and shall notify the Company in
writing of the exercise of the Warrant. Promptly following, and in any event
within five (5) days after the date of such notice from the Warrant Agent, the
Warrant Agent, on behalf of the Company, shall cause to be issued and delivered
by the Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such exercise
plus a certificate for any remaining unexercised Warrants of the Registered
Holder, unless prior to the date of issuance of such certificates the Company
shall instruct the Warrant Agent to refrain from causing such issuance of
certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of the Representative or
such other investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, by the Representative or such other investment
bank or brokerage house, certificates shall immediately be issued without prior
notice to the Company or any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing.
4
<PAGE>
6. RESERVATION OF SHARES; LISTING AND REGISTRATION; PAYMENT OF
TAXES.
(a) The Company has reserved and covenants that it shall at
all times reserve and keep available out of its authorized Common Stock, solely
for the purpose of issue upon exercise of Warrants, such number of shares of
Common Stock as shall then be issuable upon the exercise of all outstanding
Warrants. The Company covenants that all Warrant Shares shall, at the time of
delivery in accordance with this Agreement, be duly and validly issued, fully
paid, nonassessable and free from all taxes, liens and charges with respect to
the issue thereof (other than those which the Company shall promptly pay or
discharge). Prior to the issuance of any shares of Common Stock upon exercise of
the Warrants, the Company shall secure the listing of such shares on any and all
national securities exchanges or approved for quotation on the level of The
Nasdaq Stock Market, Inc. upon which any of the other shares of the Common Stock
are then listed or quoted.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as reasonably
possible, endeavor to secure such registration or approval. The Company will use
its best efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful. Without
limiting the foregoing, so long as any unexpired Warrants remain outstanding,
the Company shall file such post-effective amendments to the Registration
Statement or supplements to the Prospectus filed pursuant to the Securities Act
of 1933, as amended (the "Act"), with respect to the Warrants (or such other
registration statements or post-effective amendments or supplements) as may be
necessary to permit trading in the Warrants and to permit the Company to deliver
to each person exercising a Warrant a prospectus meeting the requirements of
Section 10(a)(3) of the Act, and otherwise complying therewith; and the Company
will, from time to time, furnish the Warrant Agent with such prospectuses in
sufficient quantity to permit the Warrant Agent to deliver such a prospectus to
each holder of a Warrant upon the exercise thereof. The Company will keep a copy
of this Agreement on file with the Transfer Agent for the Common Stock and with
every subsequent Transfer Agent for any shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common
5
<PAGE>
Stock issuable upon exercise of the Warrants, and the Company shall authorize
the Transfer Agent to comply with all such proper requisitions. The Company will
supply such Transfer Agent with duly executed certificates for such purpose and
will itself provide or otherwise make available any cash as provided in Section
11 of this Agreement. The Company shall file with the Warrant Agent a statement
setting forth the name and address of the Transfer Agent of the Company for
shares of Common Stock issuable upon exercise of the Warrants.
7. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office and, upon satisfaction
of the terms and provisions of this Agreement, the Company shall execute and the
Warrant Agent shall countersign, issue, and deliver in exchange therefor the
Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration of transfer, exchange, or exercise, the subscription form on the
reverse thereof shall be duly endorsed or be accompanied by a written instrument
or instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A reasonable service charge may be imposed by the
Warrant Agent for any exchange or registration of transfer of Warrant
Certificates. In addition, the Company may require payment by such holder of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any exchanges, registration or transfer of Warrant
Certificates.
(e) All Warrant Certificates surrendered for exercise or
for exchange or in the case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or, with the
prior written consent of the Representative, disposed of or destroyed, at the
direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a
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duly authorized officer of the Company or the Warrant Agent) for all purposes
and shall not be affected by any notice to the contrary.
8. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
9. REDEMPTION.
(a) Commencing twelve (12) months from the Effective Date
or earlier with the consent of the Representative, the Company shall have the
right, on not less than thirty (30) nor more than sixty (60) days notice given
prior to the Redemption Date (as defined in Section 9(b)), at any time to redeem
all, but not less than all, of the then-outstanding Warrants at the Redemption
Price, provided that (i) the Market Price (as defined below) of the Common Stock
shall equal or exceed $__________ per share, (ii) there is, at the time the
Warrants are called for redemption, a current and effective registration
statement or a post-effective amendment to the Registration Statement covering
the issuance of the Warrant Shares, and (iii) the Warrant Shares are listed for
trading on the Nasdaq SmallCap Market, the Nasdaq National Market, the American
Stock Exchange, or the New York Stock Exchange. For the purpose of this
Section 9, the term "Market Price" shall mean, if the Common Stock is listed
on the Nasdaq Stock Market or the New York or American Stock Exchange, the
last reported sales prices (or, if no sale is reported on any such trading day,
the average of the closing bid and asked prices) on the principal market for
the Common Stock or, if the Common Stock is not so listed or traded, the last
reported bid prices of the Common Stock, during each trading day of the 20
trading day period ending within five days of the date the Warrants are called
for redemption. Notice of redemption shall be mailed by first class mail,
postage prepaid, not later than five business days (or such longer period to
which the Representative may consent) after the date the Warrants are called
for redemption.
(b) If the conditions set forth in Section 9(a) of this
Agreement are met and the Company desires to exercise its right to redeem the
Warrants, it shall request the Representative or the Warrant Agent to mail the
notice of redemption referred to in Section 9(a) to each of the Registered
Holders of the Warrants, first class, postage prepaid, not earlier than the
sixtieth (60th) day nor later than the thirtieth (30th) day before the date
fixed for redemption (the "Redemption Date"), at their last addresses as shall
appear on the records maintained pursuant to Section 7(b) of this Agreement. Any
notice mailed in the manner provided herein shall be conclusively presumed to
have been duly given whether or not the Registered Holder receives such notice.
The Warrant Agent agrees to mail such notice if requested by the Company or the
Representative.
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(c) The notice of redemption shall specify (i) the
Redemption Price, (ii) the Redemption Date, (iii) the place where the Warrant
Certificates shall be delivered for redemption, and (iv) that the right to
exercise the Warrants shall terminate at 5:00 p.m. Eastern time on the business
day immediately preceding the Redemption Date. No failure to mail such notice
nor any defect therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption except as to a Registered Holder (A) to whom
notice was not mailed or (B) whose notice was defective. An affidavit of the
Warrant Agent or of the Secretary or an Assistant Secretary of the
Representative or the Company that notice of redemption has been mailed shall,
in the absence of fraud, be prima facie evidence of the facts stated therein.
