<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 2000
REGISTRATION NO. 333-90731
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RADYNE COMSTREAM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<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:
<TABLE>
<S> <C>
JOHN B. WADE, III, ESQ. ROBERT S. KANT, ESQ.
KEVIN T. COLLINS, ESQ. JERE M. FRIEDMAN, ESQ.
DORSEY & WHITNEY LLP GREENBERG TRAURIG, LLP
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, 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: [ ]
------------------------
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.
(cover continued on next page)
________________________________________________________________________________
<PAGE>
(cover continued from previous page)
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PRICE(1) PRICE(1) FEE
Units, each consisting of one
share of Common Stock, $.002
par value, and one Common
Stock Purchase Warrant........ 575,000 Units(2) $6.50 per Unit $3,737,500 $987
Common Stock, $.002 par value,
constituting part of the
Units......................... 575,000 Shares (3) (3) (3)
Common Stock Purchase Warrants,
constituting part of the
Units......................... 575,000 Warrants (3) (3) (3)
Common Stock, $.002 par value,
underlying Common Stock
Purchase Warrants............. 575,000 Shares $8.13 per Share $4,674,750 $1,235
Representative's Purchase
Option, to purchase shares of
Common Stock(4)............... 50,000 Options $.00067 per Option $0.00 $0
Common Stock, $.002 par value,
issuable upon exercise of the
Representative's Share
Purchase Option(5)............ 50,000 Shares $8.13 per Share $406,500 $107
Total(6)................... $2,329(7)
</TABLE>
(1) Estimated in accordance with Rule 457 solely for the purpose of calculating
the registration fee.
(2) Including 75,000 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.
(7) On November 12, 1999 a filing fee of $4,805, determined in accordance with
Rule 457, was paid with respect to 1,725,000 Units, each comprised of one
share of Common Stock and one Common Stock Purchase Warrant, 1,725,000
shares of Common Stock underlying the Common Stock Purchase Warrants,
150,000 Representative's Purchase Options and 150,000 shares of Common Stock
underlying the Representative's Purchase Options.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT
NOTICE. RADYNE COMSTREAM 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 JANUARY 12, 2000
PROSPECTUS
2,000,000 UNITS
[LOGO]
RADYNE COMSTREAM INC.
Radyne ComStream Inc. is offering 2,000,000 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 our common stock has equaled
or exceeded $ for each of 20 consecutive trading days.
On January 10, 2000, our common stock closed at $6.88 per share on the OTC
Bulletin Board. Prior to this offering, there has been no market for the units
or warrants. We have applied to have our common stock, units, and warrants
traded on the Nasdaq SmallCap Market. We currently anticipate that the public
offering price of the units will be $6.00 per unit.
- ------------------------
INVESTING IN OUR UNITS INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION.
PLEASE SEE 'RISK FACTORS'
BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
- ------------------------
<TABLE>
<CAPTION>
PER UNIT TOTAL
<S> <C> <C>
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
300,000 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 , 2000.
HD BROUS & CO., INC.
------------------------
THE DATE OF THIS PROSPECTUS IS , 2000
<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, HD Brous will not exercise its representative's
purchase option, and that none of the warrants included in the units and no
other outstanding options 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 communications systems, including those based on
satellite technology.
We also believe we are well-positioned to capitalize on this increased
demand for satellite communications 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.
Our ability to custom design products for our customers' special
applications and to provide a one-stop shopping option to our
customers.
1
<PAGE>
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 lines,
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 $10.0 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. Our last audited balance
sheet as of December 31, 1998 showed an accumulated deficit of $21.4 million and
a shareholders' deficit of $15.2 million.
On December 1, 1999 we completed a rights offering to our shareholders to
purchase an aggregate of up to 4,745,076 shares of our common stock. These
rights were exercisable at a purchase price of $3.73 per share. Our shareholders
purchased 4,520,264 shares of common stock in this rights offering at an
aggregate purchase price of $16,860,585. 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. ST now owns approximately 90% of our outstanding common stock. We
used the proceeds of the rights offering to retire approximately $15,600,000 in
short-term debt plus accrued interest 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
pursuing future acquisitions of competitive or complementary
companies.
2
<PAGE>
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 communications 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
<TABLE>
<CAPTION>
Securities offered by Radyne ComStream....... 2,000,000 units, each unit consisting of one
share of common stock and one five-year
common stock purchase warrant.
<S> <C>
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 10,733,977 shares(1)
offering................................... 12,733,977 shares of common stock and
Securities to be outstanding after this
offering................................... 2,000,000 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,
hire additional technical personnel, and for
working capital. See 'Use of Proceeds.'
Proposed Nasdaq SmallCap Market symbols:
Common Stock............................ 'RADN'
Warrants................................ 'RADNW'
Units................................... 'RADNU'
</TABLE>
- ------------
(1) Based on 10,733,977 shares outstanding on December 31, 1999, the number of
shares to be outstanding after the offering excludes the following:
2,000,000 shares of common stock reserved for issuance upon the
exercise of the 2,000,000 warrants included in the units;
1,790,670 shares of common stock remaining 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
200,000 shares of common stock reserved for issuance under the
representative's purchase option to be issued to HD Brous & Co. Inc.
3
<PAGE>
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.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------------------
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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 and taxes.......................... (1,757) (14,538) (2,789) 914
EBITDA(1)(2)................................ (625) (12,298) (1,824) 4,303
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>
- ------------
(1) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation and amortization. EBITDA 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.
(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.
4
<PAGE>
<TABLE>
<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(2)(3)
--------- ------------------ -------------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and investments........ $ 1,622 $ 2,865 $12,914
Working capital (deficiency).................. (5,649) (4,407) 5,643
Total assets.................................. 24,968 26,210 36,260
Total shareholders' equity.................... 1,015 1,957 12,007
</TABLE>
- ------------
(1) Includes our sale of 4,187,205 shares of common stock and our receipt of
proceeds of $15,618,272 in the rights offering through September 30, 1999.
(2) Gives effect to our sale of an additional 333,059 shares of common stock in
the rights offering subsequent to September 30, 1999, and our receipt of
proceeds of $1,242,313 from the sale of such shares. Expenses associated
with the rights offering were approximately $300,000 and paid as of
September 30, 1999.
(3) Reflects our sale of 2,000,000 units (not including the shares underlying
the warrants included in the units) offered by this prospectus at an assumed
public offering price of $6.00 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 and net income of $913,547 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 last audited
balance sheet as of December 31, 1998 showed an accumulated deficit of
approximately $21.4 million and a shareholders' deficit of $15.2 million. Our
predecessor, Radyne Corp., emerged from Chapter 11 bankruptcy protection in
December 1994. Although the rights offering that we completed 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. We have never paid any cash dividends on our capital stock and do not
anticipate paying any cash dividends in the foreseeable future. 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 SHORT-TERM LOANS THAT COULD LEAD TO A CASH SHORTAGE.
To meet our working capital requirements, we have depended on a succession
of short-term loans 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. ST has no obligation to continue to
provide us with any financing and you should not assume that ST will provide us
with any future financing.
We have a $20,500,000 uncommitted bank line of credit on which we owed
approximately $12,920,000 as of December 31, 1999. All loans pursuant to the
bank line of credit are short-term loans with maturities no later than
September 28, 2000. The bank could demand repayment at any time after the loans
mature, 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
6
<PAGE>
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 and may not continue indefinitely to provide assurances to our
lender or otherwise assist us in maintaining such financing.
Our current credit agreement with our bank expires on September 28, 2000.
We cannot assure you that a renewal agreement will be executed, when the current
agreement expires. If a 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 prior and current credit agreements 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.
Our current credit agreement does not require us to comply with this covenant
until March 31, 2000. We expect to be in compliance with this covenant upon
completion of this offering, but we cannot assure you that this will be the
case. 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 and 56% for the nine months ended September 30, 1999. 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 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 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.
7
<PAGE>
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 and 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.
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
8
<PAGE>
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 significant 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.
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 certain 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.
9
<PAGE>
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 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.
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 76% 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 net proceeds of our rights offering, we would have had a pro forma net
tangible book value (deficit) of approximately $(0.16) 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 net proceeds of our rights offering and the net
10
<PAGE>
proceeds of this offering, we would have a pro forma net tangible book value of
$0.67 per share. This represents a gain in our net tangible book value of $0.83
per share, or 519% of the net tangible book value as of September 30, 1999, for
the benefit of our current shareholders, and dilution of $5.33, or 88.9% of the
public offering price, for investors in this offering. Investors in this
offering will be subject to substantially more dilution upon the exercise of
outstanding options. These options represent an additional 1,542,706 shares of
common stock that could be issued in the future. 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 December 31, 1999, we have outstanding under the 1996 Incentive Stock
Option Plan options to purchase an aggregate of 1,542,706 shares of common stock
at a weighted average exercise price of $3.10 per share (in the case of 398,756
of such options, the optionee/employee would be entitled to a bonus of $1.72 per
share upon exercise). 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 200,000
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 (125% of the
offering price of the units).
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 and adversely affect the
terms on which we could obtain additional financing.
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 12,733,977 shares of common stock issued
and outstanding. Of these shares, approximately 2,763,741 will be freely
transferable. ST and certain of our officers hold 9,906,151 shares, which would
be eligible for resale, subject to the volume and manner of sale limitations of
Rule 144 of the Securities Act. An additional 64,084 shares are 'restricted
shares' as that term is defined in Rule 144 and are eligible for sale under the
provisions of Rule 144(k).
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
11
<PAGE>
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
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 WARRANT HOLDERS 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 warrant holders reside. We have agreed with the
underwriters to maintain the effectiveness of a current prospectus covering the
common stock underlying the warrants and to use our best efforts to maintain the
qualification for the sale of the share of common stock underlying the warrants
under certain state securities laws. However, there can be no assurance that we
will be able to do this. Persons residing in states where the shares underlying
the warrants are not qualified for sale may acquire the warrants, pursuant to
'secondary market' trading exemptions under the securities laws for those
states. 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 have applied 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.
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<PAGE>
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.
WE HAVE PROVISIONS IN OUR CERTIFICATE OF INCORPORATION THAT SUBSTANTIALLY
ELIMINATE THE PERSONAL LIABILITY OF MEMBERS OF OUR BOARD OF DIRECTORS FOR
VIOLATIONS OF THEIR FIDUCIARY DUTY OF CARE AS A DIRECTOR AND THAT ALLOW US TO
INDEMNIFY OUR OFFICERS AND DIRECTORS. THIS COULD MAKE IT VERY DIFFICULT FOR YOU
TO BRING ANY LEGAL ACTIONS AGAINST OUR DIRECTORS FOR SUCH VIOLATIONS OR COULD
REQUIRE US TO PAY ANY AMOUNTS INCURRED BY OUR DIRECTORS IN ANY SUCH ACTIONS.
Pursuant to our certificate of incorporation, members of our Board of
Directors will have no liability for violations of their fiduciary duty of care
as a director, except in limited circumstances. This means that you may be
unable to prevail in a legal action against our directors even if you believe
they have breached their fiduciary duty of care. In addition, our certificate of
incorporation allows us to indemnify our directors from and against any and all
expenses or liabilities arising from or in connection with their serving in such
capacities with us. This means that if you were able to enforce an action
against our directors or officers, in all likelihood we would be required to pay
any expenses they incurred in defending the lawsuit and any judgment or
settlement they otherwise would be required to pay.
SINCE SOME MEMBERS OF OUR BOARD OF DIRECTORS ARE NOT RESIDENTS OF THE UNITED
STATES AND CERTAIN OF OUR ASSETS ARE LOCATED OUTSIDE OF THE UNITED STATES, YOU
MAY NOT BE ABLE TO ENFORCE ANY U.S. JUDGMENT FOR CLAIMS YOU MAY BRING AGAINST
SUCH DIRECTORS OR ASSETS.
Two members of our board of directors are residents of Singapore, and an
immaterial portion of our assets and a substantial portion of the assets of
these directors are located outside the United States. As a result, it may be
more difficult for you to enforce a lawsuit within the United States against
these non-U.S. residents than if they were residents of the United States. Also,
it may be more difficult for you to enforce any judgment obtained in the United
States against our assets or the assets of our non-U.S. resident directors
located outside the United States than if these assets were located within the
United States. We cannot assure you that foreign courts would enforce:
liabilities predicated on U.S. federal securities laws in original
actions commenced in such foreign jurisdiction; or
judgments of U.S. courts obtained in actions based upon the civil
liability provisions of U.S. federal securities laws.
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). 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. Prior to
December 31, 1999, we completed that review and believe that all mission
critical systems at our Phoenix and San Diego facilities are Year 2000
compliant.
Our Year 2000 readiness plan also involved 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. To date, we have not
encountered any significant problems in our information technology systems or
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<PAGE>
non-information technology systems related to the Year 2000 issue, but we cannot
assure you that we will not encounter such problems in the future.
As part of our comprehensive review, we have verified 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 received responses from approximately 70% of our
non-critical vendors. To date, we have not encountered any significant problems
with our vendors related to the Year 2000 issue, but we cannot assure you that
we will not encounter such problems in the future.
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.
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the units in this
offering will be approximately $10,050,000, or approximately $11,634,000 if the
underwriters' over-allotment option is exercised in full, based on an assumed
public offering price of $6.00 per unit and after deducting the underwriting
discount and our estimated offering expenses.
We intend to use the net proceeds from this offering for the following
purposes and in the following order of priority:
<TABLE>
<CAPTION>
PERCENTAGE OF
PURPOSE AMOUNT NET PROCEEDS
------- ------ ------------
<S> <C> <C>
Research and development
Internet-related products..................... $ 3,015,000 30%
New telecommunications products............... $ 1,205,000 12%
Digital audio, video, and data products....... $ 2,010,000 20%
Hire additional technical personnel................ $ 2,510,000 25%
Working capital.................................... $ 1,310,000 13%
----------- ---
Total.................................... $10,050,000 100%
</TABLE>
The planned research and development expenditures are intended to further
the proposed expansion of our product lines.
We also plan to use a portion of the proceeds to hire additional technical
personnel to assist in determining practical applications for our design,
engineering, and manufacturing capabilities in existing and developing market
segments, to enhance our efforts to market both our newly developed and our
existing product lines, and to pursue our growth strategy.
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 proceeds of $15,618,272 in the rights offering through
September 30, 1999, (b) on a pro forma basis as adjusted to give effect to our
receipt of proceeds of $1,242,313 from our sale of an additional 333,059 shares
of common stock in the rights offering subsequent to September 30, 1999, 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 2,000,000 units offered by this prospectus at an
assumed public offering price of $6.00 per unit, after deducting the
underwriting discount and the estimated offering expenses we will pay.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------------
PRO FORMA AS
PRO FORMA AS ADJUSTED FOR
ADJUSTED FOR RIGHTS
RIGHTS OFFERING AND
ACTUAL OFFERING THIS OFFERING
------ -------- -------------
(UNAUDITED)
<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 par value, 20,000,000 shares
authorized, 10,151,026 shares outstanding,
actual; 10,484,085 shares outstanding, pro
forma as adjusted for the rights offering;
12,484,085 shares outstanding, pro forma as
adjusted for the rights offering and this
offering(1).................................... 20,303 20,969 24,969
Additional paid-in capital....................... 21,435,312 22,376,959 32,422,516
Retained earnings (accumulated deficit).......... (20,440,639) (20,440,639) (20,440,639)
Total shareholders' equity....................... 1,014,976 1,957,289 12,006,846
----------- ----------- -----------
----------- ----------- -----------
Total capitalization.................................. $15,184,913 $16,127,226 $26,176,783
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------
(1) The number of shares issued and outstanding and the additional paid-in
capital exclude (a) 2,000,000 shares of common stock reserved for issuance
upon the exercise of 2,000,000 common stock purchase warrants included in
the units, (b) 1,790,670 shares of common stock remaining reserved for
issuance under our 1996 Incentive Stock Option Plan, of which options to
purchase 1,542,706 shares were outstanding as of December 31, 1999 at a
weighted average exercise price of $3.10 per share, (c) 249,892 shares
issued upon the exercise of options subsequent to September 30, 1999, and
(d) 1,000,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan. See 'Management -- Employee Compensation
Plans.'
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<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock currently trades on the OTC Bulletin Board under the
symbol 'RADN.' We have applied to have our units, common stock, and warrants
listed on the Nasdaq SmallCap Market under the symbols 'RADNU,' 'RADN,' and
'RADNW,' respectively, upon completion of this offering. There currently is no
established trading market for our common stock as actual transactions are
infrequent and we cannot assure you that an active trading market will develop
after this offering. The following table sets forth the range of high and low
trading prices as reported by the OTC Bulletin Board for the periods indicated.