(d) If the Warrants shall have been redeemed, any right to
exercise a Warrant shall terminate at 5:00 p.m. Eastern time on the business day
immediately preceding the Redemption Date. After such time, Registered Holders
of the Warrants shall have no further rights except to receive, upon surrender
of the Warrant, the Redemption Price without interest, subject to the provisions
of applicable laws relating to the treatment of abandoned property. In the event
that the Warrants or the Warrant Shares shall not be subject to a current and
effective registration statement under the Act at any time subsequent to the
date the Warrants are called for redemption, the notice of redemption shall not
be effective and shall be deemed for all purposes not to have been given.
Nothing in the preceding sentence shall be construed to prohibit or restrict the
Company from thereafter calling the Warrants for redemption in the manner
provided for, and subject to the provisions of, this Section 9.
(e) From and after the Redemption Date, the Company shall,
at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
10. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SECURITIES
ISSUABLE UPON EXERCISE OF WARRANTS.
(a) In case the Company shall, at any time or from time to
time after the date of this Agreement, pay a dividend or make a distribution on
its shares of Common Stock in shares of Common Stock, subdivide or reclassify
its outstanding Common Stock into a greater number of shares, or combine or
reclassify its outstanding Common Stock into a smaller number of shares or
otherwise effect a combination of shares or reverse split, the Purchase Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of any Warrant exercised after such
date shall be entitled to receive the aggregate number and kind of shares which,
if such Warrant had been exercised immediately prior to such time, he would have
owned upon such exercise and been entitled to receive upon such dividend,
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subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed in this Section 10(a) shall occur.
(b) In case the Company shall, at any time or from time to
time after the date of this Agreement, issue rights or warrants to all holders
of its Common Stock entitling them to subscribe for or purchase shares of Common
Stock (or securities convertible into Common Stock) at a price (or having a
conversion price per share) less than the current market price of the Common
Stock (as defined in Section 10(e) of this Agreement) on the record date
mentioned below, the Purchase Price shall be adjusted so that the same shall
equal the price determined by multiplying the Purchase Price in effect
immediately prior to the date of such issuance by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on the
record date mentioned below plus the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and of which the denominator shall be the number of shares of Common
Stock outstanding on such record date plus the number of additional shares of
Common Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants, the
Purchase Price shall be readjusted to the Purchase Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall, at any time or from time to
time after the date of this Agreement, distribute to all holders of Common Stock
evidences of its indebtedness or assets (excluding cash dividends or
distributions paid out of current earnings and dividends or distributions
referred to in Section 10(a) of this Agreement) or subscription rights or
warrants (excluding those referred to in Section 10(b) of this Agreement), then
in each such case the Purchase Price in effect thereafter shall be determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the total number of shares of Common
Stock outstanding multiplied by the current market price per share of Common
Stock (as defined in Section 10(e) of this Agreement), less the fair market
value (as determined by the Company's Board of Directors) of said assets or
evidences of indebtedness so distributed or of such rights or warrants, and of
which the denominator shall be the total number of shares or Common Stock
outstanding multiplied by such current market price per share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) Whenever the Purchase Price payable upon exercise of
each Warrant is adjusted pursuant to Sections 10(a), (b) or (c) of this
Agreement, the number of shares of Common Stock purchasable upon exercise of
each Warrant shall simultaneously be adjusted
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<PAGE>
by multiplying the number of shares issuable upon exercise of each Warrant in
effect on the date thereof by the Purchase Price in effect on the date thereof
and dividing the product so obtained by the Purchase Price, as adjusted.
(e) For the purpose of any computation pursuant to Sections
10(b), and (c) of this Agreement, the current market price per share of Common
Stock at any date shall be deemed to be the average of the daily closing prices
for thirty (30) consecutive business days commencing forty-five (45) business
days before such date. The closing price for each day shall be the reported last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported high bid and low asked prices regular way,
in either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, if the Common Stock is admitted to
trading or listing on the New York or American Stock Exchange or on The Nasdaq
Stock Market if included in such system or if not listed or admitted to trading
on such exchange or system, the average of the highest bid and lowest asked
prices as reported by Nasdaq or the National Quotation Bureau, Inc. or another
similar organization if Nasdaq is no longer reporting such information, or if
not so available, the fair market price as determined by the Board of Directors
of the Company.
(f) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least one
cent ($0.01) in such price; provided, however, that any adjustments which by
reason of this Section 10(f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 10 shall be made to the nearest cent or to the nearest
one-tenth of a share, as the case may be. Notwithstanding anything in this
Section 10 to the contrary, the Company may, upon notice to the Registered
Holders of the Warrants, in its sole discretion, reduce the Purchase Price of
the Warrants, and, if such reduction is not otherwise required by this Section
10, such reduction (i) will not, unless the Board of Directors otherwise
determines, result in any change in the number or class of shares of Common
Stock issuable upon exercise of such Warrants, and (ii) may be of limited
duration, in which event the reduction in Purchase Price shall not apply to any
Warrants exercised after the expiration of the time during which the reduced
Purchase Price is in effect.
(g) The Company may retain a firm of independent public
accountants (which may be the regular accountants employed by the Company) of
recognized standing selected by the Board of Directors of the Company to make
any computation required by this Section 10, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Section 10(a) of this Agreement, the holder of any
Warrant thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Sections 10(a) to (f),
inclusive, of this Agreement.
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(i) The Company may elect, upon any adjustment of the
Purchase Price hereunder, to adjust the number of Warrants outstanding, in lieu
of the adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the number of
Warrants pursuant to this Section 10, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates evidencing,
subject to Section 11 of this Agreement, the number of additional Warrants to
which such Holder shall be entitled as a result of such adjustment or, at the
option of the Company, cause to be distributed to such Holder in substitution
and replacement for the Warrant Certificates held by him prior to the date of
adjustment (and upon surrender thereof, if required by the Company) new Warrant
Certificates evidencing the number of Warrants to which such Holder shall be
entitled after such adjustment.
(j) In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provisions shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 10. The Company
shall not effect any such consolidation, merger or sale unless, prior to or
simultaneously with the consummation thereof, the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that, as a result of any merger, consolidation or similar transaction, all of
the holders of Common Stock receive and are entitled to receive no consideration
other than cash in respect of their shares of Common Stock, then, at the
effective time of the transaction, the rights to purchase Common Stock pursuant
to the Warrants shall terminate, and
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the holders of the Warrants shall, notwithstanding any other provisions of this
Agreement or the Warrants, receive in respect of each Warrant to purchase one
(1) share of Common Stock, upon presentation of the Warrant Certificate, the
amount by which the consideration per share of Common Stock payable to the
holders of Common Stock at such effective time exceeds the Purchase Price in
effect on such effective date, without giving effect to the transaction. In the
event that, subsequent to the effective time, additional cash or other
consideration is payable to the holders of Common Stock of record as of the
effective time, the same consideration shall be payable to the holders of the
Warrants to the extent that the total cash then received by the holders of
Common Stock exceeds the Purchase Price in effect at such effective date,
without giving effect to the transaction, with the same effect as if the
Warrants had been exercised on and as of such effective time. In the event of
any merger, consolidation, sale or lease of substantially all of the Company's
assets or reorganization whereby the Company is not the surviving corporation,
in lieu of the foregoing provisions of this Section 10(j), the Company may
provide in the agreement relating to the transaction that each Warrant shall
become, be converted into or be exchanged for, such securities of the surviving
or acquiring corporation or other entity as has a value equal to the value of
the Warrants (which shall not exceed the amount by which the consideration to be
received per share of Common Stock (valued on such date as the Company's Board
of Directors shall determine) exceeds the exercise price of the Warrant), the
value of the Warrants and securities being issued in exchange therefor to be
determined by the Company's Board of Directors, such determination to be final,
binding, and conclusive on the Company and the holders of the Warrants. In the
event that, in such a transaction, the value of the consideration to be received
per share of Common Stock is not greater than the exercise price of the
Warrants, the Warrants shall terminate and no consideration will be paid with
respect thereof.
(k) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Sections 3(e) and 10(i) of this Agreement, continue to
express the Purchase Price per share, the number of shares purchasable
thereunder and the Redemption Price therefor as to the Purchase Price per share,
and the number of shares purchasable and the Redemption Price therefore were
expressed in the Warrant Certificates when the same were originally issued.
(l) After any adjustment of the Purchase Price pursuant to
this Section 10, the Company will promptly prepare a certificate signed by the
Chairman, President, Vice President or Treasurer, of the Company setting forth
(i) the Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and (iii) a brief statement of the facts accounting for such adjustment. The
Company will promptly file such certificate with the Warrant Agent and cause a
brief summary thereof to be sent by first class mail to the Representative and
to each Registered Holder of Warrants at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof. The
affidavit of an officer of the Warrant Agent or the Secretary or an Assistant
Secretary of the Company that such
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notice has been mailed shall, in the absence of fraud, constitute prima facie
evidence of the facts stated therein.
(m) As used in this Section 10, the term "Common Stock"
shall mean and include the Company's Common Stock authorized on the Effective
Date and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include only shares of such class designated in
the Company's Certificate of Incorporation as Common Stock on the Effective Date
or, in the case of any reclassification, change, consolidation, merger, sale or
conveyance of the character referred to in Section 10(j) of this Agreement, the
stock, securities or property provided for in such section or, in the case of
any reclassification or change in the outstanding shares of Common Stock
issuable upon exercise of the Warrants as a result of a subdivision or
combination or consisting of a change in par value, or from par value to no par
value, or from no par value to par value, such shares of Common Stock as so
reclassified or changed.
(n) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to this Section 10, or
as to the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(o) In lieu of an adjustment pursuant to Section 10(b) of
this Agreement, if the Company shall grant to the holders of Common Stock, as
such, rights or warrants to subscribe for or to purchase Common Stock or
securities convertible into or exchangeable for or carrying a right or warrant
to purchase Common Stock, the Company may concurrently therewith grant to each
Registered Holder, as of the record date for such transaction of the Warrants
then outstanding, the rights or warrants to which each Registered Holder would
have been entitled if, on the record date used to determine the stockholders
entitled to the rights or warrants being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise of his Warrants. If the Company exercises such right
no adjustment that otherwise might be called for pursuant to said Section 10(b)
shall be made.
11. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. If the number
of shares of Common Stock purchasable upon the exercise of each Warrant is
adjusted pursuant to Section 10 of this Agreement, the Company nevertheless
shall not be required to issue fractions of shares, upon exercise of the
Warrants or otherwise, or to distribute certificates that evidence fractional
shares. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional share,
determined as follows:
(a) If the Common Stock is listed on the New York or
American Stock Exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the Nasdaq Stock Market, the current value
shall be the reported last sale price of the Common Stock on such exchange or
system on the last business day prior to the date of exercise of this
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Warrant, or if no such sale is made on such day, the average closing bid and
asked prices for such day on such exchange or system; or
(b) If the Common Stock is not listed or admitted to
unlisted trading privileges, the current value shall be the last reported bid
price reported by the National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid prices are not so reported, the current
value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
12. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained in
this Agreement be construed to confer upon the holder of Warrants, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
13. RIGHTS OF ACTION. All rights of action with respect to
this Agreement are vested in the respective Registered Holders of the Warrants,
and any Registered Holder of a Warrant, without consent of the Warrant Agent or
of the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
14. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant,
by his acceptance of the Warrants, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry
books of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat
the person in whose name the Warrant Certificate is registered as the holder and
as the absolute, true, and lawful owner of the Warrants represented thereby for
all purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly provided
in Section 7 of this Agreement.
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15. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired.
16. CONCERNING THE WARRANT AGENT.
(a) The Warrant Agent shall act hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be determined solely
by the provisions of this Agreement. The Warrant Agent shall not, by issuing and
delivering Warrant Certificates or by any other act hereunder be deemed to make
any representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any
duty or responsibility to any holder of Warrant Certificates to make or cause to
be made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. The Warrant Agent shall not (i) be liable for any recital or statement of
facts contained herein or for any action taken, suffered or omitted by it in
reliance on any Warrant Certificate or other document or instrument believed by
it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
wilful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instrument, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board, President, any Vice President, its
Secretary, or Assistant Secretary, unless other evidence in respect thereof is
specifically prescribed in this Agreement. The Warrant Agent shall not be liable
for any action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to be
genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder. The Company further agrees to indemnify the Warrant Agent
and save it harmless against any and all costs and counsel fees, for anything
done or omitted by the Warrant Agent in the execution of its duties and powers
hereunder except losses, expenses, and liabilities arising as a result of the
Warrant Agent's negligence or wilful misconduct.