At December 31, 1999, we had 418 shareholders of record and approximately 1,400
beneficial owners of our common stock.
<TABLE>
<CAPTION>
HIGH$ LOW$
----- ----
1997:
<S> <C> <C>
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
Fourth Quarter....................................... 8 1/2 2 1/2
</TABLE>
On January 10, 2000 the last sale price of the common stock as reported by
the OTC Bulletin Board was $6.88 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 $(1,736,005) or $(0.16) per
share of common stock. Pro forma net tangible book value (deficit) per share as
of a specified date is determined by dividing our tangible book value (deficit)
(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
2,000,000 units offered hereby (based upon an assumed public offering price of
$6.00 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 $8,313,552, or $0.67 per share of
common stock. This represents an immediate increase in pro forma net tangible
book value to existing shareholders of $0.83 per share, or 519% of the net
tangible book value as of September 30, 1999, and an immediate dilution to new
investors of $5.33 per share, or 88.9% of the public offering price of the units
offered in this offering. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $6.00
Pro forma net tangible book value (deficit) per share as of
September 30, 1999 (giving effect to the rights
offering)................................................. $ (0.16)
Increase in pro forma net tangible book value (deficit) per
share attributable to new investors in this offering...... 0.83
Pro forma net tangible book value per share as of September
30, 1999 after this offering.............................. 0.67
Pro forma net tangible book value dilution per share to new
investors in this offering................................ $5.33
</TABLE>
Investors in this offering will be subject to substantially more dilution
upon the exercise of outstanding options. These options represent an additional
1,542,706 shares that could be issued in the future.
17
<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, and the ten and one-half months ended December 16,
1994). The statement of operations data for the 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 on
the following page are due to a series of changes in our fiscal year. Upon our
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, 1996 through December 31, 1996.
18
<PAGE>
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
10 1/2
MONTHS 6 1/2 MONTHS
ENDED ENDED YEAR ENDED
12/16/1994(1) 6/30/1995 6/30/1996
------------- --------- ---------
<S> <C> <C> <C>
Net sales...................................... $ 2,569,396 $1,861,262 $ 3,829,523
Cost of sales.................................. 2,229,329 1,228,747 2,559,350
Gross profit................................... 340,067 632,515 1,270,173
Selling, general and administrative expense.... 1,658,388 961,162 1,843,576
Asset impairment charge(2)..................... -- -- --
Professional fees related to reorganization.... 600,198 -- --
Research and development expense............... -- -- 1,794,823
Stock option compensation expense.............. -- -- --
In-process research and development expense.... -- -- --
Restructuring costs............................ -- -- --
Total operating expenses....................... 2,258,586 961,162 3,638,399
Operating income (loss)........................ (1,918,519) (328,647) (2,368,226)
Interest expense............................... 118,235 36,209 256,871
Other.......................................... -- -- --
Income (loss) before fresh start adjustments
and extraordinary items...................... (2,036,754) (364,856) (2,625,097)
Fresh start adjustments........................ 1,598,841 -- --
Income (loss) before extraordinary items and
taxes on income.............................. (437,913) (364,856) (2,625,097)
Extraordinary items............................ 2,699,156 (3) -- --
----------- ---------- -----------
Income (loss) before taxes..................... 2,261,243 (364,856) (2,625,097)
Basic earnings (loss) per share:
Income (loss) before extraordinary item.... (1.33) (0.10) (0.70)
Extraordinary item......................... 8.20 0.00 0.00
----------- ---------- -----------
Net income (loss).......................... 6.87 (0.10) (0.70)
Diluted earnings (loss) per share:
Income (loss) before extraordinary item.... (1.33) (0.10) (0.70)
Extraordinary item......................... 8.20 0.00 0.00
----------- ---------- -----------
Net income (loss).......................... 6.87 (0.10) (0.70)
Weighted average shares used in computation
Basic...................................... 329,020 3,729,721 3,742,227
Diluted.................................... 329,020 3,729,721 3,742,227
<CAPTION>
6 MONTHS 9 MONTHS 9 MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED ENDED
12/31/1996 12/31/1997 12/31/1998 9/30/1998 9/30/1999
---------- ---------- ---------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales...................................... $4,905,059 $13,446,852 $ 21,111,704 $ 9,973,611 $39,261,814
Cost of sales.................................. 4,052,433 8,022,262 15,808,459 7,704,856 21,090,713
Gross profit................................... 852,626 5,424,590 5,303,245 2,268,755 18,171,101
Selling, general and administrative expense.... 1,437,971 4,242,138 5,531,213 2,543,986 9,138,897
Asset impairment charge(2)..................... 421,000 -- 262,935 -- --
Professional fees related to reorganization.... -- -- -- -- --
Research and development expense............... 808,025 2,262,066 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....................... 2,666,996 6,504,204 18,665,491 4,488,795 15,869,120
Operating income (loss)........................ (1,814,370) (1,079,614) (13,362,246) (2,220,040) 2,301,981
Interest expense............................... 255,604 677,102 1,198,777 568,592 1,561,616
Other.......................................... -- -- (23,480) -- --
Income (loss) before fresh start adjustments
and extraordinary items...................... (2,069,974) (1,756,716) (14,537,543) (2,788,632) 740,365
Fresh start adjustments........................ -- -- -- -- --
Income (loss) before extraordinary items and
taxes on income.............................. (2,069,974) (1,756,716) (14,537,543) (2,788,632) 740,365
Extraordinary items............................ -- -- -- -- 188,182
---------- ----------- ------------ ----------- -----------
Income (loss) before taxes..................... (2,069,974) (1,756,716) (14,537,543) (2,788,632) 913,547
Basic earnings (loss) per share:
Income (loss) before extraordinary item.... (0.55) (0.35) (2.45) (0.47) 0.12
Extraordinary item......................... 0.00 0.00 0.00 0.00 0.03
---------- ----------- ------------ ----------- -----------
Net income (loss).......................... (0.55) (0.35) (2.45) (0.47) 0.15
Diluted earnings (loss) per share:
Income (loss) before extraordinary item.... (0.55) (0.35) (2.45) (0.47) 0.11
Extraordinary item......................... 0.00 0.00 0.00 0.00 0.03
---------- ----------- ------------ ----------- -----------
Net income (loss).......................... (0.55) (0.35) (2.45) (0.47) 0.14
Weighted average shares used in computation
Basic...................................... 3,750,699 5,012,664 5,931,346 5,931,340 5,961,937
Diluted.................................... 3,750,699 5,012,664 5,931,346 5,931,340 6,401,161
</TABLE>
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
quivalents......... $ 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.
19
<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 '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, 1996
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 subsidiary, Stetsys US, Inc. ST now holds
approximately 90% 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. (a corporation
incorporated under the laws of the State of Delaware with an office currently
located at 6340 Sequence Drive, San Diego, California) 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, all 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 our acquisition of
ComStream has had and will have a number of positive effects, including the
following:
1. We expect the combined annual revenue of Radyne ComStream for
fiscal 1999 will be approximately $55 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 ComStream's
technology in the satellite communications industry has strengthened our
market share and provided new customers for our existing products.
20
<PAGE>
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 was 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') of $2,302,000 during the nine months
ended September 30, 1999 compared to a loss before interest and taxes of
($2,220,000) for the nine months ended September 30, 1998.
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.
21
<PAGE>
We recorded income tax expense in the nine months ended September 30, 1999
of $15,000. We had not previously provided for income taxes.
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. All 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>
DESCRIPTION BASE TECHNOLOGY PRODUCT LINE APPLICABILITY STARTED COMPLETION TOTAL COST
- ----------- --------------- -------------------------- MONTH-YEAR DATE AT COMPLETION
---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
2 MB Card QPSK, FEC Modems 01 - 98 11 - 99 1,820*
Coding
'CM 601' Low Cost Coding Modulation Modems 05 - 97 03 - 99 1,400**
Modem
'DT8000' Modulation Coding Earth Stations 03 - 97 12 - 98 2,850***
Ku-band 2 Watt Transmission
Earth Station
'DBR 2000' Data L-Band Receivers Broadcast Data 06 - 98 06 - 99 400
Broadcast Receiver Packet Protocol
'ABR 202' Audio L-Band Receivers Broadcast Audio 03 - 98 12 - 98 750
Receiver Multiplexing
Set Top Box Receiver DTH Television Satellite 03 - 97 07 - 99 1,600
Cable Television Television Cable
Proprietary Television
IC's -- MPEG
Decoders
MediaCast Card Proprietary Internet Receiver 03 - 97 03 - 99 1,900
Receiver IC's -- Internet Video Receiver
Protocol DVB MPEG
Decoders
-------
$10,720
-------
-------
</TABLE>
- ------------
* 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.
22
<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
reserved for costs related to the termination of a lease for a 125,000
23
<PAGE>
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.
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.
24
<PAGE>
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 was subsequently shipped. The other
order was from Indonesia and was subsequently cancelled.
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
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(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 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
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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 decreases 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 2000.
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 short term loans with maturities no later than
September 28, 2000. The bank could demand repayment at any time after the
maturity date of the loans 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 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).
Since December 31, 1998 we have not been in compliance with the covenant in
our prior and current credit agreements 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. Our current
credit agreement does not require us to comply with this covenant until
March 31, 2000. We expect to be in compliance with this covenant upon completion
of this offering, but we cannot assure you that this will be the case.
Our current credit agreement expires on September 28, 2000. The credit
agreement is renewable annually at the option of Citibank. We owed principal of
approximately $12,920,000, at interest rates from 6.59% to 6.94%, under the line
of credit as of December 31, 1999.
During 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) a $521,000 reduction for
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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,
and (ii) a $516,000 reduction in the note for certain inventory, 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,
furniture, and equipment. Therefore, this $516,000 reduction has resulted in a
reduction in goodwill. We paid the note 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 quarter ended September 30, 1999).
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 sold $16,860,584 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 up to 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.
The rights offering was concluded on December 1, 1999. Our shareholders
purchased 4,520,264 shares at an aggregate purchase price of $16,860,585 in our
rights offering, including ST's aggregate purchase of 4,300,800 shares at an
aggregate purchase price of $16,041,984.
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). 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. Prior to December 31, 1999, we completed that
review and certain upgrading and we believe that all of our mission critical
systems are now Year 2000 compliant.
Our Year 2000 readiness plan also involved 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. To date, we have not
encountered any significant problems in our information technology systems or
non-information technology systems related to the Year 2000 issue, but we cannot
assure you that we will not encounter such problems in the future.
As part of our comprehensive review, we have verified 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 received responses from approximately 70% of our
non-critical vendors. To date, we have not encountered any significant problems
with our vendors related to the Year 2000 issue, but we cannot assure you that
we will not encounter such problems in the future.
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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.
<TABLE>
<CAPTION>
YEAR 2000 READINESS COSTS
-------------------------
<S> <C>
Project Statistics:
Cost (labor)............................ $110,000
</TABLE>
<TABLE>
<CAPTION>
SYSTEM
INVENTORY ASSESSMENT REMEDIATION UNIT TESTING TESTING
--------- ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
Percentage Completed.................... 100% 100% 100% 100% 100%
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. We 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.
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.
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
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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.
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
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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 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.
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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
economical 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 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 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 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.
33
<PAGE>
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.............................. 2,273 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............................... 4,512 96 2.1
----- --- ----
Total.................................. 9,738 948 9.7%
----- --- ----
----- --- ----
</TABLE>
Source: DTT Consulting
- ------------
* 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.
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.
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<PAGE>
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 DiviCom Inc., 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.
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
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<PAGE>
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 'Typical Telephony Application' 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.]
[GRAPHIC]
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.
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.
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<PAGE>
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 'Typical Broadcast Applications' depicting various uses of
our data broadcast receivers to transmit data from a single broadcast source to
a satellite from the satellite to mulitple receiver sites.]
[GRAPHIC]
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
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<PAGE>
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
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 estimate that our total research and development expenditures for fiscal
1999 were approximately $9,179,000 and we plan to increase our expenditures for
research and development 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, and other new telecommunications 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.
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<PAGE>
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.
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 DECEMBER 31,
-------------------------
REGION 1999* 1998 1997
- ------ ----- ---- ----
<S> <C> <C> <C>
Asia................................................. 23% 7% 32%
Latin America........................................ 3% 9 12
Europe............................................... 23% 31 7
Others............................................... 7% 3 5
-- -- --
Total Exports................................... 56% 50% 55%
-- -- --
-- -- --
</TABLE>
- ------------
* Estimated
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
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>
SATELLITE DIGITAL VIDEO
MODEMS & BROADCAST & GOVERNMENT & DATA, AUDIO &
COMPETITOR EARTH STATIONS HIGH SPEED MODEMS MILITARY 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
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<PAGE>
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.
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 lines,
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 we develop an alternative supply
source. 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.
We also have patents which protect certain of our proprietary technology.
We have been cautious in seeking to obtain patent protection for our products,
since patents often provide only
40
<PAGE>
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 179 full-time employees, including three
executive officers, 120 in engineering and manufacturing, 31 in marketing
operations, and 28 in administration. These figures include 23 employees who are
based outside the United States. 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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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. Pursuant
to our underwriting agreement with HD Brous & Co. Inc., we have agreed to obtain
'key person' life insurance on the life of Mr. Fitting in the amount of
$1,000,000. The proceeds of this policy will be payable to us.
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 and commercial communications
equipment. Mr. Eymann left EFData in February 1995 to join our company. Pursuant
to our underwriting agreement with HD Brous & Co. Inc., we have agreed to obtain
'key person' life
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insurance on the life of Mr. Eymann in the amount of $500,000. The proceeds of
this policy will be payable to us.
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.
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. A director is elected by a plurality of the votes
cast by the shareholders. Officers are elected by, and
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serve at the discretion of, the Board of Directors. Messrs. Elliott and Grimes
are 'independent directors' as defined in the North American Securities
Administration Association ('NASAA') Statement of Policy Regarding Loans and
Other Material Affiliated Transactions. We will maintain at least two
independent directors on the Board of Directors and it is our intention to add a
third independent director prior to June 2001.
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 cash 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.
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.
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<PAGE>
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 resolved to
permit senior management to borrow funds from our company for the purpose of
exercising stock options. In October 1999, Messrs. Fitting and Kline borrowed
$200,000 and $50,000, respectively, for the purpose of exercising stock options.
In November 1999, Mr. Eymann borrowed $100,000 for the purpose of exercising his
stock options. No additional loans are available under this arrangement.
Under the terms of the promissory notes executed by each of Messrs.
Fitting, Eymann, and Kline, each promises to pay 50% of the principal amount due
with interest on the first anniversary date of the note. The remainder of the
principal, plus interest, is due on the second anniversary date of the note. The
unpaid principal bears interest at a rate of 5% per annum. If the borrower
continues to be employed by us, we will forgive one-half of each loan (including
interest) 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. If we sever our relationship with any of
Messrs. Fitting, Eymann, or Kline for cause or if any of them voluntarily severs
the relationship, any portion of the loan not forgiven will become due and
payable. Further, based upon their exercise of the options exercised with the
proceeds of these loans, each of Messrs. Fitting, Eymann, and Kline has agreed
not to own, operate or be employed by a competing entity during a two-year
period commencing from the date of the termination of his employment either
involuntarily for cause or voluntarily by the employee.
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>
YEAR ALL OTHER
NAME AND 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.
OPTION GRANTS
The following table sets forth information regarding options granted to
Messrs. Fitting and Eymann during the year ended December 31, 1998.
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<PAGE>
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,
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 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 December 31, 1999, options to purchase 1,542,706 shares of
common stock were outstanding at a weighted average exercise price of $3.10 per
share and options have been exercised to purchase 390,372 shares of common
stock. The total number of shares of common stock remaining reserved for
issuance under the plan as of December 31, 1996 was 1,790,670. Under the plan,
we may not grant options after November 12, 2006.
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<PAGE>
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 December 31, 1999, 1,000,000 shares are
authorized for issuance under the purchase plan. We expect to activate the
purchase plan in the first quarter of 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 a participant's employment 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.
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.