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(f) The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or wilful misconduct),
after giving thirty (30) days' prior written notice to the Company. At least
fifteen (15) days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such under
this Agreement, the Company shall appoint a new warrant agent in writing. If the
Company shall fail to make such appointment within a period of fifteen (15) days
after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be either (i) a bank or trust company having a capital and surplus,
as shown by its last published report to its stockholders, of not less than
$10,000,000 or (ii) a stock transfer company. After the Company receives
acceptance in writing of such appointment by the new warrant agent, such new
warrant agent shall be vested with the same powers, rights, duties, and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason,
it shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment, the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
17. MODIFICATION OF AGREEMENT. The Warrant Agent and the
Company may, by supplemental agreement, make any changes or corrections in this
Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders of Warrant
16
<PAGE>
Certificates representing not less than fifty percent (50%) of the Warrants then
outstanding; and provided, further, that no change in the number or nature of
the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed or are made in
compliance with applicable law; and provided, further, that Section 9 may not be
modified or amended without the consent of the Representative.
18. NOTICES. All notices provided for in this Agreement shall
be in writing signed by the party giving such notice, and, unless otherwise
expressly provided in this Agreement, delivered personally or sent by overnight
courier or messenger against receipt thereof or sent by registered or certified
mail (air mail if overseas), return receipt requested, or by facsimile
transmission or similar means of communication. Notices sent by facsimile
transmission or similar means of communication shall be confirmed by
acknowledged receipt or by registered or certified mail, return receipt
requested. Notices shall be deemed to have been received on the date of personal
delivery or telecopy or, if sent by certified or registered mail, return receipt
requested, shall be deemed to be delivered on the third business day after the
date of mailing. Notices shall be sent to the Registered Holders at their
respective addresses on the Warrant Agent's warrant register, to the Company at
3138 E. Elwood Street, Phoenix, Arizona 85034, telecopier (602) 437-4811,
Attention: Robert L. Fitting, President and Chief Executive Officer, and to the
Warrant Agent at its Corporate Office, telecopier (___) ___-____. Either party
may, by like notice, change the address, person or telecopier number to which
notice should be given.
19. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements entered and to be performed wholly within such State, without regard
to principles of conflicts of laws. The parties hereby (a) irrevocably consent
and agree that any legal or equitable action or proceeding arising under or in
connection with this Agreement shall be brought exclusively in any federal or
state court situated in New York County, New York, (b) irrevocably submit to and
accept, with respect to their respective properties and assets, generally and
unconditionally, the in personam jurisdiction of the aforesaid courts, and (c)
agree that any process in any action commenced in such court under this
Agreement may be served upon such party personally, by certified or registered
mail, return receipt requested, or by overnight courier service which obtains
evidence of delivery, with the same full force and effect as if personally
served upon such party in New York City, in addition to any other method of
service permitted by law.
20. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent, and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
21. TERMINATION. This Agreement shall terminate at the close
of business on the Expiration Date or such earlier date upon which all Warrants
have been exercised, except that
17
<PAGE>
the Warrant Agent shall account to the Company for cash held by it, and the
provisions of Section 16 of this Agreement shall survive any such termination.
22. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
RADYNE COMSTREAM, INC.
By: ______________________________________________
Robert L. Fitting, President and CEO
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
By:_______________________________________________
______________________, Authorized Officer
18
<PAGE>
EXHIBIT A
(FORM OF FACE OF WARRANT CERTIFICATE)
No. R- Warrant to Purchase
[_____________]
Shares of Common Stock
Void after ____________, 2005 (or earlier upon redemption).
RADYNE COMSTREAM, INC.
REDEEMABLE COMMON STOCK PURCHASE WARRANT
This certifies that FOR VALUE RECEIVED
____________________________ or registered assigns (the "Registered Holder") is
the owner of the number of Redeemable Common Stock Purchase Warrants
("Warrants") specified above. Each Warrant initially entitles the Registered
Holder to purchase, subject to the terms and conditions set forth in this
Certificate and the Warrant Agreement (as hereinafter defined), one (1) fully
paid and nonassessable share of Common Stock, par value $.002 per share (the
"Common Stock"), of Radyne ComStream, Inc., a New York corporation (the
"Company"), at any time during the period commencing with the issuance of this
Warrant and ending on the Expiration Date, as hereinafter defined, by delivery
of this Warrant, with the Subscription Form on the reverse hereof duly executed,
at the corporate office of Continental Stock Transfer & Trust Company, as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$______, subject to adjustment as provided in the Warrant Agreement (the
"Purchase Price") in lawful money of the United States of America in cash or by
official bank or certified check made payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
as of ____________, 2000, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor, which the Warrant Agent shall countersign, for the
balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. Eastern time
on ____________, 2005 or earlier upon redemption as hereinafter provided. If
such date shall in the
1
<PAGE>
State of New York be a holiday or a day on which the banks are authorized or
required to close, then the Expiration Date shall mean 5:00 Eastern time the
next following day which in the State of New York is not a holiday or a day on
which banks are authorized or required to close. Under certain circumstances as
provided in the Warrant Agreement, the period during which the Warrant may be
exercised may be extended.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and cause the same to become effective and to keep such
registration statement current while any of the Warrants are outstanding. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon payment by the Registered Holder of
any tax or other governmental charge imposed in connection therewith for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificate representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Commencing ____________, 2001, or earlier as provided in the
Warrant Agreement, this Warrant may be redeemed at any time at the option of the
Company, at a redemption price of $.01 per Warrant, provided the average closing
price for the Common Stock issuable upon exercise of such Warrant shall equal or
exceed $_____ per share, subject to adjustment, for the 20 trading day period
prior to the date that is five business days before the date the Warrants are
called for redemption. Notice of redemption shall be given not earlier than the
60th day nor later than the 30th day before the date fixed for redemption, all
as provided in the Warrant Agreement. On and after 5:00 p.m. Eastern time on the
business day immediately preceding the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.01 per Warrant upon surrender of this Warrant Certificate. This Warrant may
only be called for redemption if, on the date the Warrant is called for
redemption, (i) the issuance of the shares of Common Stock upon exercise of this
Warrant is subject to a current and effective registration statement and (ii)
the shares of Common Stock are listed for trading on the Nasdaq Stock Market,
the American Stock Exchange, or the New York Stock Exchange.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon
2
<PAGE>
made by anyone other than a duly authorized officer of the Company or the
Warrant Agent) for all purposes and shall not be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such State, without regard to
principles of conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
RADYNE COMSTREAM, INC.