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<PAGE>
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 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.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of December 31, 1999, 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 our 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 our 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 subject to applicable
community property law.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF CLASS OF CLASS
NUMBER BEFORE THIS AFTER THIS
NAME AND ADDRESS OF SHARES(1) OFFERING(1) OFFERING(1)
---------------- ------------ ----------- -----------
<S> <C> <C> <C>
Stetsys US, Inc.(2).................................. 1,180,000 10.99% 9.27%
Stetsys Pte Ltd(2)................................... 9,676,800(3) 90.15% 75.99%
Robert C. Fitting(4)................................. 238,635(5) 2.20% 1.86%
Steven W. Eymann(4).................................. 237,835(6) 2.18% 1.84%
Garry D. Kline(4).................................... 42,493(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
of the company as a group (eight
persons)........................................... 558,963 5.07% 4.29%
</TABLE>
- ------------
* Less than one percent.
(1) The numbers and percentages shown include the shares of common stock
actually owned as of December 31, 1999 and the shares of common stock that
the person or group had the right to acquire within 60 days of such date. In
calculating the percentage of ownership, all shares of common stock that the
identified person or group had the right to acquire within 60 days of
December 31, 1999 upon the exercise of options are deemed to be outstanding
for the purpose of computing the percentage of the shares of common stock
owned by such person or group, but are not deemed to be outstanding for the
purpose of computing the percentage of the shares of common stock owned by
any other person. The percentage shown after this offering does not give
effect to exercise of underwriters' option to purchase an additional 300,000
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.
(4) The address for each of these shareholders is: c/o Radyne ComStream Inc.,
3138 East Elwood Street, Phoenix, Arizona 85034.
(5) Includes 105,635 shares underlying exercisable options held by Mr. Fitting.
(6) Includes 169,735 shares underlying exercisable options held by Mr. Eymann.
(7) Includes 14,242 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.
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<PAGE>
CERTAIN TRANSACTIONS
As disclosed under 'Management -- Director and Executive Compensation,' 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 of products in the ordinary course of business to Agilis
Communication Technologies Pte Ltd, an affiliated company under the common
control of ST, were $69,000 for the nine months ended September 30, 1999,
$65,000 for the year ended 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 of
products in the ordinary course of business 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 $10.0 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 of $1,355,000 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. 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. His employment with us was
terminated in March 1998 and we paid no royalties to Mr. Weisskopf in 1998 or
thereafter.
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<PAGE>
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.
At the time the transactions described above were entered into we did not
have two disinterested independent directors to ratify the transactions, as
required by NASAA's Statement of Policy Regarding Loans and Other Material
Affiliated Transactions. All future material affiliated transactions and loans
will be made or entered into on terms that are no less favorable to us than
those that can be obtained from unaffiliated third parties. All future material
affiliated transactions and loans, and any forgiveness of loans, must be
approved by a majority of our independent directors who do not have an interest
in the transactions and who have access, at our expense, to our counsel or
independent legal counsel. All future loans will be for a bona fide business
purpose and will be approved by a majority of the disinterested directors.
We have agreed with certain state regulatory authorities that so long as
our securities are registered in such states, or one year from the date of this
prospectus, whichever is longer, we will not make loans to our officers,
directors, employees or principal shareholders, except for loans made in the
ordinary course of business, such as travel advances, expense account advances,
relocation advances, or reasonable salary advances.
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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 December 31, 1999, there were 10,733,977 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 be, when issued, 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
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.
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,
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<PAGE>
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 our Board of Directors decides to redeem the warrants
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, the New York
Stock Exchange, or the 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 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
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<PAGE>
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 have applied 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 our 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 12,733,977 shares of
common stock issued and outstanding. Of these shares, we believe that
approximately 2,763,741 would be freely transferable immediately. ST and certain
of our officers hold 9,906,151 shares, which would be eligible for resale
subject to the volume and manner of sale limitations of Rule 144 of the
Securities Act. An additional 64,084 shares are 'restricted securities' as that
term is defined in Rule 144 and are eligible for sale under the provision of
Rule 144(k).
A total of 1,790,670 shares of common stock remain reserved for issuance
under the 1996 Incentive Stock Option Plan and options to purchase an aggregate
of 1,542,706 shares of common stock were outstanding under the plan as of
December 31, 1999. All of the shares issuable upon exercise of such options are
covered by a currently effective registration statement on Form S-8. The
issuance of 1,000,000 shares of our common stock 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 subject to such
54
<PAGE>
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, the public market for our securities has been very
limited as trading in our common stock has been infrequent. Following this
offering, we cannot predict the effect, if any, that the availability for sale
of shares held by our current shareholders will have on the market price from
time to time. Nevertheless, sales by our current shareholders of a substantial
number of shares of common stock in the public market could materially and
adversely affect the 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.
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................................................ 2,000,000
---------
---------
</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 300,000 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 will purchase the units from us at the public offering
price set forth on the cover page of this prospectus, less a discount equal to
9% of the public offering price. 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
55
<PAGE>
shows the per unit and total underwriting discounts that we will pay to the
underwriters. This information assumes either no exercise or full exercise by
the underwriters of their over-allotment option and does not include the 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 $510,443.
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.
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 200,000 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 term of the option,
the representative may not sell, transfer, assign, or hypothecate the option,
except to officers and employees of HD Brous who are also shareholders of HD
Brous, all of whom 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 underlying stock at the
holder'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 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 six months after the date
of this 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. H.D. Brous has
agreed that Messrs. Lee, Grimes and Elliott are deemed to satisfy this
requirement regarding our directors. 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 the lesser of the term of their respective
employment with our company or three years.
56
<PAGE>
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:
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.
During 1998, the State of Connecticut Department of Banking and the State
of New Jersey Bureau of Securities conducted an examination of books and records
and interviewed certain personnel located in HD Brous' offices in those states.
Following that examination, the states
57
<PAGE>
alleged that HD Brous failed to enforce its procedures to reasonably supervise
certain of its sales agents' use of written sales materials, which resulted in
violations of those states' securities laws. In order to resolve issues raised
as a result of the examination without the expense and delay of an
administrative hearing, in August 1998 HD Brous entered into a joint consent
order with the states of Connecticut and New Jersey without admitting or denying
the allegations and without any hearing or presentation of evidence. Under the
consent order, HD Brous agreed to (a) cease and desist from engaging in conduct
that would violate Connecticut or New Jersey securities laws by reason of
failing to establish written supervisory procedures and a system for applying
them to prevent the use of written sales presentations that have not been
approved by HD Brous, (b) engage a consultant to review HD Brous' policies and
procedures and prepare a written report for HD Brous, and (c) pay an aggregate
of $30,000 in administrative fines to the states of Connecticut and New Jersey.
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, LLP Phoenix, Arizona, will pass upon certain
legal matters in connection with this offering for the underwriters.
EXPERTS
The restated consolidated financial statements of Radyne ComStream Inc. as
of December 31, 1998 and for the year then ended have been included herein and
in the registration statement 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.
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
1-800-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.
58
<PAGE>
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:
Director of Administration
Radyne ComStream Inc.
3138 East Elwood Street
Phoenix, AZ 85034.
59
<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-Month
Period 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-23
Notes to Unaudited Pro Forma Condensed Combined
Statement of Operations............................... F-24
Condensed Consolidated Balance Sheet as of
September 30, 1999 (Unaudited)........................ F-25
Condensed Consolidated Statements of Operations for the
Nine Months Ended September 30, 1998 and 1999
(Unaudited)........................................... F-26
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1999
(Unaudited)........................................... F-27
Notes to Unaudited Condensed Consolidated Financial
Statements............................................ F-28
</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>
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
RESTATED 1997
-------- ----
<S> <C> <C>
ASSETS
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 RECIEVABLE
------------------- 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
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
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>
<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>
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.
F-8
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
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.
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.
F-9
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
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.
(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.
F-10
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
(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.
(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.
F-11
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
(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.
(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.
F-12
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
(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.
(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-13
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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.
F-14
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
Payments on capital lease obligations due after December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
1999. 131,807
<S> <C>
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>
<CAPTION>
1999. 1,701,129
<S> <C>
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 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.
F-15
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
(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 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
F-16
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
ended June 30, 1996, respectively. Export sales (based on shipping destination)
are comprised of the following:
<TABLE>
<CAPTION>
YEAR YEAR SIX-MONTH YEAR
ENDED ENDED PERIOD ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1998 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.
(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.
F-17
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
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.
(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
F-18
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
statements. Had the Company 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>
As reported $(14,537,543) $(1,756,716)
Net loss..................................... Pro forma $(15,293,957) $(2,028,121)
As reported $ (2.45) $ (.35)
Loss per Share -- Basic...................... Pro forma $ (2.58) $ (.40)
As reported $ (2.45) $ (.35)
Loss per Share -- Diluted.................... 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>
A summary of stock options granted at December 31, 1998 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 CONTRACTUAL LIFE PRICE 1998 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
F-19
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
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).
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
F-20
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1997
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-21
<PAGE>
(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-22
<PAGE>
RADYNE COMSTREAM INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA).
<TABLE>
<CAPTION>
RAYDNE COMSTREAM COMSTREAM PRO FORMA
AUDITED UNAUDITED ADJUSTMENTS NOTES 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)
(3,240) c
Interest expense.................. 1,199 3,240 1,200 c 2,399
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-23
<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-24
<PAGE>
RADYNE COMSTREAM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
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-25
<PAGE>
RADYNE COMSTREAM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
---- ----
(UNAUDITED)
<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............... $0.12 $(0.47)
Extraordinary item..................................... 0.03 --
Net income (loss)...................................... $0.15 $(0.47)
Diluted Earnings (loss) per share:
Income (loss) before extraordinary items............... $0.11 $(0.47)
Extraordinary item..................................... 0.03 --
Net income (loss)...................................... $0.14 $(0.47)
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-26
<PAGE>
RADYNE COMSTREAM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
---- ----
(UNAUDITED)
<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-27
<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>
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
F-28
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 IS UNAUDITED)
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.
F-29
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 IS UNAUDITED)
(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 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
F-30
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 IS UNAUDITED)
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 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.
F-31
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 IS UNAUDITED)
4. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 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>
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 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.
F-32
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 IS UNAUDITED)
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 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 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.
F-33
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 IS UNAUDITED)
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).
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.
F-34
<PAGE>
RADYNE COMSTREAM INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 IS UNAUDITED)
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 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-35
<PAGE>
__________________________________ __________________________________
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN 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 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 6
Use Of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Price Range of Common Stock................................. 16
Dilution.................................................... 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Result of Operations.................................. 20
Business.................................................... 30
Management.................................................. 42
Principal Shareholders...................................... 49
Certain Transactions........................................ 50
Description of Securities................................... 52
Shares Eligible for Future Sale............................. 54
Underwriting................................................ 55
Legal Matters............................................... 58
Experts..................................................... 58
Where You Can Find More Information......................... 58
Index to Financial Statements............................... F-1
</TABLE>
__________________________________ __________________________________
__________________________________ __________________________________
2,000,000 UNITS
[LOGO]
RADYNE
COMSTREAM INC.
CONSISTING OF 2,000,000
SHARES OF COMMON STOCK
AND 2,000,000 REDEEMABLE
COMMON STOCK PURCHASE
WARRANTS TO PURCHASE
2,000,000 SHARES OF
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
HD BROUS & CO., INC.
, 2000
__________________________________ __________________________________
<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........................................ $ 7,135
NASD filing fee............................................. 1,960
Nasdaq SmallCap Market listing fee.......................... 10,000
Legal fees and expenses..................................... 300,000
Blue Sky legal and filing fees.............................. 33,770
Accounting fees and expenses................................ 80,000
Transfer and Warrant Agents' fees........................... 3,500
Printing and engraving expenses............................. 73,500
Miscellaneous............................................... 578
--------
Total.................................................. $510,443
--------
--------
</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 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
II-1
<PAGE>
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.
- -----------
<C> <S>
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'D'D'D' -- 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
4.6'D'D'D'D' -- Form of Unit Certificate
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'D' -- Lease between ADI Communication Partners, L.P. and
ComStream dated April 23, 1997
10.6'D' -- First Amendment to lease between ADI Communication
Partners L.P. and ComStream dated July 16, 1997
10.7'D' -- Second Amendment to Lease between Kilroy Realty, L.P. and
ComStream dated November 18, 1998
10.8'D' -- Indemnity Agreement between Pacific Bell Corporation and
ComStream dated November 18, 1998
10.9'D' -- Letter Agreement between Spar and Radyne ComStream Inc.
dated November 18, 1998
10.10'D'D'D'D'D' -- 1999 Employee Stock Purchase Plan
10.11 -- Uncommitted Line of Credit Facility Letter Agreement,
dated as of May 18, 1998, and amended as of September 28,
1998 and September 30, 1999
10.12 -- Stock Purchase Loan Agreement executed by Robert Fitting,
dated October 8, 1999
10.13 -- Promissory Note executed by Robert Fitting, dated
October 8, 1999 in the amount of $200,000
10.14 -- Stock Purchase Loan Agreement executed by Garry Kline,
dated October 8, 1999
10.15 -- Promissory Note executed by Garry Kline, dated
October 11, 1999 in the amount of $50,000
10.16 -- Stock Purchase Loan Agreement executed by Steven Eymann,
dated November 11, 1999
10.17 -- Promissory Note executed by Steven Eymann, dated
November 1, 1999 in the amount of $100,000
10.18 -- General Release and Settlement Agreement between Spar
Aerospace Limited and Radyne ComStream Inc. dated
September 29, 1999
13.1'D'D' -- Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1998
13.2'D'D' -- Report on Form 10-Q/A for the quarter ended March 31,
1999
13.3'D'D' -- Report on Form 10-Q/A for the quarter ended June 30, 1999
13.4'D'D' -- 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'D'D'D' -- Power of Attorney (contained in signature section of
Registration Statement)
</TABLE>
- ------------
* 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).
(footnotes continued on next page)
II-2
<PAGE>
(footnotes continued from previous page)
*** 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).
'D' 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).
'D'D' Previously filed with Commission and incorporated by reference from
Registrant's previously filed documents.
'D'D'D' Previously filed with this Registration Statement.
'D'D'D'D' Incorporated by reference from Registrant's Form 8-A filed
November 19, 1999 (File No. 000-11685)
'D'D'D'D'D' Incorporated by reference from Registrant's Form S-8, filed
November 5, 1999.
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.
(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.
II-3
<PAGE>
(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.
(6) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
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 January 10, 2000.
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
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>
January 10, 2000
<C> <S> <C>
/S/ ROBERT C. FITTING Chief Executive Officer, President, and
......................................... Director (Principal Executive Officer)
ROBERT C. FITTING
/S/ GARRY D. KLINE Vice President-Finance, Chief Financial January 10, 2000
......................................... Officer and Secretary (Principal
GARRY D. KLINE Financial and Accounting Officer)
* Director January 10, 2000
.........................................
ROBERT A. GRIMES
* Chairman of the Board of Directors January 10, 2000
.........................................
MING SEONG LIM
* Director January 10, 2000
.........................................
YIP LOI LEE
* Director January 10, 2000
.........................................
KUM CHUEN TANG
* Director January 10, 2000
.........................................
DENNIS ELLIOTT
</TABLE>
- ------------
* The undersigned by signing his name hereto, does hereby sign this Registration
Statement or amendment thereto on behalf of the above indicated directors and
officers of Radyne ComStream Inc. pursuant to the power of attorney executed
on behalf of each such director and officer.
By: /s/ ROBERT C. FITTING
.......................
ROBERT C. FITTING
ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
---
<C> <S>
1.1 -- Form of Underwriting Agreement
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
10.11 -- Uncommitted Line of Credit Facility Letter Agreement,
dated as of May 18, 1998, and amended as of September 28,
1998 and September 30, 1999
10.12 -- Stock Purchase Loan Agreement executed by Robert Fitting,
dated October 8, 1999
10.13 -- Promissory Note executed by Robert Fitting, dated
October 8, 1999 in the amount of $200,000
10.14 -- Stock Purchase Loan Agreement executed by Garry Kline,
dated October 8, 1999
10.15 -- Promissory Note executed by Garry Kline, dated
October 11, 1999 in the amount of $50,000
10.16 -- Stock Purchase Loan Agreement executed by Steven Eymann,
dated November 11, 1999
10.17 -- Promissory Note executed by Steven Eymann, dated
November 1, 1999 in the amount of $100,000
10.18 -- General Release and Settlement Agreement between Spar
Aerospace Limited and Radyne ComStream Inc. dated
September 29, 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)
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as.................. 'r'
The dagger symbol shall be expressed as................................ 'D'
<PAGE>
EXHIBIT 1.1
2,000,000 Units
RADYNE COMSTREAM INC.
2,000,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK WARRANT
UNDERWRITING AGREEMENT
_______________, 2000
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 2,000,000 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 300,000 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 I, 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 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:
<PAGE>
(a) FILING OF REGISTRATION STATEMENT. A registration statement on
Form S-2 (File No. 333-90731) 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 and each of its
subsidiaries have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation. The Company and each of its subsidiaries has full corporate
power and authority to conduct all activities that each of them conducts, to own
or lease their respective properties, and to conduct their respective businesses
as described in the Registration Statement and Prospectus. The Company and each
of its subsidiaries is duly qualified to transact business in all jurisdictions
in which the conduct of their respective businesses requires such qualification,
except where the failure to qualify would not have a material adverse effect
upon the business or property of the Company and its subsidiaries, considered as
a whole. Complete and correct copies of the Certificate of Incorporation and
Bylaws of the Company, and all amendments thereto, have been delivered to you,
and no changes therein will be made subsequent to the date hereof and prior to
the Closing Date or the Option Closing Date, as hereinafter defined.
(c) SUBSIDIARIES. The Company's only subsidiaries are those
listed on Schedule II hereto (the "Subsidiaries"). Complete and correct copies
of the Certificate of Incorporation and Bylaws of each of the Subsidiaries, and
all amendments thereto, have been delivered to you, and no changes therein will
be made subsequent to the date hereof and prior to the Closing Date or Option
Closing Date. The issued shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued, are fully paid and nonassessable,
and are owned of record and beneficially by the Company or one of the
Subsidiaries, free and clear of any security interests, liens, encumbrances,
equities or claims and there are no outstanding options, warrants, or other
rights to purchase, agreements or other obligations to issue or other rights to
convert any
2
<PAGE>
obligations into any shares of capital stock or ownership interests in any
Subsidiary. Except for the Subsidiaries, neither the Company nor any of the
Subsidiaries controls, directly or indirectly, or has any direct or indirect
interest or investment in any corporation, firm, partnership, association,
limited liability company, business trust or other business organization, or
owns any shares of stock or any other securities of any other corporation, firm,
partnership, association, limited liability company, business trust or other
business organization (other than bank certificates of deposit, shares or units
of interest in "money market" funds, or as set forth in the Prospectus). Except
as otherwise disclosed in the Registration Statement, neither the Company nor
any of the Subsidiaries has made any loans (other than advances to employees in
the ordinary course of business, none of which are material) 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 consolidated financial statements of the Company
and the related notes thereto, as of the respective dates therein indicated, 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 except as
described in the Registration Statement.
3
<PAGE>
(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, 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. It is agreed that, except for the information on page 57 of
the Prospectus relating to determination of the public offering price of the
Units and lack of assurance that an active trading market will develop for any
of the Securities, the information set forth under the heading "Underwriting" in
the Prospectus shall be deemed to be the only written information furnished to
the Company by the Underwriters specifically for use in the preparation thereof.
(g) FINANCIAL STATEMENTS. The consolidated 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 and its Subsidiaries 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 its Subsidiaries or any of their respective
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 and
its Subsidiaries, considered as a whole, except as set forth in the Registration
Statement. Neither the Company nor any of its Subsidiaries is subject to the
provisions of any injunction, judgment, decree or order of any court, regulatory
body, administrative agency, or other governmental body
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or arbitral forum that might result in a material adverse change in the
business, assets or condition of the Company or its Subsidiaries.
(i) TITLE TO PROPERTY. The Company and each of its Subsidiaries
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, as the case may be, by each of them or that are material to
the conduct of the Company's and its Subsidiaries' respective businesses,
considered as a whole, 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 and its Subsidiaries, considered as a
whole. The leases, licenses or other contracts or instruments under which the
Company and each of its Subsidiaries 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 or its Subsidiaries, 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 its Subsidiaries nor, to the best of the Company's 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. Neither the Company nor any of its
Subsidiaries has received notice of any violation of any applicable law,
ordinance, regulation, order or requirement relating to the Company's or its
Subsidiaries' owned or leased properties except any such violation that would
not have a material adverse effect on the Company or its Subsidiaries.
(j) TAXES. The Company and each of its Subsidiaries has filed all
federal, state, local, and foreign income tax returns that have been required to
be filed and have paid all taxes indicated by said returns and each 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 or any of its Subsidiaries
which might result in a material adverse change in the business or condition of
the Company or any of its Subsidiaries. The Company and each of its Subsidiaries
have paid all sales, use, transfer and other taxes applicable to it and its
business and operations.
(k) NO MATERIAL CHANGE. 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 material 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 and
its Subsidiaries or the earnings, business affairs, management, or business
prospects of the Company and its Subsidiaries, considered as a whole, whether or
not occurring in the ordinary course of business, (ii) there has not been and,
as of the Closing Date and the Option Closing Date, as the case may be, there
will not have been any material transaction entered into by the Company or any
of its Subsidiaries, 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) neither the Company nor
any of its Subsidiaries has sustained any material loss or interference with its
businesses or properties from
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strike, fire, flood, windstorm, accident or other calamity, (iv) neither the
Company nor any of its Subsidiaries has paid and none of them will have paid or
declared any dividends or other distribution with respect to the Company's
capital stock and neither the Company nor any of its Subsidiaries is in default
in the payment of principal of or interest on any outstanding debt obligations,
and (v) there has not been and, as of the Closing Date and the Option Closing
Date, as the case may be, there 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 and its Subsidiaries,
considered as a whole. The Company and its Subsidiaries, considered as a whole,
do 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. Neither
the Company nor any of its Subsidiaries is in violation or default under any
provision of its respective Certificate of Incorporation or Bylaws or except as
disclosed in the Prospectus, any of its material agreements, leases, licenses,
contracts, franchises, mortgages, permits, deeds of trust, indentures or other
instruments or obligations to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
respective 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. This Agreement has been duly authorized, executed, and
delivered by the Company and is legally binding upon and enforceable against the
Company in accordance with its terms. Each of the Warrant Agreement and the
Representative's Purchase Option has been duly authorized and, when executed and
delivered by the Company, will be 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 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 or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or any of their respective properties 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
any of its Subsidiaries, or violate any of the provisions of the Certificate of
Incorporation or Bylaws of the Company or any of its Subsidiaries, or violate
any order, judgment, statute, rule or regulation applicable to the Company or
any of its Subsidiaries of any court or of any regulatory, administrative or
governmental body or agency or arbitral forum having jurisdiction over the
Company or its Subsidiaries or any of their respective properties.
(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
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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 and its Subsidiaries own
or possess 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 as described in the Prospectus,
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 or any of its Subsidiaries 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, which
violation could result in a material adverse effect on the business, operations
or financial condition of the Company and the Subsidiaries, considered as a
whole. The Company is not aware, after due diligence, of any rights of third
parties to, or any infringement of, any of the Company's or its Subsidiaries'
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 any of its
Subsidiaries and that would have a material adverse affect on the Company and
its Subsidiaries, considered as a whole. 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 or one of the Subsidiaries possesses those patents that have been
previously disclosed to the Representative in writing, and such patents have not
expired or been declared invalid in a legal or administrative proceeding.
(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 and each of the Subsidiaries
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
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Company and its Subsidiaries, considered as a whole. The Company and each of the
Subsidiaries possesses adequate certificates or permits issued by the
appropriate federal, state, local, and foreign regulatory authorities necessary
to conduct their respective businesses and to retain possession of their
respective properties, except where the failure to so possess such certificates
or permits would not have a material adverse effect on the business or financial
condition of the Company or any of the Subsidiaries. Neither the Company nor any
of its Subsidiaries has 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 between the
Company or one of the Subsidiaries, on the one hand, and the officers,
directors, and affiliates of the Company and its Subsidiaries, on the other
hand, 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, neither the Company nor any
of its Subsidiaries has 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 having 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
Subsidiaries, nor any of their respective directors or officers acting in any
capacity on behalf of the Company or its Subsidiaries, nor, to the Company's
knowledge after due inquiry, any of its or its Subsidiaries' 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 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 and its
Subsidiaries maintain 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
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
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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 Subsidiaries, nor any of their respective
employees or agents has made any payment or transfer of any funds or assets of
the Company and its Subsidiaries, conferred any personal benefit by the use of
the assets of the Company and its Subsidiaries 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 personal property owned or leased
by the Company and its Subsidiaries 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. Except for offers and sales of Common
Stock in connection with stock option or other stock-based plans described in
the Registration Statement or upon exercise of the Warrants, 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 six (6) months after the date of this Agreement, directly
or indirectly, by the Company, or any of its affiliates, directors or executive
officers set forth in Schedule III hereto, 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. Except for Common Stock issued in
connection with the exercise of options and except as otherwise disclosed in the
Registration Statement, the Company has not, since the filing of the
Registration Statement (i) sold, bid for,
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purchased, attempted to induce any person to purchase, or paid anyone any
compensation for soliciting purchases of, its capital stock, or (ii) 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 that
are required to be disclosed in the Prospectus and are not so disclosed.
(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.
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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
300,000 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 certificates
therefor 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 Road, 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
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banks in 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
an 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
that have been disclosed to the Company by counsel for the Underwriters prior to
the Company's execution of this Agreement) 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.
(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.
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(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
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is defined in the Rules and Regulations, which are not consolidated in 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. Except for offers and sales of Common
Stock in connection with stock option or other stock-based plans described in
the Registration Statement or upon exercise of the Warrants, for a period of six
(6) months 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 III
hereto to agree in writing that such person (i) will not, during the six-month
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. Through and including the Option
Closing Date, the Company has made and 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 or its Subsidiaries is a party or in which the Company or
its Subsidiaries 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 Units, 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 an aggregate of 200,000 shares of Common
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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 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 beneficial
owner of 5% or more of any person that, directly or indirectly, beneficially
owns 5% or more of the Company's Common Stock. The Representative agrees that,
as of the date of this Agreement, Yip Loi Lee, Robert A. Grimes, and Dennis W.
Elliott meet the definition of Outside Directors for purposes of this Section
4(p).
(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 lesser 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
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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 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 cost of placing a tombstone
ad in 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 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 for the fees and costs
of such counsel incurred in connection with the qualification of the Securities
and their components under the applicable state securities laws as otherwise
noted 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, except if such termination is caused by the failure of the condition set
forth in Section 6(e) 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). The Deposit shall be credited against
any such payment. 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:
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(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 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 material 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 and its
Subsidiaries, considered as a whole, or the earnings, business affairs,
management, or business prospects of the Company and its Subsidiaries,
considered as a whole, whether or not occurring in the ordinary course of
business, (ii) there has not been any material transaction entered into by the
Company or any of its Subsidiaries, 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) neither the
Company nor any of its Subsidiaries has sustained any material loss or
interference with its businesses or properties from strike, fire, flood,
windstorm, accident or other calamity, (iv) neither the Company nor any of its
Subsidiaries has paid or declared any dividends or other distribution with
respect to the Company's capital stock
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and neither the Company nor any of its Subsidiaries is in default in the payment
of principal of or interest on 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
its Subsidiaries, considered as a whole, and (vi) 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 or any of its
Subsidiaries is a party or of which the business or property of the Company or
any of its Subsidiaries 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. Neither the Company nor any of its
Subsidiaries has 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, 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. Each of the
Company and the Representative 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 and each of its Subsidiaries (A) have been
duly incorporated and are validly existing as a corporation in
good standing under the laws of their respective jurisdictions of
incorporation, with full corporate power and corporate authority
to own or lease their respective properties and to conduct their
respective businesses as described in the Registration Statement
and Prospectus, and (B) to such counsel's knowledge are duly
qualified as a foreign corporation to transact business in all
jurisdictions in which the conduct of their respective businesses
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 or its Subsidiaries.
(ii) The issued shares of capital stock of each Subsidiary
have been duly authorized and validly issued, are fully paid and
nonassessable, and, except
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as described in the Registration Statement and the Prospectus,
are owned of record and beneficially by the Company.
(iii) 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 issued subsequent to December 16, 1994 (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 to such counsel's knowledge
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) to such counsel's
knowledge, have been issued in compliance with all federal and
state securities laws.
(iv) 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) to such counsel's knowledge
no preemptive rights of stockholders exist with respect to any of
the Securities or the issue and sale or exercise thereof; (Y) to
such counsel's knowledge 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; 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.
(v) 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.
(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
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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 to the financial
statements, schedules, and other financial and statistical
information included or incorporated by reference therein).
(viii) Such counsel (i) requested that the Company provide it
with copies of all Contracts; (ii) met with officers of the
Company to discuss whether all Contracts were in fact delivered
to such counsel; and (iii) reviewed all Contracts that were so
delivered, and discussed the materiality of such Contracts to the
Company and its business with officers of the Company, to
determine whether such Contracts were required to be filed or
incorporated by reference as exhibits to the Registration
Statement or described in the Registration Statement or the
Prospectus as required under the Act and the Rules and
Regulations. Based upon the foregoing procedures, such counsel
does not know of any Contracts of a character required to be
filed or incorporated by reference as exhibits to the
Registration Statement or described in the Registration Statement
or the Prospectus that are not so filed or incorporated by
reference or described as required, and each description of such
Contracts that is included in the Registration Statement or the
Prospectus fairly presents in all material respects the
information required under the Act and the Rules and Regulations.
(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; to the best of such counsel's knowledge, there is no
action, suit or proceeding threatened against the Company or any
of its Subsidiaries before any U.S. or foreign court or
regulatory, governmental or 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, neither the Company nor any
of its Subsidiaries is 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 of a character required to be
disclosed in the Prospectus pursuant to the Act and the Rules and
Regulations, in each case which is not so disclosed in the
Prospectus.
(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,
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or constitute, either by itself or upon notice or the passage of
time or both, a default under, any Contract to which the Company
or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or any of their respective properties
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 and its Subsidiaries,
considered as a whole, or violate any of the provisions of the
Certificate of Incorporation or Bylaws of the Company or any of
its Subsidiaries 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 of its Subsidiaries
or any of their respective properties.
(xi) Neither the Company nor any of its Subsidiaries is in
violation or default under any provision of any of their
respective Certificate of Incorporation or Bylaws.
(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 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 or state securities or "Blue Sky" laws
and regulations, as to which such counsel need express no
opinion) have been obtained or made and are in full force and
effect.
(xiv) No transfer taxes are required to be paid under New
York state law in connection with the sale and delivery of the
Securities to the Underwriters hereunder.
(xv) Upon the Closing, the Company will be classified as a
"C" corporation with the Internal Revenue Service.
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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 of the attorneys in such firm who have given substantive
attention to representation of the Company in connection with this public
offering, and the opinion shall so note that requirement. In addition to the
matters set forth above, the Representative shall have received on the Closing
Date or the Option Closing Date, as the case may be, a letter from Dorsey &
Whitney LLP, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, substantially in the form as set forth in
Exhibit C attached hereto. Such counsel shall permit Greenberg Traurig, LLP, to
rely upon the opinions and letters required by this Section 6(f) in rendering
its opinion under Section 6(g).
(g) OPINION OF REPRESENTATIVE'S COUNSEL. The Representative shall
have received from Greenberg Traurig, LLP, 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 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, LLP 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, LLP
may state that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
23
<PAGE>
(h) BLUE SKY MEMORANDUM. The Representative and the Company shall
have received from Greenberg Traurig, LLP, 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' LETTERS. 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 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 dates
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 consolidated 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.
In addition to the matters set forth under clauses (i) and (ii)
above, the signed letters from KPMG LLP dated the date hereof, the Closing Date,
and the Option Closing Date, as the case may be, also shall confirm, on the
basis of a review in accordance with the procedures set forth in each such
letter signed by such firm the following matters:
(X) On the basis of procedures (but not an examination in
accordance with generally accepted auditing standards)
consisting of a reading of the minutes 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
24
<PAGE>
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.
(Y) 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.
(Z) 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.
(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.
25
<PAGE>
(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.
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, LLP, 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
26
<PAGE>
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 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 of 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
27
<PAGE>
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 set forth under
the heading "Underwriting" in the Prospectus, except for the information on page
57 of the Prospectus relating to determination of the public offering price of
the Units and lack of assurance that an active trading market will develop for
any of the Securities. 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 reasonably satisfactory to
such indemnified party and shall pay as incurred the fees and disbursements of
such counsel related to such 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
28
<PAGE>
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, discounts, 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). 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
29
<PAGE>
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 such
other 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 or 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 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, LLP, 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
C. Fitting, Chief Executive
30
<PAGE>
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 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
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<PAGE>
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 New York.
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 C. Fitting,
Chief Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of ____________, 2000.
HD Brous & Co., Inc.
As Representative of the
several Underwriters listed
on Schedule I
HD Brous & Co., Inc.
By: _________________________________
Howard D. Brous,
Chairman
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<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF FIRM SECURITIES TO BE PURCHASED
- ----------- _________________________________________
<S> <C>
HD Brous & Co., Inc.