Dated:__________________________ By:_______________________________________
Its:______________________________________
By:_______________________________________
Its:______________________________________
Countersigned:
CONTINENTAL STOCK TRANSFER & [Seal]
TRUST COMPANY
as Warrant Agent
By:______________________
Authorized Officer
3
<PAGE>
(FORM OF REVERSE OF WARRANT CERTIFICATE)
RADYNE COMSTREAM, INC.
SUBSCRIPTION FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO EXERCISE WARRANTS)
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to
exercise ____________ Warrants represented by this Warrant Certificate to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
Please insert Social Security
or other identifying number
________________________________
and be delivered to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated:________________________ X__________________________________________
___________________________________________
___________________________________________
___________________________________________
Address
___________________________________________
Taxpayer Identification Number
___________________________________________
Signature Medallion Guaranteed
<PAGE>
ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO ASSIGN WARRANTS)
FOR VALUE RECEIVED, _________________________________________
hereby sells, assigns and transfers unto
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
Please insert Social Security
or other identifying number
_________________________________
_________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________________________________________________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated:______________________ X______________________________________________
_______________________________________________
Signature Medallion Guaranteed
_______________________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR
TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE>
(FORM OF FACE OF WARRANT CERTIFICATE)
No. R- Warrant to Purchase
[____________]
Shares of Common Stock
Void after ____________, 2005 (or earlier upon redemption).
RADYNE COMSTREAM, INC.
REDEEMABLE COMMON STOCK PURCHASE WARRANT
This certifies that FOR VALUE RECEIVED
____________________________ or registered assigns (the "Registered Holder") is
the owner of the number of Redeemable Common Stock Purchase Warrants
("Warrants") specified above. Each Warrant initially entitles the Registered
Holder to purchase, subject to the terms and conditions set forth in this
Certificate and the Warrant Agreement (as hereinafter defined), one (1) fully
paid and nonassessable share of Common Stock, par value $.002 per share (the
"Common Stock"), of Radyne ComStream, Inc., a New York corporation (the
"Company"), at any time during the period commencing with the issuance of this
Warrant and ending on the Expiration Date, as hereinafter defined, by delivery
of this Warrant, with the Subscription Form on the reverse hereof duly executed,
at the corporate office of Continental Stock Transfer & Trust Company, as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$______, subject to adjustment as provided in the Warrant Agreement (the
"Purchase Price") in lawful money of the United States of America in cash or by
official bank or certified check made payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
as of ____________, 2000, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor, which the Warrant Agent shall countersign, for the
balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. Eastern time
on ____________, 2005 or earlier upon redemption as hereinafter provided. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized or required to close, then the Expiration Date shall mean
5:00 Eastern time the next following day which in the State of New York is not a
holiday or a day on which banks are authorized or required to close. Under
certain circumstances as provided in the Warrant Agreement, the period during
which the Warrant may be exercised may be extended.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and cause the same to become effective and to keep such
registration statement current while any of the Warrants are outstanding. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon payment
<PAGE>
by the Registered Holder of any tax or other governmental charge imposed in
connection therewith for registration of transfer of this Warrant Certificate at
such office, a new Warrant Certificate or Warrant Certificate representing an
equal aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Commencing ____________, 2001, or earlier as provided in the
Warrant Agreement, this Warrant may be redeemed at any time at the option of the
Company, at a redemption price of $.01 per Warrant, provided the average closing
price for the Common Stock issuable upon exercise of such Warrant shall equal or
exceed $_____ per share, subject to adjustment, for the 20 trading day period
prior to the date that is five business days before the date the Warrants are
called for redemption. Notice of redemption shall be given not earlier than the
60th day nor later than the 30th day before the date fixed for redemption, all
as provided in the Warrant Agreement. On and after 5:00 p.m. Eastern time on the
business day immediately preceding the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.01 per Warrant upon surrender of this Warrant Certificate. This Warrant may
only be called for redemption if, on the date the Warrant is called for
redemption, (i) the issuance of the shares of Common Stock upon exercise of this
Warrant is subject to a current and effective registration statement and (ii)
the shares of Common Stock are listed for trading on the Nasdaq Stock Market,
the American Stock Exchange, or the New York Stock Exchange.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such State, without regard to
principles of conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
RADYNE COMSTREAM, INC.
Dated:________________________ By:_______________________________________
Its:______________________________________
By:_______________________________________
Its:______________________________________
Countersigned:
CONTINENTAL STOCK TRANSFER & [Seal]
TRUST COMPANY
as Warrant Agent
By:__________________________
Authorized Officer
<PAGE>
(FORM OF REVERSE OF WARRANT CERTIFICATE)
RADYNE COMSTREAM, INC.
SUBSCRIPTION FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO EXERCISE WARRANTS)
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to
exercise ____________ Warrants represented by this Warrant Certificate to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
Please insert Social Security
or other identifying number
_______________________________________
and be delivered to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated:____________________ X______________________________________________
_______________________________________________
_______________________________________________
_______________________________________________
Address
_______________________________________________
Taxpayer Identification Number
_______________________________________________
Signature Medallion Guaranteed
<PAGE>
ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO ASSIGN WARRANTS)
FOR VALUE RECEIVED, ______________________________________ thereby sells,
assigns and transfers unto
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
Please insert Social Security
or other identifying number
______________________________________
_________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________________________________________________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated:___________________ X_____________________________________________
______________________________________________
Signature Medallion Guaranteed
______________________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR
TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE>
Void after 5:00 p.m. New York Time, on______________, 2005.
Option to Purchase 150,000 Shares of Common Stock.
REPRESENTATIVE'S PURCHASE OPTION
OF
RADYNE COMSTREAM, INC.
This is to certify that, FOR VALUE RECEIVED, HD BROUS & CO., INC., or
assigns (the "Holder"), is entitled to purchase, subject to the provisions of
this Option, from RADYNE COMSTREAM, INC., a New York corporation (the
"Company"), 150,000 fully paid, validly issued, and nonassessable shares of the
Company's Common Stock, par value $.002 per share ("Common Stock") at a price of
$__________ per share at any time or from time to time during the period from
____________, 2001 to ____________, 2005, but not later than 5:00 p.m. New York
City Time, on ____________, 2005. The number of shares of Common Stock to be
received upon the exercise of this Option and the price to be paid for each
share of Common Stock may be adjusted from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Option
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price." This Option, together with options of like tenor, constituting
in the aggregate options (the "Options") to purchase 150,000 shares of Common
Stock, was originally issued pursuant to an underwriting agreement between the
Company and HD Brous & Co., Inc. ("Brous"), in connection with a public offering
through Brous of 1,500,000 shares of Common Stock and warrants to purchase
1,500,000 shares of Common Stock, in consideration of $100 for the Options.