__________
Total 2,000,000
</TABLE>
<PAGE>
SCHEDULE II
SUBSIDIARIES
ComStream Corp.
ComStream UK Limited*
[ComStream Israel*]
- ---------------
* Wholly owned subsidiary of ComStream Corp.
<PAGE>
SCHEDULE III
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
Kum Chuen Tang
Robert A. Grimes
Dennis W. Elliott
Stetsys Pte Ltd
Stetsys US, Inc.
<PAGE>
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
_______________, 2000
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 six (6) months 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.
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)
<PAGE>
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
Void after 5:00 p.m. New York Time, on ______________, 2005.
Option to Purchase 200,000 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"), 200,000 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 200,000 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 2,000,000 shares of Common Stock and warrants to purchase
2,000,000 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 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
<PAGE>
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 at its office, or by the stock transfer agent of the
Company at its office, of this Option in proper form for exercise, together
with the payment of the Exercise Price or the "Notice of Exchange" specified
in Section 1(b), 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(b), 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 scrip 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
<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 SmallCap 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, pursuant to the laws of descent and distribution, or by the
operation of law) and may not be assigned, transferred, or hypothecated
except to officers and employees of Brous who are also shareholders of Brous.
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.
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.
<PAGE>
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 Company's records, 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 accountants selected by the
Board of Directors (who may be the regular accountants employed by the
Company) to make any computation required by this
<PAGE>
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 an 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 to 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.
<PAGE>
9. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock 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. 333-90731 on Form S-2 ("Registration
Statement"), declared effective by the Securities and Exchange Commission on
____________, 2000 or of any new registration statement (other than a Form
S-8 or Form S-4 or a successor form) 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 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 the Option Shares, use its reasonable best efforts to
qualify the Option Shares for sale in such states as any such Holder shall
reasonably designate and do any and all other acts and things which may be
reasonably necessary or desirable to enable such Holders to consummate the
public sale or other disposition of 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
<PAGE>
the Holder shall be limited to the amount of net proceeds received by the
Holder from the sale of the Option Shares. The Company's obligations to
include the Option Shares in a public offering under this Section 10(a) shall
be subject to the provisions of Section 10(f), below.
(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 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 all or any
part of the Option Shares under such circumstances that a public offering
(within the meaning of the Act) of Option Shares will be involved, and
desires to register under the Act the Option Shares, then the Company shall,
within sixty (60) days after receipt of such notice, prepare and 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 and for
which the Company and the proposed transaction qualify, pursuant to the Act,
to the end that 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 (including
the taking of such steps as are necessary to obtain the removal of any stop
order) for the lesser of (A) 180 days or (B) the date on which the holder has
advised the Company that 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 180 days after the majority holder first gives notice to the
Company of his, her, or its desire to register 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. Notwithstanding the foregoing, if
the Company shall furnish to Holders requesting registration of Option Shares
pursuant to this Section 10(b) a certificate signed by the President of the
Company stating that a Blackout Period (as defined in Section 10(e)) is in
effect, the Company shall have the right to defer such filing during the term
of such Blackout Period. The Holder may, at its option, request the
registration of 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 Option and even though the Holder has not given notice
of exercise of the Option. 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 provisions of this Section 10 shall also be
applicable:
<PAGE>
(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 in connection therewith as the
Company shall reasonably request in writing to enable the Company to effect
such registration. 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 reasonably requested by such
owner to permit such Holder to make a public offering of all Option Shares
from time to time offered or sold to such Holder, provided that such Holder
shall from time to time furnish the Company with such appropriate information
in connection therewith as the Company shall request in writing to enable the
Company to effect such registration. The Company shall also use its
reasonable best efforts to qualify the Option Shares for sale in such states
as such majority Holder shall reasonably 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 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 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 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 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
<PAGE>
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.
(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 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 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 (provided such person
can demonstrate to the Company's reasonable satisfaction that he, she, or it
owns such Option Shares) owned by him, her, or among them had not been
exercised, would constitute a majority of the Options originally issued.
(e) The term "Blackout Period" as used in this Section 10 means any
period
(i) beginning on the date on which the Company notifies the
Holders that the Board of Directors of the Company, in its good faith
judgment, has determined that (A) disclosures in the registration statement
could have an adverse effect on
<PAGE>
the Company's ability to engage in a merger, acquisition, or similar
transaction, or (B) financial statements with respect to the Company that may
be required to utilize a registration statement pursuant to Section 10(b) are
unavailable; and
(ii) ending on the date (1) with respect to Section 10(e)(i)(A)
above, upon the earliest to occur of (x) the consummation of such merger,
acquisition, or similar transaction, (y) the date on which the Company
terminates discussions or any definitive agreement with respect to such
merger, acquisition, or similar transaction, or (z) 180 days after the date
on which the Company notifies the Holders of the Board of Directors'
determination pursuant to Section 10(e)(i)(A); and (2) with respect to
Section 10(e)(i)(B) above, as soon as financial statements sufficient to
permit Company to file or permit the utilization of a registration statement
under the Act have become available.
(f) In the event the offering in which Option Shares are to be
included pursuant to Section 10(a) is to be underwritten, the Company shall
furnish the Holders with a written statement of the managing or principal
underwriter as to the Maximum Includable Securities (as defined in Section
10(f)(iii), below) as soon as practicable after the Holder's request to have
Option Shares included in such offering, as provided for in Section 10(a). If
the total number of securities proposed to be included in such registration
statement is in excess of the Maximum Includable Securities, the number of
securities to be included within the coverage of such registration statement
shall be reduced to the Maximum Includable Securities as follows:
(i) no reduction shall be made in the number of shares of
capital stock or other securities to be registered for the account of the
Company or for the account of any of the Company's securityholders that have
the right to require the Company to initiate the registration of such
securities; and
(ii) the number of Option Shares and other securities that may be
included in the registration, if any, shall be allocated among the Holders of
this Option and/or the Option Shares and holders of other securities (the
"Other Holders") requesting inclusion on a pro rata basis, with the number of
each type or class of securities of each Holder and Other Holder thereof
included in the registration to be that number determined by multiplying (A)
the total number of such type or class of security included in the Maximum
Includable Securities less (B) the number of such type or class of security
to be registered for the account of the Company or other securityholders that
have the right to require the Company to initiate the registration, by a
fraction, the numerator of which will be the total number of such type or
class of security that such Holder or Other Holder owns, and the denominator
of which will be the total number of such type or class of security owned by
all Holders and Other Holders that have requested inclusion of such type or
class of security in the registration.
(iii) "Maximum Includable Securities" shall mean the maximum
number of shares of each type or class of the Company's securities that a
managing or principal underwriter, in its good faith judgment, deems
practicable to offer and sell at that time in a firm commitment underwritten
offering without materially and adversely affecting the marketability or
price of the securities of the Company to be offered. When more than
<PAGE>
one type or class of the Company's securities are to be included in a
registration, the managing or principal underwriter of the offering shall
designate the maximum number of each such type or class of securities that is
included in the Maximum Includable Securities.
(g) The Company's agreements with respect to Option Shares under 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: ____________________________________
<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>
EXHIBIT C
FORM OF
LETTER FROM DORSEY & WHITNEY, LLP
[_____________], 2000
H.D. Brous & Co., Inc.
40 Cuttermill Road
Great Neck, NY 11021
Re: RADYNE COMSTREAM INC.
Ladies and Gentlemen:
We have acted as counsel to Radyne Comstream, Inc. (the "Company") in
connection with the public offering by the Company of units, each unit
consisting of one share of the Company's common stock and one warrant to
purchase one share of common stock pursuant to the underwriting agreement dated
as of _______________ ___, 2000, by and between the Company and H.D. Brous &
Co., Inc., as representative of the several underwriters listed in such
underwriting agreement (the "Underwriting Agreement"). This letter is being
delivered pursuant to Section 6(f) of the Underwriting Agreement. All
capitalized terms used herein and not defined herein have the meanings assigned
to such terms in the Underwriting Agreement.
In connection with the preparation of the Registration Statement and
the Prospectus we have participated in various discussions and meetings with
representatives of the Company, representatives of the Company's independent
public accountants and your representatives. We have also examined copies of the
documents incorporated by reference into the Registration Statement, and filed
as exhibits thereto, certain minutes of meetings of the Board of Directors and
shareholders of the Company, as set forth in the Company's minute books, and
other documents furnished to us by the Company. Although we assume no
responsibility for, and cannot guarantee, the accuracy, completeness or fairness
of any of the statements contained in the Registration Statement and the
Prospectus, during the course of the above-described procedures, nothing has
come to our attention which would cause us 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, 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; it being understood that we make no statement herein as to
financial statements and schedules, or other financial information or
statistical data and information included or incorporated by reference in the
Registration Statement.
This letter is being furnished to you solely for your benefit in
connection with the transactions described in the Underwriting Agreement. This
letter may not be relied upon by you for any other purpose, and may not be
relied upon by, nor may copies be delivered to, any other person without our
prior written consent.
Very truly yours,
<PAGE>
EXHIBIT 4.2
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 up to
2,300,000 units (the "Units"), each Unit consisting of one share of common
stock, par value $.002 per share of the Company (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 2,300,000
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
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shall not be effective until the Warrant Agent shall be satisfied that the check
shall have cleared; 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 or expiration of such period of a reduced Purchase
Price, as the case may be.
(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. 333-90731, 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(b) 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 shares of Common Stock that
together with the Warrants comprise the Units, which shall not be until 9:00
a.m., Eastern time, on ________________, 2000 (180 days from the date of the
definitive prospectus included in the Registration Statement) or such earlier
date as determined and publicly announced by the Representative (the "Separation
Date"), 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 given on or subsequent to the Separation
Date, 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 after the Separation Date and 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 after the Separation Date or otherwise issuable
pursuant to the Underwriting Agreement; (ii) those issued on or after the
Separation Date, 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
3
<PAGE>
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 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 Separation Date, 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 deliver the
proceeds received from the exercise of a Warrant to the Company. As soon as
practicable following confirmation from the Company of the receipt of payment of
the Purchase Price, 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.
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 reasonable 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 upon the
Registered Holder 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 and all Warrant Certificates surrendered in the case of mutilated
Warrant Certificates shall be promptly cancelled by the Warrant Agent and
thereafter retained by the Warrant Agent until termination of this Agreement or
its 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
6
<PAGE>
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 (as such amount shall be
proportionately adjusted to reflect any increase or decrease in the number of
shares of Common Stock outstanding that occurs as a result of any stock split,
reverse stock split, stock dividends, combination or exchange of shares,
consolidation, subdivision, or any like capital adjustment subsequent to the
date of this Agreement), (ii) there is, on the date on which the Company's Board
of Directors adopts a resolution approving and authorizing such redemption (the
"Board Resolution"), 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 price
(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 price of the
Common Stock, for each trading day of the 20 trading day period ending within
five trading days prior to the date of the Board Resolution. 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 of the Board Resolution.
(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
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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.
(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 of the Board Resolution, and prior to the Redemption Date, 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 to be redeemed, 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
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<PAGE>
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, 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 or surplus 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
aggregate 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.
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(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 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 trading days commencing forty-five (45)
trading 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
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with respect to the Common Stock contained in Sections 10(a) to (f), inclusive,
of this Agreement.
(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 assets 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,
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<PAGE>
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 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 such
effective time, additional cash or other consideration is payable to the holders
of Common Stock of record as of such 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 Purchase 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 in 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(d) and 10(i) of this Agreement, continue to
express the Purchase Price, the number of shares purchasable thereunder and the
Redemption Price, as 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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<PAGE>
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 market
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
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<PAGE>
of this 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 market 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 gross negligence
or willful 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 gross negligence or willful 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 gross negligence or willful
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
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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 C. Fitting, President and Chief Executive Officer, and to the
Warrant Agent at its Corporate Office, attention Compliance Department,
telecopier (212) 509-5150. 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
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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 C. Fitting, President and CEO
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:
------------------------------------
___________________, Authorized Officer
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(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
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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>
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 on __________, 2000 or such
earlier date as shall be determined and publicly announced by H.D. Brous & Co.
Inc. 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 or by personal or corporate 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.
1
<PAGE>
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 use its reasonable best efforts to 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 "Market Price"
(as defined in the Warrant Agreement) for the Common Stock shall equal or exceed
$_____ per share, subject to adjustment. 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 on
which the Company's Board of Directors approves and authorizes the redemption of
the Warrants, (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.
2
<PAGE>
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
3
<PAGE>
EXHIBIT 4.3
(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 on __________, 2000 or such
earlier date as shall be determined and publicly announced by H.D. Brous & Co.
Inc. 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 or by personal or corporate 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 use its reasonable best efforts to 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
<PAGE>
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 "Market Price"
(as defined in the Warrant Agreement) for the Common Stock shall equal or exceed
$_____ per share, subject to adjustment. 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 on
which the Company's Board of Directors approves and authorizes the redemption of
the Warrants, (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, __________________________________________
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>
EXHIBIT 4.4
Void after 5:00 p.m. New York Time, on ______________, 2005.
Option to Purchase 200,000 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"), 200,000 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 200,000 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 2,000,000 shares of Common Stock and warrants to purchase
2,000,000 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 at its office, or by the stock transfer agent of the Company at
its office, of this Option in proper form for exercise, together with the
payment of the Exercise Price or the "Notice of Exchange" specified in Section
1(b), 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(b), 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 scrip 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:
2
<PAGE>
(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 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 SmallCap 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,
pursuant to the laws of descent and distribution, or by the operation of law)
and may not be assigned, transferred, or hypothecated except to officers and
employees of Brous who are also shareholders of Brous. 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.
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.
3
<PAGE>
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 Company's records, 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 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.
4
<PAGE>
(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 an 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 to 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 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
5
<PAGE>
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. 333-90731 on Form S-2 ("Registration Statement"),
declared effective by the Securities and Exchange Commission on ____________,
2000 or of any new registration statement (other than a Form S-8 or Form S-4 or
a successor form) 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 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 the Option Shares,
use its reasonable best efforts to qualify the Option Shares for sale in such
states as any such Holder shall reasonably designate and do any and all other
acts and things which may be reasonably necessary or desirable to enable such
Holders to consummate the public sale or other disposition of 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 the Option Shares. The Company's obligations to include the Option
Shares in a public offering under this Section 10(a) shall be subject to the
provisions of Section 10(f), below.
(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
6
<PAGE>
the effective date of the Registration Statement to the effect that such holder
contemplates (i) the transfer of 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 all or any part of the Option Shares under
such circumstances that a public offering (within the meaning of the Act) of
Option Shares will be involved, and desires to register under the Act the Option
Shares, then the Company shall, within sixty (60) days after receipt of such
notice, prepare and 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 and for which the Company and the proposed transaction
qualify, pursuant to the Act, to the end that 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 (including the taking of such steps as are necessary to obtain the
removal of any stop order) for the lesser of (A) 180 days or (B) the date on
which the holder has advised the Company that 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 180 days after the majority holder first gives notice to the Company
of his, her, or its desire to register 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. Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting registration of Option Shares pursuant to this
Section 10(b) a certificate signed by the President of the Company stating that
a Blackout Period (as defined in Section 10(e)) is in effect, the Company shall
have the right to defer such filing during the term of such Blackout Period. The
Holder may, at its option, request the registration of 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 Option and even though the
Holder has not given notice of exercise of the Option. 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 provisions 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 in connection therewith as the Company shall
reasonably request in writing to enable the Company to effect such registration.
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 reasonably requested by such
7
<PAGE>
owner to permit such Holder to make a public offering of all Option Shares from
time to time offered or sold to such Holder, provided that such Holder shall
from time to time furnish the Company with such appropriate information in
connection therewith as the Company shall request in writing to enable the
Company to effect such registration. The Company shall also use its reasonable
best efforts to qualify the Option Shares for sale in such states as such
majority Holder shall reasonably 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 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
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 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 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 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 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 (provided such person can
demonstrate to the Company's reasonable satisfaction that he, she, or it owns
such Option Shares) owned by him, her, or among them had not been exercised,
would constitute a majority of the Options originally issued.
(e) The term "Blackout Period" as used in this Section 10 means
any period
(i) beginning on the date on which the Company notifies the
Holders that the Board of Directors of the Company, in its good faith judgment,
has determined that (A) disclosures in the registration statement could have an
adverse effect on the Company's ability to engage in a merger, acquisition, or
similar transaction, or (B) financial statements with respect to the Company
that may be required to utilize a registration statement pursuant to Section
10(b) are unavailable; and
(ii) ending on the date (1) with respect to Section
10(e)(i)(A) above, upon the earliest to occur of (x) the consummation of such
merger, acquisition, or similar transaction, (y) the date on which the Company
terminates discussions or any definitive agreement with respect to such merger,
acquisition, or similar transaction, or (z) 180 days after the date on which the
Company notifies the Holders of the Board of Directors' determination pursuant
to Section 10(e)(i)(A); and (2) with respect to Section 10(e)(i)(B) above, as
soon as financial statements sufficient to permit Company to file or permit the
utilization of a registration statement under the Act have become available.
9
<PAGE>
(f) In the event the offering in which Option Shares are to be
included pursuant to Section 10(a) is to be underwritten, the Company shall
furnish the Holders with a written statement of the managing or principal
underwriter as to the Maximum Includable Securities (as defined in Section
10(f)(iii), below) as soon as practicable after the Holder's request to have
Option Shares included in such offering, as provided for in Section 10(a). If
the total number of securities proposed to be included in such registration
statement is in excess of the Maximum Includable Securities, the number of
securities to be included within the coverage of such registration statement
shall be reduced to the Maximum Includable Securities as follows:
(i) no reduction shall be made in the number of shares of
capital stock or other securities to be registered for the account of the
Company or for the account of any of the Company's securityholders that have the
right to require the Company to initiate the registration of such securities;
and
(ii) the number of Option Shares and other securities that
may be included in the registration, if any, shall be allocated among the
Holders of this Option and/or the Option Shares and holders of other securities
(the "Other Holders") requesting inclusion on a pro rata basis, with the number
of each type or class of securities of each Holder and Other Holder thereof
included in the registration to be that number determined by multiplying (A) the
total number of such type or class of security included in the Maximum
Includable Securities less (B) the number of such type or class of security to
be registered for the account of the Company or other securityholders that have
the right to require the Company to initiate the registration, by a fraction,
the numerator of which will be the total number of such type or class of
security that such Holder or Other Holder owns, and the denominator of which
will be the total number of such type or class of security owned by all Holders
and Other Holders that have requested inclusion of such type or class of
security in the registration.
(iii) "Maximum Includable Securities" shall mean the maximum
number of shares of each type or class of the Company's securities that a
managing or principal underwriter, in its good faith judgment, deems practicable
to offer and sell at that time in a firm commitment underwritten offering
without materially and adversely affecting the marketability or price of the
securities of the Company to be offered. When more than one type or class of the
Company's securities are to be included in a registration, the managing or
principal underwriter of the offering shall designate the maximum number of each
such type or class of securities that is included in the Maximum Includable
Securities.
(g) The Company's agreements with respect to Option Shares under
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:
------------------------------------
<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>
EXHIBIT 4.5
FORM OF LOCK-UP AGREEMENT
_______________, 2000
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 six (6) months 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.
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)
<PAGE>
Signature: ____________________________
Indicate how shares held: _____________
_______________________________________
_______________________________________
_______________________________________
_______________________________________
(indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF DORSEY & WHITNEY LLP]
January 11, 2000
The Board of Directors
Radyne Comstream Inc.
3138 East Elwood Street
Phoenix, Arizona 85034
Ladies and Gentlemen:
We are acting as counsel to Radyne Comstream, Inc., a New York
corporation (the "Company"), in connection with the Registration Statement on
Form S-2 (Commission File No. 333-90731), as amended (the "Registration
Statement"), filed by the Company under the Securities Act of 1933, as amended,
and the rules and regulations thereunder, relating to the registration of (i)
2,300,000 units, including units to cover overallotments, consisting of
2,300,000 shares (the "Shares"), of the Company's common stock, $0.002 par value
per share (the "Common Stock") and redeemable Common Stock Purchase Warrants
(the "Warrants") to purchase 2,300,000 shares of Common Stock, for sale by the
underwriters (as such term is described in the Registration Statement), (ii)
2,300,000 shares of Common Stock issuable upon exercise of the Warrants, (iii)
an option to HD Brous & Co., as the representative of several underwriters, to
purchase 200,000 shares of Common Stock (the "Representative's Purchase
Option"), and (iv) 200,000 shares of Common Stock issuable upon exercise of the
Representative's Purchase Option.
As such counsel, we have participated in the preparation of the
Registration Statement, and have reviewed the corporate proceedings of the
Company in connection therewith and have also examined and relied upon originals
or copies, certified or otherwise authenticated to our satisfaction of all such
corporate records, documents, agreements, instruments relating to the Company
and certificates of public officials and of representatives of the Company, and
have also made such investigations of law and have discussed with
representatives of the Company and such other persons such questions
<PAGE>
of fact, as we have deemed proper and necessary as a basis for rendering this
opinion.
Based upon, and subject to, the foregoing, we are of the opinion that:
(i) the Shares, the Warrants, 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
have been duly authorized;
(ii) the Shares, when duly delivered and paid for, pursuant to the
terms of a validly authorized and executed underwriting agreement, substantially
in the form attached as Exhibit 1.1 to the Registration Statement, will be duly
and validly issued, fully paid and non-assessable;
(iii) the Warrants, when duly delivered and paid for, pursuant to the
terms of a validly authorized and executed underwriting agreement, substantially
in the form attached as Exhibit 1.1 to the Registration Statement, and a validly
authorized and executed warrant agreement, substantially in the form attached as
Exhibit 4.2 to the Registration Statement (the "Warrant Agreement"), will
constitute legal, valid and binding obligations of the Company, enforceable
(except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting the rights of creditors generally) as to the Company in accordance
with its terms;
(iv) the shares of Common Stock issuable upon exercise of the Warrants,
pursuant to the terms of a validly authorized and executed Warrant Agreement,
will be duly and validly issued, fully paid and non-assessable; and
(v) the Representative's Purchase Option, when duly delivered and paid
for, pursuant to the terms of validly authorized and executed underwriting
agreement, substantially in the form attached as Exhibit 1.1 to the Registration
Statement, and a validly authorized and executed representative's purchase
option, substantially in the form attached as Exhibit 4.4 to the Registration
Statement, will constitute legal, valid and binding obligations of the Company,
enforceable (except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting the rights of creditor generally) as to the Company in
accordance with its terms.
<PAGE>
(vi) the shares of Common Stock issuable upon exercise of the
Representative's Purchase Option, pursuant to the terms of a validly authorized
and executed Representative's Purchase Option, will be validly issued, fully
paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. In giving the foregoing consent, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ Dorsey & Whitney LLP
<PAGE>
EXHIBIT 10.11
AMENDMENT
This Amendment, dated as of September 30, 1999, is made and entered into
between Radyne ComStream Inc. (the 'Borrower') and CitiBank, N.A. (the 'Bank').
WITNESSETH
WHEREAS, the Borrower and the Bank have entered into that certain
Uncommitted Line of Credit Facility Letter Agreement, dated as of May 18, 1998,
and amended by the Amendment dated as of September 21, 1998 (as so amended, the
'Agreement'); and
WHEREAS, the Borrower and the Bank desire to amend the Agreement in
certain respects;
NOW THEREFORE, in consideration of the premise and the mutual agreements,
representations and warranties set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION 1. Definitions and References. Capitalized terms not otherwise
defined herein shall have the meanings attributed thereto in the Agreement. In
addition, as used herein:
'Amendment Effective Date' means the date upon which the conditions
specified in Section 5 below shall have been satisfied.
SECTION 2. Amendments. Subject to Section 5 hereof, on and as of the
Amendment Effective Date, the Agreement shall be amended as follows:
(a) The reference in the second sentence of the introductory paragraph
to 'September 29, 1999' is amended to read 'September 28, 2000'.
(b) The reference in the first sentence of paragraph 1 to
'$20,000,000' is amended to read '$20,500,000'.
(c) The third sentence of paragraph 1 is amended in its entirety to
read as follows:
'In connection with our making this uncommitted facility available
to you, you agree to pay us a non-refundable fee equal to 1.0% per
annum, or $205,000, upon your acceptance hereof and at each
anniversary of the renewal hereof if this facility is renewed.'
(d) Clause (g) of paragraph 10 is amended in its entirety to read as
follows: '(g) beginning the first quarter ending March 31, 2000,
maintain a maximum financial leverage (defined as total
liabilities over tangible net worth, as such terms are defined in
accordance with generally accepted accounting principles) of not
more than 2:1.'
<PAGE>
(e) Paragraph 12 is amended by adding an additional clause (h)
immediately after clause (g), reading as follows:
'; or (h) your failure to increase, on or before March 31, 2000,
your tangible net worth (as such term is defined in accordance
with generally accepted accounting principles) by at least
$5,000,000 through the issuance and sale of previously authorized
but unissued shares of your common stock, from your tangible net
worth on December 31, 1999.'
(f) The reference in the upper right hand corner of the Note to
'September 21, 1998' is amended to read 'September 30, 1999'.
SECTION 3. Representations True; No Default. The Borrower represents and
warrants that:
(a) The representations and warranties contained in paragraph 9 of the
Agreement are correct on and as of the date of this Amendment as though made on
and as of the date hereof.
(b) No event has occurred and is continuing, or would result from the
execution and delivery of this Amendment, which constitutes an Event of Default
or which, with the giving of notice and/or the passage of time, would constitute
an Event of Default.
SECTION 4. Legal Obligation. The Borrower represents and warrants to the
Bank that this Amendment has been duly authorized, executed and delivered on its
behalf, and that the Agreement, as amended hereby, constitutes a legal, valid
and binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms.
SECTION 5. Conditions Precedent. The amendment of the Agreement provided
herein is subject to the following conditions precedent:
(a) a counterpart of this Amendment duly executed by you;
(b) certified copies of the resolutions of your Board of Directors
approving this Amendment and the new Note, and all other documents evidencing
necessary corporate action and governmental and other third party approvals, if
any, with respect to this Amendment and the new Note;
(c) a certificate of your Secretary certifying the names and true
signatures of your officers authorized to sign this Amendment and the new Note
and the other documents to be delivered hereunder and to request Advances
hereunder; and
(d) a letter of awareness executed by Singapore Technologies Pte Ltd. in
the form attached hereto as Exhibit B.
SECTION 6. Miscellaneous.
(a) Except as herein provided, the Agreement and all other documents
executed in connection therewith shall remain unchanged and in full force and
effect.
<PAGE>
(b) The Agreement and this Amendment shall be read, taken and construed as
one and the same instrument.
(c) This Amendment shall be governed by, and construed in accordance with,
the laws of the State of New York.
(d) All references in the Agreement and any other document executed in
connection with the Agreement (including without limitation, the Note) to the
Agreement (including indirect references) shall mean and be a reference to the
Agreement as amended hereby. All references in the Agreement and any other
document executed in connection with the Agreement (including without
limitation, the Note) to the Note (including indirect references) shall mean and
be a reference to the Note as amended hereby.
(e) This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
CITIBANK, N.A.
By: /s/ BRIGITTE T.A. VUONG
---------------------------------
Name: Brigitte T.A. Vuong
Title: Vice President
Agreed and Accepted
RADYNE COMSTREAM INC.
By: /s/ Robert C. Fitting
___________________________________
Name: Robert C. Fitting
Title: President
<PAGE>
EXHIBIT B
LETTER OF AWARENESS
We refer to the Uncommitted Line of Credit Facility Letter Agreements dated
September 30, 1999 of $20,500,000 facilities granted to Radyne ComStream, Inc.
('the Company') by Citibank, N.A., and would like to confirm the following:
1. The Company is an indirect subsidiary of Singapore Technologies Pte Ltd. As
of the current date, our subsidiaries, Stetsys US Inc., incorporated in the
United States of America, and Stetsys Pte Ltd., incorporated in Singapore,
directly own 11% and 79% of the issued common stock of the Company
respectively. Stetsys US Inc. is in turn a 100% subsidiary of Stetsys Pte
Ltd. We own 100% of Stetsys Pte Ltd.
2. We will use reasonable endeavors to ensure that the Company implements sound
commercial and financial practices such that it will be in a position to meet
the obligations that it incurs with any third-party in the ordinary course of
business, including those incurred under the aforementioned uncommitted lines
of credit and banking facilities.
3. We will give prior written notice of at least 60 days to Citibank, N.A. of
any divestment of shares by Stetsys US Inc., Stetsys Pte Ltd. and/or
ourselves in the Company, Stetsys US Inc. and Stetsys Pte Ltd., respectively.
For avoidance of doubt, no legally binding obligation or liability on our part,
whether primary or secondary, is intended to be created or assumed by the above
confirmation.
For Singapore Technologies Pte Ltd.
Yours faithfully,
By ___________________________________
Name: Lim Ming Seong
Title:
By ___________________________________
Name: Boon Swan Foo
Title:
<PAGE>
AMENDMENT
This Amendment, dated as of September 21, 1998, is made and entered into
between Radyne Corporation (the 'Borrower') and Citibank, N.A. (the 'Bank').
WITNESSETH
WHEREAS, the Borrower and the Bank have entered into that certain
Uncommitted Line of Credit Facility Letter Agreement, dated as of May 18, 1998
(the 'Agreement'); and
WHEREAS, the Borrower and the Bank desire to amend the Agreement in certain
respects;
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
representations and warranties set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION 1. Definitions and References. Capitalized terms not otherwise
defined herein shall have the meanings attributed thereto in the Agreement. In
addition, as used herein:
'Amendment Effective Date' means the date upon which the conditions
specified in Section 5 below have been satisfied.
SECTION 2. Amendments. Subject to Section 5 hereof, on and as of the
Amendment Effective Date, the Agreement shall be amended as follows:
(a) The reference in the second sentence of the introductory paragraph to
'September 30, 1998' is amended to read 'September 29, 1999'.
(b) The reference in the first sentence of paragraph 1 to '$5,000,000' is
amended to read '$20,000,000'.
<PAGE>
(c) The third sentence of paragraph 1 is amended in its entirety to read as
follows:
'In connection with our making this uncommitted facility available to
you, you agree to pay us a non-refundable fee equal to 1.0% per annum, or
$200,000, upon your acceptance hereof and at each anniversary of the
renewal hereof if this facility is renewed.'
(d) The third sentence of paragraph 2 is amended in its entirety to read as
follows:
'If we agree to make such an Advance, we will make such funds
available to you in same day funds by crediting your demand deposit account
number as you shall notify us from time to time.'
(e) Clause (g) of paragraph 10 is amended in its entirety to read as
follows:
'(g) maintain a maximum financial leverage (defined as total
liabilities over tangible net worth, as such terms are defined in
accordance with generally accepted accounting principles) of not more than
2:1.'
(f) The reference in clause (g) of paragraph 12 to '50%' is amended to read
'51%'.
(g) The reference in the upper left hand corner of the Note to
'U.S.$5,000,000.00' is amended to read 'U.S.20,000,000.00'.
(h) The reference in the upper right hand corner of the Note to 'May 18,
1998' is amended to read 'September 21, 1998'.
SECTION 3. Representations True; No Default. The Borrower represents and
warrants that:
(a) The representations and warrants contained in paragraph 9 of the
Agreement are correct on and as of the date of this Amendment as though made on
and as of the date hereof.
(b) No event has occurred and is continuing, or would result from the
execution and delivery of this Amendment, which constitutes an Event of Default
or which, with the giving of notice and/or the passage of time, would constitute
an Event of Default.
SECTION 4. Legal Obligation. The Borrower represents and warrants to the
Bank that this Amendment has been duly authorized, executed and delivered on its
behalf, and that the Agreement, as amended hereby, constitutes a legal, valid
and binding obligation of the Borrower, enforeceable against the Borrower in
accordance with its terms.
<PAGE>
SECTION 5. Conditions Precedent. The amendment of the Agreement provided
herein is subject to the following conditions precedent:
(a) a counterpart of this Amendment duly executed by you;
(b) certified copies of the resolutions of your Board of Directors
approving this Amendment and the new Note, and all other documents evidencing
necessary corporate action and governmental and other third party approvals, if
any, with respect to this Amendment and the new Note;
(c) a certificate of your Secretary or Assistant Secretary certifying the
names and true signatures of your officers authorized to sign this Amendment and
the new Note and the other documents to be delivered hereunder and to request
Advances hereunder;
(d) a letter of awareness executed by Singapore Technologies Pte Ltd. in
the form attached hereto as Exhibit B; and
(e) Singapore Technologies Pte Ltd. shall have made a new capital
contribution to the Borrower in connection with the acquisition of Comstream in
an amount greater than or equal to $16,000,000 from conversion of existing
shareholder loans.
SECTION 6. Miscellaneous.