1. EXERCISE OF OPTION.
(a) This Option may be exercised in whole or in part at any time or
from time to time on or after ____________, 2001 and until ____________, 2005
(the "Exercise Period"), subject to the provisions of Section 10(b) hereof;
provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day, and (ii) in the event of
any merger, consolidation or sale of substantially all the assets of the Company
as an entirety, resulting in any distribution to the Company's stockholders,
prior to ____________, 2005, the Holder shall have the right to exercise this
Option commencing at such time through ____________, 2005 into the kind and
amount of shares of stock and other securities and property (including cash)
receivable by a holder of the number of shares of Common Stock into which this
Option might have been exercisable immediately prior thereto. This Option may be
exercised by presentation and surrender hereof to the Company at its principal
office, or at the
<PAGE>
office of its stock transfer agent, if any, with the Purchase Form attached as
Exhibit A hereto duly executed and accompanied by payment of the Exercise Price
for the number of Option Shares specified in such form. As soon as practicable
after each such exercise, but not later than seven (7) days from the date of
such exercise, the Company shall issue and deliver to the Holder a certificate
or certificate for the Option Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Option should be exercised in
part only, the Company shall, upon surrender of this Option for cancellation,
execute and deliver a new Option evidencing the rights of the Holder thereof to
purchase the balance of the Option Shares purchasable thereunder. Upon receipt
by the Company of this Option at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Holder.
(b) At any time during the Exercise Period, the Holder may, at its
option, exchange this Option, in whole or in part (an "Option Exchange"), into
the number of Option Shares determined in accordance with this Section 1(a), by
surrendering this Option at the principal office of the Company or at the office
of its stock transfer agent, accompanied by a notice stating such Holder's
intent to effect such exchange, the number of Option Shares to be exchanged, and
the date on which the Holder requests that such Option Exchange occur (the
"Notice of Exchange"). The Option Exchange shall take place on the date
specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Option Exchange and, if applicable, a new Option of
like tenor evidencing the balance of the shares remaining subject to this
Option, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any Option
Exchange, this Option shall represent the right to subscribe for and acquire the
number of Option Shares (rounded to the next highest integer) equal to (i) the
number of Option Shares specified by the Holder in its Notice of Exchange (the
"Total Number") less (ii) the number of Option Shares equal to the quotient
obtained by dividing (A) the product of the Total Number and the existing
Exercise Price by (B) the current market value of a share of Common Stock.
Current market value shall have the meaning set forth Section 3 below, except
that for purposes hereof, the date of exercise, as used in such Section 3, shall
mean the Exchange Date.
2. RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Option such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Options.
3. FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Option. With respect
to any fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the current market value of a share, determined as follows:
(a) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq
2
<PAGE>
National Market, the current market value shall be the last reported sale price
of the Common Stock on such exchange or market on the last business day prior to
the date of exercise of this Option or if no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange or market; or
(b) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq Small Cap Market, the current
Market Value shall be the average of the closing bid and asked prices for such
day on such market and if the Common Stock is not so traded, the current market
value shall be the mean of the last reported bid and asked prices reported by
the OTC Bulletin Board or the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Option; or
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Option, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF OPTION. This Option is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Common Stock
purchasable hereunder. This Option is not transferable (other than by will or
pursuant to the laws of descent and distribution) and may not be assigned or
hypothecated for a period of one year from ____________, 2000, except to and
among the officers of Brous, any member of the selling group, or to and among
the officers or partners of any member of the selling group. Commencing on
____________, 2001, this Option and the securities issuable upon exercise of
this Option may be transferred without restriction as long as such transfer is
in compliance with applicable federal and state securities laws. Upon surrender
of this Option to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Assignment Form attached as Exhibit B
hereto duly executed and funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Option in the name of the
assignee named in such instrument of assignment and this Option shall promptly
be cancelled. This Option may be divided or combined with other Options that
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Options are
to be issued and signed by the Holder hereof. The term "Option" as used herein
includes any Options into which this Option may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Option, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Option, if mutilated, the Company will execute and deliver
a new Option of like tenor and date. Any such new Option executed and delivered
shall constitute an additional contractual obligation on the part of the
Company, whether or not this Option so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
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<PAGE>
5. RIGHTS OF THE HOLDER. Until the Holder exercises this Option
pursuant to Section 1, the Holder shall not, by virtue hereof, be entitled to
any rights of a shareholder in the Company, either at law or equity, and the
rights of the Holder are limited to those expressed in this Option and are not
enforceable against the Company except to the extent set forth herein.
6. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Options shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively whenever any
event listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of each Option
is adjusted pursuant to Section 6(a) above, the number of Option Shares
purchasable upon exercise of this Option shall simultaneously be adjusted by
multiplying the number of Option Shares initially issuable upon exercise of this
Option by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(c) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least one cent
($0.01) in such price; provided, however, that any adjustments which by reason
of this Section 6(c) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 6 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 6 to the contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise Price, in addition
to those required by this Section 6, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any federal income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including Options).
(d) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Shares issuable upon exercise of each
Option, and, if requested, information describing the transactions giving rise
to such adjustments, to be mailed to the Holders at their last addresses
appearing in the Option Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a firm of
independent certified public
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<PAGE>
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 6, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(e) In the event that at any time, as a result of an adjustment made
pursuant to Section 6(a) above, the Holder of this Option thereafter shall
become entitled to receive any shares of capital stock of the Company other than
Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Option shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Sections 6(a) to 6(d), inclusive above.
(f) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Option, Options
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Options initially
issuable pursuant to this Agreement.
7. OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section 6, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Option executed and delivered pursuant to Section 1 and the Company
shall, forthwith after each such adjustment, mail a copy by certified mail of
such certificate to the Holder or any such holder.