(a) Except as herein provided, the Agreement and all other documents
executed in connection therewith shall remain unchanged and in full force and
effect.
(b) The Agreement and this Amendment shall be read, taken and construed as
one and the same instrument.
(c) This Amendment shall be governed by, and construed in accordance with,
the laws of the State of New York.
(d) All references in the Agreement and any other document executed in
connection with the Agreement (including without limitation, the Note) to the
Agreement (including indirect references) shall mean and be a reference to the
Agreement as amended hereby. All references in the Agreement and any other
document executed in connection with the Agreement (including without
limitation, the Note) to the Note (including indirect references) shall mean and
be a reference to the Note as amended hereby.
(c) This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be
<PAGE>
deemed an original and all of which taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
CITIBANK, N.A.
By: /s/ WILLIAM G. DREWES
---------------------------------
Name: William G. Drewes
Title: Attorney-In-Fact
Agreed and Accepted
RADYNE COMSTREAM INC.
By: /s/ Robert C. Fitting
___________________________________
Name: Robert C. Fitting
Title: President
<PAGE>
LETTERHEAD OF CITIBANK, N.A. [CITIBANK LOGO]
May 18, 1998
Radyne Corporation
5225 South 37th Street
Phoenix, AZ 85040
Attn: Mr. Lim Boon Kheng
Uncommitted Line of Credit Facility
Ladies and Gentlemen:
We are pleased to make available to Radyne Corporation ('YOU') a credit
facility for use solely for general corporate purposes on the terms set forth in
this letter agreement (as amended or otherwise modified from time to time, this
'AGREEMENT'). This credit facility is valid from the Effective Date (as defined
in paragraph 7) until September 30, 1998 (such date or the earlier termination
of this Agreement pursuant to paragraph 13 being the 'TERMINATION DATE').
1. We agree to consider from time to time, on the terms and conditions set
forth in this Agreement, your requests that we make advances ('ADVANCES') to you
in an aggregate, amount not to exceed $5,000,000 at any one time outstanding.
THIS LETTER IS NOT A COMMITMENT TO LEND BUT RATHER SETS FORTH THE PROCEDURES TO
BE USED IN CONNECTION WITH YOUR REQUESTS FOR OUR MAKING OF ADVANCES TO YOU FROM
TIME TO TIME ON OR PRIOR TO THE TERMINATION DATE AND, IF WE MAKE ADVANCES TO YOU
HEREUNDER, YOUR OBLIGATIONS TO US WITH RESPECT THERETO. In connection with our
making this uncommitted facility available to you, you agree to pay us a
non-refundable fee equal to 0.5% per annum, or $20,625, upon your acceptance
hereof and at each anniversary of the renewal hereof if this facility is renewed
provided however that if at the time of any such renewal, the financial leverage
contemplated by Paragraph 10(g) hereof is less than 1:1 then such fee will be
reduced to 0.375% per annum, or $20,625.
2. Each Advance shall be made upon your request to us, given not later than
2:00 P.M. (New York City time) three Business Days (as denied below) prior to
the date of any proposed Advance based on the Eurodollar Rate (as defined in
paragraph 4) (a 'EURODOLLAR RATE ADVANCE'), or not later than 11:00 A.M. (New
York City time) on the date of any proposed Advance based on a Quoted Rate (as
defined in paragraph 4) (a 'QUOTED RATE ADVANCE'), that you wish to borrow money
on a specified date (which shall be a day of the year on which banks are not
required or authorized by law to close in New York City ('BUSINESS DAY')), in a
specified amount (which, in the case of a Eurodollar Rate Advance, shall be in
the amount of $1,000,000 or an integral multiple thereof, and in the case of a
Quoted Rate Advance, shall be in the amount of $100,000 or an integral multiple
thereof) and for a specified interest period ('INTEREST PERIOD'), which
request shall also indicate whether such Advance is to accrue interest at the
Eurodollar Rate or a Quoted Rate. The duration of each Interest Period specified
by you shall be, with respect to Eurodollar Rate Advances, one, two or three
months, and with respect to
<PAGE>
Quoted Rate Advances, a term requested by you and agreed to by us at the time of
your request for such Quoted Rate Advance, provided that (i) you may not select
any Interest Period that ends after the Termination Date; (ii) whenever the
last day of an Interest Period would otherwise occur on a day other than a
Business Day, the last day of such Interest Period shall be extended to occur
on the next succeeding Business Day, provided that if such extension would cause
the last day of such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the next preceding
Business Day; and (iii) with respect to Eurodollar Rate Advances, whenever the
first day of any Interest Period occurs on a day of an initial calendar month
for which there is no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of months equal to the number
of months in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month. If we agree to make such
Advance, we will make such funds available to you in same day funds by crediting
your demand deposit account no. _________ (the 'ACCOUNT') at our office at
399 Park Avenue, New York, New York 10043.
3. You shall repay the principal amount of each Advance on the earlier to
occur of the last day of the Interest Period for such Advance and the
Termination Date, together with accrued interest thereon. You may prepay any
Advance in whole or in part on any Business Day, provided that (i) you have
given us at least three Business Days' irrevocable written notice of such
prepayment (and on the date specified for such prepayment in such notice, you
shall prepay the amount of the Advance to be prepaid, together with accrued
interest thereon to the date of prepayment and any other amounts payable by you
pursuant to paragraph 18), and (ii) each partial prepayment of a Eurodollar
Rate Advance shall be in a principal amount of at least $1,000,000.
4. You shall pay interest on the unpaid principal amount of each Advance
from the date of such Advance until such principal amount shall be paid in full,
in the case of a Eurodollar Rate Advance, at a rate equal to the Eurodollar Rate
for the Interest Period for such Advance, and in the case of a Quoted Rate
Advance, at a rate equal to the Quoted Rate for such Advance, in each
case payable in arrears on the last day of the Interest Period for such
Advance and, if such Interest Period is longer than three months, on each day
that occurs during such Interest Period every three months from the first day of
such Interest Period. 'EURODOLLAR RATE' means, for any Interest Period for any
Eurodollar Rate Advance, an interest rate per annum equal to the rate per annum
obtained by dividing (i) the sum of (x) the rate per annum at which deposits in
U.S. Dollars are offered by our principal office in London, England to prime
banks in the London interbank market at 11:00 A.M. (London time) two Business
Days before the first day of such Interest Period in an amount substantially
equal to such Advance and for a period equal to such Interest Period, plus (y)
1%, by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage (as defined below) for such Interest Period. 'EURODOLLAR RATE RESERVE
PERCENTAGE' for any interest Period for any Eurodollar Rate Advance means the
reserve percentage applicable two Business Days before the first day of such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including without limitation, any emergency,
supplemental or other marginal reserve requirement) for a member bank
of the Federal Reserve System in New York City with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities (having the meaning
assigned to such term in Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time) (or with respect to any other
category of liabilities that includes deposits by reference to which the
interest rate on the Eurodollar Rate Advances is determined) having a term equal
to such Interest Period. 'QUOTED RATE' means, for each Quoted Rate Advance, a
rate quoted by us
<PAGE>
and agreed to by you for an Interest Period for such Advance requested by
you and agreed to by us pursuant to paragraph 2. 'BASE RATE' means a fluctuating
rate of interest announced publicly by us in New York, New York from time to
time as our base rate. Any overdue amount of principal, interest or other amount
payable hereunder shall bear interest, payable on demand, at the Base Rate
plus 2% per annum.
5. If, due to either (i) the introduction of or any change in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
cost to us of agreeing to make or making, funding or maintaining Advances, then
you shall from time to time, upon our demand, pay to us additional amounts
sufficient to compensate us for such increased cost. In addition, if we
determine that compliance with any law or regulation or any guideline or request
from any central bank or other governmental authority (whether or not having the
force of law) after the date hereof affects or would affect the amount of
capital required or expected to be maintained by us or any corporation
controlling us and that the amount of such capital is increased by or based upon
the existence of Advances hereunder, then, upon our demand, you shall
immediately pay to us, from time to time as specified by us, additional amounts
sufficient to compensate us or such corporation in the light of such
circumstances, to the extent that we reasonably determine such increase in
capital to be allocable to the existence of the Advances hereunder. A
certificate as to such amounts submitted to you by us shall be conclusive and
binding for all purposes, absent manifest error. Notwithstanding any other
provision of this Agreement, if the introduction of or any change in or in the
interpretation of any law or regulation shall make it unlawful, or any central
bank or other governmental authority shall assert that it is unlawful, for us to
fund or maintain Advances made hereunder, then, on notice thereof and demand
therefor made by us, each Advance will automatically, upon such demand, convert
into an Advance accruing interest at the Base Rate. Any Advance accruing
interest at the Base Rate shall continue to be an 'Advance' for the purpose of
this Agreement.
6. You shall make each payment (whether in respect of principal interest,
facility fee or otherwise) hereunder, irrespective of any right of counterclaim
or set-off, not later than 2:00 P.M. (New York City time) on day when due in
U.S. dollars to us at 399 Park Avenue, New York, New York 10043 in same day
funds. You hereby authorize us, if and to the extent payment owed to us is not
made when due hereunder, to charge from time to time against any or all of your
accounts with us or any of our affiliates any amount so due. All computations of
interest and facility fees shall be made by us on the basis of a year of 360
days, in each case for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or fee
is payable. Each determination by us of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error. Whenever any
payment hereunder shall be stated to be due on a day other than a Business Day,
such payment shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest.
7. This Agreement shall become effective on and as of the first date (the
'EFFECTIVE DATE') on which we shall have received the following, in form and
substance satisfactory to us: (i) a counterpart of this Agreement duly executed
by you; (ii) a promissory note in the form attached hereto as Exhibit A (as
amended or otherwise modified from time to time, the 'NOTE') duly executed by
you; (iii) certified copies of the resolutions of your Board of Directors
approving this Agreement and the Note, and of all other documents evidencing
necessary corporate action and governmental and other third party approvals, if
any, with respect to this
<PAGE>
Agreement and the Note; (iv) a certificate of your Secretary or Assistant
Secretary certifying the names and true signatures of your officers authorized
to sign this Agreement, the Note and the other documents to be delivered
hereunder and to request Advances hereunder ('DESIGNATED OFFICERS'); (v) a
letter of awareness executed by Singapore Technologies Pte Ltd. in the form
attached hereto as Exhibit B; and (vi) a letter of undertaking executed by
Stetsys US Inc. stating that: (a) it will not ask for repayment of the current
$5,100,000 intercompany loan extended to you, until you have increased your
share capital by at least $5,100,000, and (b) it will ensure that you increase
your share capital by at least $6,000,000 not later than September 30, 1998.
8. Each request by you for an Advance and the acceptance by you of the
proceeds of such Advance shall constitute a representation and warranty by you
that on the date of such Advanced the following statements are true:
(i) the representations and warranties contained in paragraph 9 are
correct on and as of the date of such Advance, before and after giving
effect to such Advance and to the application of the proceeds therefrom, as
though made on and as of such date (other than any such representations or
warranties that, by their terms, refer to a date other than the date of
such Advance), and
(ii) no event has occurred and is continuing, or would result from
such Advance or from the application of the proceeds therefrom, that
constitutes an Event of Default (as defined in paragraph 12) or a Default
(as defined in paragraph 10).
In addition, prior to making any Advance to you, you agree that you shall
deliver to us such documents, approvals and opinions as we may reasonably
request.
9. You represent and warrant as follows: (a) you are a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York; (b) execution, delivery and performance by you of of this Agreement
and the Note, and the consummation of the transactions contemplated hereby, are
within your corporate powers and authority, have been duly authorized by all
necessary corporate action, and do not contravene (i) your charter or by-laws or
(ii) any law or any contractual restriction binding on or affecting you; (c) no
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body or any other third party is
required for the due execution, delivery and performance by you of this
Agreement or the Note; (d) this Agreement and the Note have been duly executed
and delivered by you, and are your legal, valid and binding obligations
enforceable against you in accordance with their respective terms; (e) there
is no pending or threatened action, suit, investigation, litigation or
proceeding affecting you or your subsidiaries before any court, governmental
agency or arbitrator that (i) could be reasonably likely to have a material
adverse effect on the business, operations or condition (financial or
otherwise) of you and your subsidiaries taken as a whole, our rights and
remedies under this Agreement or the Note, or your ability to perform you
obligations under this Agreement or the Note, or (ii) purport to affect the
legality, validity or enforceability of this Agreement or the Note or the
consummation of the transactions contemplated hereby; and (f) no proceeds
of any Advance will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock.
10. So long as any Advance shall remain unpaid, you will (a) comply, and
cause each of your subsidiaries to comply, in all material respects, with all
applicable laws, rules, regulations and orders; (b) pay and discharge, and cause
each of your subsidiaries to pay and
<PAGE>
discharge, before the same shall become delinquent, all taxes, assessments and
governmental charges or levies imposed upon you or it or your or its property,
other than those being contested in good faith and by proper proceedings and as
to which appropriate reserves are being maintained; (c) preserve and maintain,
and cause each of your subsidiaries to preserve and maintain, your and its
corporate existence; (d) at any reasonable time and from time to time, permit us
to visit the properties of you and your subsidiaries, examine and make copies of
your and their books of account and records, and discuss you and their affairs,
finances and accounts with any of your or their officers, directors and
independent certified public accountants; (c) keep, and cause each your
subsidiaries to keep, proper books and records of account in accordance with
general accepted accounting principles in effect from time to time; (f) furnish
to us (i) as soon as available and in any event within 45 days after the end of
each of the first three quarters of each of your fiscal years, consolidated
balance sheets of you and your subsidiaries as of the end of such quarter and
consolidated statements of income and cash flows of you and your subsidiaries
for the period commencing at the end of the previous fiscal year and ending with
the end of such quarter, duly certified by your chief financial officer as
having been prepared in accordance with generally accepted accounting
principles, (ii) as soon as available and in any event within 120 days after the
end of your fiscal years, a copy of the annual audit report for such year for
you and your subsidiaries, containing consolidated balance sheets of you and
your subsidiaries as of the end of such fiscal year and consolidated statements
of income and cash flows of you and your subsidiaries for such fiscal year, in
each case accompanied by an opinion of your independent certified public
accountants, (iii) as soon as possible and in any event within five days after
the occurrence of each Event of Default, and each event which would constitute
an Event of Default but for the requirement that notice be given or time elapse
or both (a 'DEFAULT'), continuing on the date of such statement, a statement of
your chief financial officer setting forth details of such Event of Default or
Default and the action you have taken or propose to take with respect thereto,
(iv) promptly after the commencement thereof, notice of all actions and
proceedings affecting you or any of your subsidiaries of the type described in
paragraph 9(c); and (v) such other information respecting you or any of your
subsidiaries as we may from time to time reasonably request; and (g) from
September 30, 1998 through the termination date, (i) maintain a maximum
financial leverage (defined as total liabilities over tangible net worth, as
such terms are defined in accordance with generally accepted accounting
principles) of not more than 1:1; and (ii) maintain its tangible net worth, as
such term is defined in accordance with generally accepted accounting
principles, of not less than $5,000,000.
11. So long as any Advance shall remain unpaid, you will not create or
suffer to exist, or permit any of your subsidiaries to create or suffer to
exist, any lien, security interest or other encumbrance (a 'LIEN'), other than
(i) purchase money Liens in the ordinary course of business, (ii) Liens existing
on the Effective Date which you have disclosed to us, and (iii) Liens imposed by
law, such as materialmen's mechanics', carriers', workmen's and repairmen's
Liens and other similar Liens arising in the ordinary course of business
securing obligations that are not overdue for a period of more than 30 days.