8. NOTICES TO OPTION HOLDERS. So long as this Option shall be
outstanding, (a) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (b) if the Company shall offer to the holders of Common
Stock for subscription or purchase by them any share of any class or any other
rights or (c) if any capital reorganization of the Company, reclassification of
the capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least 15 days prior the date specified in (x)
or (y) below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken for
the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
9. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock
5
<PAGE>
of the Company, or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Option) or in case
of any sale, lease or conveyance to another corporation of the property of the
Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder shall have
the right thereafter by exercising this Option at any time prior to the
expiration of the Option, to purchase the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been purchased
upon exercise of this Option immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Option. The foregoing
provisions of this Section 9 shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common Stock, any such issue
shall be treated as an issue of Common Stock covered by the provisions of
Section 6 hereof.
10. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(a) The Company shall advise the Holder of this Option or of the
Option Shares or any then holder of Options or Option Shares (such persons being
collectively referred to herein as "Holders") by written notice at least thirty
(30) days prior to the filing of any post-effective amendment to the Company's
Registration Statement No. 000-_____ on Form S-2 ("Registration Statement"),
declared effective by the Securities and Exchange Commission on ____________,
2000 or of any new registration statement or post-effective amendment thereto
under the Securities Act of 1933 (the "Act") covering securities of the Company
and will for a period of six years, commencing one year from the effective date
of the Registration Statement, upon the request of any such Holder, include in
any such post-effective amendment or registration statement such information as
may be required to permit a public offering of the this Option and/or the Option
Shares. The Company shall supply prospectuses and other documents as the Holder
may reasonably request in order to facilitate the public sale or other
disposition of this Option and/or the Option Shares, qualify this Option and/or
the Option Shares for sale in such states as any such Holder designates and do
any and all other acts and things which may be necessary or desirable to enable
such Holders to consummate the public sale or other disposition of this Option
and/or the Option Shares, and furnish indemnification in the manner as set forth
Section 10(c)(iii). Such Holders shall furnish information and indemnification
as set forth in Section 10(c)(iv), except that the maximum amount which may be
recovered from the Holder shall be limited to the amount of net proceeds
received by the Holder from the sale of this Option and/or the Option Shares.
6
<PAGE>
(b) If any majority holder (as defined in Section 10(d) below) shall
give notice to the Company at any time during the four-year period commencing
one year from the effective date of the Registration Statement to the effect
that such holder contemplates (i) the transfer of this Option and/or all or any
part of his, her, or its Option Shares, or (ii) the exercise and/or conversion
of all or any part of his, her, or its Options and the transfer of this Option
and/or all or any part of the Option Shares under such circumstances that a
public offering (within the meaning of the Act) of this Option and/or Option
Shares will be involved, and desires to register under the Act this Option
and/or the Option Shares, then the Company shall, within thirty (30) days after
receipt of such notice, file a post-effective amendment to the Registration
Statement or a new registration statement on Form S-1, S-3 or such other form as
the holder requests, pursuant to the Act, to the end that this Option and/or the
Option Shares may be sold under the Act as promptly as practicable thereafter
and the Company will use its best efforts to cause such registration to become
effective and continue to be effective (current) (including the taking of such
steps as are necessary to obtain the removal of any stop order) until the holder
has advised the Company that this Option and/or all of the Option Shares have
been sold; provided that such Holders shall furnish the Company with appropriate
information (relating to the intentions of such Holders) in connection therewith
as the Company shall reasonably request in writing. Subject to applicable state
law, in the event the registration statement is not declared effective under the
Act within 150 days after the majority holder first gives notice to the Company
of his, her, or its desire to register this Option and/or Option Shares under
the Act, then at the Holders' request, the Company shall purchase the Options
from the Holders for a per share price equal to the fair market value of the
Common Stock less the per share Exercise Price. The Holder may, at its option,
request the registration of this Option and/or the Option Shares in a
registration statement made by the Company as contemplated by Section 10(a) or
in connection with a request made pursuant to this Section 10(b) prior to the
acquisition of the Option Shares upon exercise of the Options and even though
the Holder has not given notice of exercise of the Options. If the Company
determines to include securities to be sold by it in any registration statement
originally requested pursuant to this Section 10(b), such registration shall
instead be deemed to have been a registration under Section 10(a) and not under
this Section 10(b). The Holder may thereafter at its option, exercise the
Options at any time or from time to time subsequent to the effectiveness under
the Act of the registration statement in which the Option Shares were included.
(c) The following provision of this Section 10 shall also be
applicable:
(i) Within ten days after receiving any such notice pursuant to
Section 10(b), the Company shall give notice to the other Holders of Options and
Option Shares, advising that the Company is proceeding with such post-effective
amendment or registration statement and offering to include therein Option
Shares of such other Holders, provided that they shall furnish the Company with
such appropriate information (relating to the intentions of such Holders) in
connection therewith as the Company shall reasonably request in writing.
Following the effective date of such post-effective amendment or registration,
the Company shall upon the request of any owner of Options and/or Option Shares
forthwith supply such a number of prospectuses meeting the requirements of the
Act, as shall be requested by such owner to permit such Holder to make a public
offering of all Options and/or Option Shares from time to time offered or sold
to such Holder, provided that such Holder shall from time to time furnish the
7
<PAGE>
Company with such appropriate information (relating to the intentions of such
Holder) in connection therewith as the Company shall request in writing. The
Company shall also use its best efforts to qualify the Option Shares for sale in
such states as such majority Holder shall designate.
(ii) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Section 10(a) notwithstanding
that Options and/or Option Shares subject to this Option may be included in any
such registration. The Company shall also comply with one request for
registration made by the majority holder pursuant to Section 10(b) at its own
expense and without charge to any Holder of any Options and/or Option Shares;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 10(b) if the
registration request is subsequently withdrawn at the request of the majority
holder, in which case the Holders participating in such offering and favoring
such withdrawal shall bear such expenses; provided further, however, that if
such registration request has been withdrawn by virtue of a material adverse
change in the condition, business, or prospects of the Company from that known
to the majority holder at the time of its request, then the Holders shall not be
required to pay any of such expenses and shall retain their rights pursuant to
Section 10(b). The Company shall comply with one additional request made by the
majority holder pursuant to Section 10(b) (and not deemed to be pursuant to
Section 10(a)) at the sole expense of such majority holder. Any Holder whose
Options and/or Option Shares are included in any such registration statement
pursuant to this Section 10 shall, however, bear the fees of his, her, or its
own counsel and any registration fees, transfer taxes or underwriting discounts
or commissions applicable to the Options and/or Option Shares sold by him, her,
or it pursuant thereto.
(iii) The Company shall indemnify and hold harmless each such
Holder and each underwriter, within the meaning of the Act, who may purchase
from or sell for any such Holder any Options and/or Option Shares from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereto or any
registration statement under the Act or any prospectus included therein required
to be filed or furnished by reason of this Section 10 or caused by 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, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or alleged untrue statement or omission or alleged omission
based upon information furnished or required to be furnished in writing to the
Company by such Holder or underwriter expressly for use therein, which
indemnification shall include each person, if any, who controls any such Holder
or underwriter within the meaning of such Act provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Holder or any other Holder, specifically for use
in the preparation thereof.
8
<PAGE>
(iv) Each Holder severally, but not jointly, shall indemnify and
hold harmless the Company and each person who controls the Company, within the
meaning of the Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereto or any registration statement under the Act or any prospectus
included therein required to be filed or furnished by reason of this Section 10
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided, however, that each Holder will be liable in any such case
to the extent, but only to the extent, that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Holder specifically for use in the preparation thereof. In no event,
however, shall the liability of any Holder for indemnification under this
Section 10 exceed the net proceeds received by such holder from the sale of such
Holder's Options and/or Option Shares.
(v) Neither the giving of any notice by any such majority holder
nor the making of any request for prospectuses shall impose upon such majority
holder making such request any obligation to sell any Options and/or Option
Shares, or exercise any Options.
(d) The term "majority holder" as used in this Section 10 shall
include any owner or combination of owners of Options or Option Shares in any
combination if the holdings of the aggregate amount of (i) the Options held by
him, her, or among them, plus (ii) the Options which he, she, or they would be
holding if the Options for the Option Shares owned by him, her, or among them
had not been exercised, would constitute a majority of the Options originally
issued.
The Company's agreements with respect to Options or Option Shares in
this Section 10 shall continue in effect regardless of the exercise and
surrender of this Option.
11. OPTIONS NOT REDEEMABLE. Except as otherwise set forth herein, the
Company shall not have the right to redeem this Option without the consent of
the Holder.
IN WITNESS WHEREOF, the Company has caused this Option to be executed
by a duly authorized officer as of this _____ day of ____________, 2000.
RADYNE COMSTREAM, INC.
By:_____________________________
Its:____________________________
9
<PAGE>
EXHIBIT A
PURCHASE FORM
Dated ____________, ____
The undersigned hereby irrevocably elects to exercise the within Option
to the extent of purchasing _______ shares of Common Stock and hereby makes
payment of _______ in payment of the actual exercise price thereof.
----------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name __________________________________________
(Please typewrite or print in block letters)
Address _______________________________________
_______________________________________
_______________________________________
Signature _____________________________________
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________________________________ hereby
sells, assigns and transfers unto
Name __________________________________________
(Please typewrite or print in block letters)
Address _______________________________________
_______________________________________
_______________________________________
the right to purchase Common Stock represented by this Option to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _______________________________ as attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Date ____________, ____
Signature ___________________________________
Signature(s) guaranteed by:*
- ----------------------------
*THE SIGNATURE(S) MUST BE GUARANTEED BY A BANK, SAVINGS AND LOAN ASSOCIATION,
STOCKBROKER, OR CREDIT UNION WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTY
MEDALLION PROGRAM PURSUANT TO SECURITIES EXCHANGE ACT RULE 17Ad-15.
NOTARIZATION BY A NOTARY PUBLIC IS NOT ACCEPTABLE.
<PAGE>
REPRESENTATIVE'S PURCHASE OPTION
TO PURCHASE COMMON STOCK OF
RADYNE COMSTREAM, INC.
<PAGE>
FORM OF LOCK-UP AGREEMENT
_______________, 1999
HD Brous & Co., Inc.
As Representative of the Several Underwriters
c/o HD Brous & Co., Inc.
40 Cuttermill Road
Great Neck, New York 11021
RE: RADYNE COMSTREAM, INC. (THE "COMPANY")
Ladies & Gentlemen:
The undersigned is or may become an owner of record or beneficially of
certain shares of Common Stock of the Company ("Common Stock") or securities
convertible into or exchangeable or exercisable for Common Stock. The Company
proposes to carry out a public offering of Units consisting of Common Stock and
Warrants (the "Offering") for which you will act as the representative of the
underwriters. The undersigned recognizes that the Offering will be of benefit to
the undersigned and will benefit the Company by, among other things, raising
additional capital for its operations. The undersigned acknowledges that you and
the other underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not, without the prior written consent of HD Brous & Co.,
Inc. (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract, or grant any option to sell (including
without limitation any short sale), pledge, transfer, establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Securities
Exchange Act of 1934, or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for, or convertible into, shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date __________ after the date of the Prospectus. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock, or securities convertible into, or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
With respect to the Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
<PAGE>
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.
By:
_________________________________________
(Print name of stockholder)
Signature:__________________________________
Indicate how shares held:___________________
____________________________________________
____________________________________________
____________________________________________
(indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Radyne ComStream Inc.:
We consent to the incorporation by reference in the registration statement to
Form S-2 of Radyne ComStream Inc. of our report dated March 19, 1999, except for
Note 4, which is as of August 4, 1999, relating to the restated consolidated
balance sheet of Radyne ComStream Inc. and subsidiaries as of December 31, 1998
and the related restated consolidated statements of operations, stockholders'
capital deficiency and cash flows for the year then ended, which report appears
in the December 31, 1998, annual report on Form 10-K/A of Radyne ComStream Inc.
and to the reference to our firm under the headings "Selected Financial Data"
and "Experts" in the prospectus.
/s/ KPMG LLP
Phoenix, Arizona
November 9, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion and incorporation by reference in this Registration
Statement of Radyne ComStream Inc. (formerly Radyne Corp.) on Form S-2 of our
report dated February 4, 1998, appearing in the annual report on Form 10-K/A of
Radyne ComStream Inc. for the year ended December 31, 1998, and to the reference
to us under the heading "Experts" in the Prospectus, which is part of such
Registration Statement.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
November 5, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-2) and related Prospectus of Radyne ComStream
Inc. for the registration of 1,500,000 units, consisting of 1,500,000 shares of
common stock and 1,500,000 redeemable common stock purchase warrants to purchase
1,500,000 shares of common stock, and to the use and incorporation by reference
therein 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 ComStream Inc.'s
report on Form 8-K/A filed with the Securities and Exchange Commission on May 5,
1999.
ERNST & YOUNG LLP
San Diego, California
November 3, 1999