12. If any of the following events shall occur and be continuing ('EVENT OF
DEFAULT'): (a) you shall fail to pay any principal of any Advance when the same
becomes due and payable or you shall fail to pay any interest on any Advance or
make any other payment under this Agreement within three days of when such
amount is due and payable; or (b) any representation or warranty made by you
herein or by you (or any of your officers) in connection with this Agreement
shall prove to have been incorrect in any material respect when made; or (c) you
shall fail to perform or observe any term, covenant or agreement hereof
contained in
<PAGE>
paragraph 11 or you shall fail to perform or observe any other item, covenant or
agreement hereof on your part to be performed or observed if such failure shall
remain unremedied for 30 days after written notice thereof shall have been given
to you by us; or (d) you or any of your subsidiaries shall fail to pay any
principal of or premium or interest on any of your or your subsidiaries' debt
(as the case may be) that is outstanding in a principal amount of at least
$500,000 in the aggregate (but excluding debt outstanding hereunder), when the
same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such debt; or any other event shall occur or condition
shall exist under any agreement or instrument relating to any such debt and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such debt; or any
such debt shall be declared to be due and payable, or required to be prepaid or
redeemed (other than by a regularly scheduled required prepayment or
redemption), purchased or defeased, or an offer to prepay, redeem, purchase or
defease such debt shall be required to be made, in each case prior to the stated
maturity thereof; or (e) you or any of your subsidiaries shall generally not pay
your or its debts as such debts become due, or shall admit in writing your or
its inability to pay your or its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against you or any of your subsidiaries seeking to adjudicate you or it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of you or it or your
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a custodian, receiver, trustee or other similar official for you
or it or for any substantial part of your or its property, and, in the case of
any such proceeding instituted against you or it (but not instituted by you or
it), either such proceeding shall remain undismissed or unstayed for a period of
30 days, or any of the actions sought in such proceeding (including without
limitation, the entry of an order for relief against, or the appointment of a
conservator, receiver, trustee, custodian or other similar official for you or
it or for any substantial part of your or its property) shall occur; or you or
any of your subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this subparagraph (c); or (f) one or more judgments
or orders for the payment of money in excess of $500,000 in the aggregate shall
be rendered against you or any of your subsidiaries and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or (g) Singapore Technologies Pte Ltd. fails
to own, either directly or indirectly, at least 50% of your issued and
outstanding common stock.
[ILLEGIBLE COPY]
then, and in any such event, we may, by notice to you, declare all amounts
payable under this Agreement to be forthwith due and payable, whereupon such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by you; provided, however, that in the event of an actual or deemed entry
of an order for relief with respect to you under the Federal Bankruptcy Code,
all amounts payable under this Agreement shall automatically become and be due
and payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by you.
13. This Agreement may be terminated by either you or us by giving written
notice of termination to the other party hereto, but no such termination shall
affect your obligations with respect to Advances outstanding at the time of such
termination. We may amend or modify the
<PAGE>
terms and conditions of this Agreement at any time without prior notice to you
and without your consent, but no such amendment or modification shall affect
your obligations with respect to Advances outstanding at the time of such
amendment or modification.
14. No amendment or waiver of any provision of this Agreement or the Note,
nor consent to any departure by you therefrom, shall in any event be effective
unless the same shall be in writing and signed by you and us, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
15. All notices and other communications provided for hereunder shall be in
writing (including telecopier communication) and mailed, telecopied or
delivered, at address set forth below for you and for us; or, as to either
party, at such other address as shall be designated by such party in a written
notice to the other party. All such notices and communications shall, when
mailed or telecopied, be effective three Business Days after deposit in the
mails, or when telecopied, respectively, except that notices and communications
to us pursuant to paragraphs 2, 3 or 13 shall not be effective until received by
us.
If to you,
Radyne Corporation
5225 South 37th Street
Phoenix, AZ 85040
Attn: Mr. Garry D. Kline, CFO
Phone: 602-437-9260
Fax: 602-437-4811
If to us, for credit related matters
Citibank, N.A.
399 Park Avenue
New York, NY 10043
Attn: Ms. Brigitte T.A. Vuong, VP
Phone: 212-559-4075
Fax: 212-793-7460
For notices on borrowings, payments, and other loan or operational matters
Citibank Delaware
Two Penn's Way
Suite 200
New Castle, DE 19720
Attn: Mr. Sydney A. Chance, Jr.
Phone: 302-894-6076
Fax: 302-894-6120
16. No failure on our part to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
<PAGE>
17. You agree to pay on demand all our reasonable out-of-pocket costs and
expenses (including without limitation, reasonable counsel fees and expenses) in
connection with the preparation, execution, delivery, administration,
modification, amendment and enforcement (whether through negotiations, legal
proceedings or otherwise) of this Agreement, the Note and the other documents to
be delivered hereunder, including without limitation, reasonable out-of-pocket
fees and expenses of our counsel in connection with the enforcement of rights
under this paragraph and otherwise in connection herewith. You agree to
indemnify and hold harmless us and each of our affiliates and our and their
officers, directors, employee, agents and advisors (each, an 'INDEMNIFIED
PARTY') from and against any and all claims, damages, losses, liabilities and
expenses (including without limitation, reasonable fees and expenses of counsel)
that may be incurred by or asserted or awarded against any indemnified Party, in
each case arising out of or in connection with this Agreement, the Note, any of
the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances, including without limitation, any of the foregoing
arising out of or in connection with any claim, litigation, investigation
proceeding, or preparation of a defense in connection therewith, except to the
extent such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct. In the
case of an investigation, litigation or other proceeding to which the indemnity
in this paragraph applies, such indemnity shall be effective whether or not such
investigation, litigation or proceeding is brought by you or your directors,
shareholders or creditors or an Indemnified Party, or any Indemnified Party is
otherwise a party thereto, and whether or not the transactions contemplated
hereby are consummated.
18. If you make any payment of principal of any Advance on any day other
than the last day of the Interest Period applicable thereto (as a result of a
prepayment, acceleration, conversion of the interest rate for any Advance to the
Base Rate pursuant to paragraph 5, or otherwise), or if you fail to borrow or
prepay any Advance after you have given us notice thereof and, in the case of a
borrowing, we have agreed to make such Advance, you shall, upon demand by us,
pay us any amounts required to compensate us for any losses, costs or expenses
that we may reasonably incur as a result of such payment or failure to borrow or
prepay.
19. If on or prior to the first day of any Interest Period for any
Eurodollar Rate Advance, we advise you that (i) deposits in U.S. Dollars (in the
applicable amounts) are not being offered by us in the relevant market for such
Interest Period, or (ii) the Eurodollar Rate will not adequately and fairly
reflect our cost of funding such Eurodollar Rate Advance, then we shall promptly
give you notice thereof, and Eurodollar Rate Advances shall be suspended until
we notify you that the circumstances causing such suspension no longer exist.
20. We shall incur no liability to you in acting upon any request or other
communication we believe in the absence of gross negligence to have been given
by a Designated Officer or in otherwise acting in good faith under this
Agreement. Further, all documents required to be executed by you in connection
with Advances under this Agreement may be signed by any Designated Officer.
21. This Agreement and the Note shall be binding upon and inure to the
benefit of you, us and your and our respective successors and assigns, except
that you shall not have the right to assign your rights or obligations hereunder
or under the Notes or any interest herein or therein without our prior written
consent. Notwithstanding any other provisions set forth in this Agreement, we
may at any time create a security interest in all or any portion of our rights
under this Agreement and the Note in favor of any Federal Reserve Bank.
<PAGE>
22. This Agreement and the Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
23. You hereby irrevocably (i) submit to the jurisdiction of any New York
State or Federal court sitting in New York City in any action or proceeding
arising out of or relating to this Agreement or the Note, (ii) agree that all
claims in respect of such action or proceeding may be heard and determined in
such New Your State court or in such Federal court, and (iii) waive, to the
fullest extent you may effectively do so, the defense of any inconvenient forum
to the maintenance of such action or proceeding. You agree that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdiction by suit on the judgment or in any other manner provided by
law. Nothing herein shall affect our right to serve legal process in any other
manner permitted by law or affect our right to bring any action or proceeding
against you or your property in the courts of other jurisdictions.
24. If an Event of Default shall have occurred and be continuing, we and
each of our affiliates is hereby authorized at any time and from time to time,
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other obligations at any time owing by us or any of our affiliates to
or for your credit or account against any and all of your obligations now or
hereafter existing under this Agreement or the Note, irrespective of whether we
shall have made demand under this Agreement and although such obligations may be
unmatured. Our rights under this paragraph are in addition to other rights and
remedies (including without limitation, other rights of set-off) which we may
have.
25. Each of the parties hereto hereby irrevocable waives all right to trial
by jury in any action, proceeding or counterclaim (whether based on contract,
tort or otherwise) arising out of or relating to this Agreement, the Note, the
Advances or our actions in the negotiation, administration, performance or
enforcement hereof or thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
CITIBANK, N.A.
By WILLIAM G. DREWES
..................................
Name: William G. Drewes
Title: Attorney-In-Fact
Agreed and Accepted
RADYNE CORPORATION
By ROBERT C. FITTING
..................................
Name: Robert C. Fitting
Title: President
<PAGE>
EXHIBIT 10.12
STOCK PURCHASE
LOAN AGREEMENT
This Loan Agreement ("Agreement") is made this 8th day of October, 1999
by and between Radyne ComStream Inc., a New York corporation ("the Company")
with principal offices at 3138 East Elwood, Phoenix, Arizona, 84034 and Robert
C. Fitting, (the "Employee") whose address is, 6035 East Cholla Lane,
Scottsdale, Arizona 85253.
WHEREAS the Board of Directors of the Company has determined that the
Company shall lend to the Employee that certain amount as stated elsewhere
herein for the sole purpose of purchasing stock of the Company represented by
stock options the Company has previously granted to the Employee; and
WHEREAS the Company's Board of Directors intends that the Company
forgive the loan made to the Employee, one-half of which will be forgiven on the
first anniversary of the loan and the other half of which shall be forgiven on
the second anniversary of the loan; and
WHEREAS the Company's Board of Directors intends that the loan, the
interest thereon and its forgiveness shall be without expense to the Employee
from the burden of federal, FICA/MEDICARE or state taxation
NOW, THEREFORE the parties agree and covenant as follows;
I
COMMITMENT
Subject to the terms and conditions of the Agreement, the Company
agrees to lend to the Employee as of the date first stated above, the amount of
Two Hundred Thousand dollars ($200,000.00) (hereinafter the "Loan"). The entire
proceeds of the loan shall be used for the sole purpose of the Employee to
exercise and purchase Company stock represented by stock options currently
available for exercise by the Employee. Such proceeds shall be used to pay only
the portion of the exercise price of the options that is in excess of the sum of
the par value of the underlying shares ($.002 per share) and the amount of any
cash bonus payable to the Employee pursuant to the terms of the options.
II
NOTE EVIDENCING THE LOAN
The Loan shall be evidenced by a promissory note (the "Note") showing
the date of making the note being the same date as first appears above. The note
shall be in a form that is acceptable to both the Company and the Employee. The
Note shall reference
<PAGE>
the Agreement. The Note shall be payable to the Company in the principal amount
of Two Hundred Thousand dollars ($200,000.00).
III
INTEREST AND TERM OF LOAN
The unpaid principal amount from time to time outstanding shall bear
interest at the rate of five Percent per annum, (5%). The term of the Loan
("Term") shall be Two (2) years commencing on the date first stated above.
IV
REPAYMENT AND FORGIVENESS OF LOAN
The Company and the Employee agree that, conditioned on the continuous
employment by the Company of the Employee, the Company shall forgive repayment
of One-Half (1/2) of the Loan amount, along with the accrued interest to that
date, on the first anniversary of the date of the Note and One-Half (1/2), along
with all remaining accrued interest, at the end of the Term. The Company agrees
that the Company will provide the Employee with additional compensation at the
time of such forgiveness to cover Employee's net federal and state income tax
liability on the amount (including interest) forgiven and the amount of such
additional compensation.
V
LOAN AGREEMENT IS NOT AN EMPLOYMENT CONTRACT
The Company and the Employee acknowledge and agree that the parties do
not intend the Agreement in any way to be construed as an employment agreement.
However, should the employee at any time during the Term voluntarily sever the
employment relationship with the Company or should the Company sever the
employment relationship with the Employee for cause, any portion of the Loan
(including interest) not yet forgiven shall become immediately due and payable.
Termination for cause shall be limited to situations where the Employee is
convicted of a felony or a crime involving moral turpitude, is grossly negligent
in the performance of his duties as the Company's [president and chief executive
officer] [executive vice president and chief technical officer] [vice president,
finance and chief financial officer], persistently and willfully fails or
refuses to perform such duties, or knowingly engages in wrongful misconduct
resulting in substantial damage to the Company. The termination of the
Employee's employment at will due to the death, mental or physical disability of
the Employee shall not be deemed voluntary termination under the Agreement.
<PAGE>
VI
COVENANT OF NON-COMPETITION
In consideration of the Company's covenants set forth in Article IV of
this Agreement, the Employee hereby confirms his obligations set forth in the
employment agreement between him and the Company, dated February 1, 1995 (the
so-called Radyne Termsheet), including but not limited to his covenant (whether
or not a separate non-competition agreement has been executed as required by
Paragraph 4 of such employment agreement) to refrain from ownership of,
operation of, or employment (as an employee, consultant, independent contractor
or otherwise) by, any entity or business that competes with the Company, during
the two-year period commencing on the date on which his employment by the
Company is terminated either involuntarily for cause or voluntarily, in either
case within the meaning of Article V of this Agreement. This covenant may be
enforced by the Company via injunctive relief and/or an action for damages.
VII
TIME IS OF THE ESSENCE
Time is of the essence of the Agreement.
VIII
ADDITIONAL DOCUMENTS
Each party shall execute, acknowledge and deliver such additional
documents, writings of assurances as the other may periodically require so as to
give full force and effect to the terms and provisions of the Agreement.
IX
The terms and provisions of the Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
X
COUNTERPARTS
The Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which shall constitute but one and
the same instrument.
<PAGE>
XI
ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties and no
previous representations, inducements, promises of agreements, oral or
otherwise, shall be of any force or effect. No change or modification to the
Agreement shall be valid and enforceable unless the same is in writing and
signed by the party against whom such change or modification is sought to be
enforced.
XII
APPLICABLE LAW
The Agreement shall be governed by the laws of the State of Arizona.
The parties agree that the venue of any and all litigation that may arise
concerning the Agreement shall be limited to Maricopa County, State of Arizona.
In witness whereof, this agreement has been signed by the Employee and
the Company effective as of the date first appearing above.
The Company Employee
Radyne ComStream Inc.
By: /s/ Garry D. Kline /s/ Robert C. Fitting
------------------------------- -----------------------
Its: Vice President of Finance
<PAGE>
EXHIBIT 10.13
PROMISSORY NOTE
U.S. $ 200,000 Phoenix, Arizona
Date: October 8, 1999
FOR VALUE RECEIVED, the undersigned Promissor, promises to pay to the
order of RADYNE COMSTREAM INC (the "Company") at its offices at 3138 East Elwood
Street, Phoenix, Arizona, 85034, the principal sum of One Hundred Thousand
Dollars ($100,000) with interest on the first anniversary of the date of this
Note and the principal sum of One Hundred Thousand Dollars ($100,000) with
interest on the second anniversary of the date of this Note.
The unpaid principal amount hereof outstanding shall bear interest from
the date hereof at the rate of Five Percent (5%) per annum. Payments of both
principal and interest shall be paid in lawful currency of the United States of
America.
This Note evidences indebtedness incurred under, and is subject to the
provisions and conditions of, a Stock Purchase Loan Agreement between the
Company and the Promissor bearing the same date as this Note and, if amended,
all amendments thereto. This reference to the Stock Purchase Loan Agreement is
hereby made for notice of and a statement of said provisions and conditions
governing the retirement of the obligation this Note represents.
Should this Note be placed in the hands of an attorney for collection
through legal proceedings or otherwise, the Promissor will pay reasonable
attorneys' fees to the holder hereof together with the costs and reasonable
expenses of collection.
The Promissor waives diligence, demand, presentment for payment
(protest) and notice and consent to the extension or extensions of the time of
payment with out notice and agree that recourse may be had against the
Promissor's separate property as well as Promissor's community property.
Promissor /s/ Robert C. Fitting
--------------------------------
Robert C. Fitting
<PAGE>
EXHIBIT 10.14
STOCK PURCHASE
LOAN AGREEMENT
This Loan Agreement ("Agreement") is made this 8th day of October, 1999
by and between Radyne ComStream Inc., a New York corporation ("the Company")
with principal offices at 3138 East Elwood, Phoenix, Arizona, 84034 and Garry
Kline, (the "Employee") whose address is, 1819 East Gary Street, Mesa, Arizona
85203.
WHEREAS the Board of Directors of the Company has determined that the
Company shall lend to the Employee that certain amount as stated elsewhere
herein for the sole purpose of purchasing stock of the Company represented by
stock options the Company has previously granted to the Employee; and
WHEREAS the Company's Board of Directors intends that the Company
forgive the loan made to the Employee, one-half of which will be forgiven on the
first anniversary of the loan and the other half of which shall be forgiven on
the second anniversary of the loan; and
WHEREAS the Company's Board of Directors intends that the loan, the
interest thereon and its forgiveness shall be without expense to the Employee
from the burden of federal, FICA/MEDICARE or state taxation
NOW, THEREFORE the parties agree and covenant as follows;
I
COMMITMENT
Subject to the terms and conditions of the Agreement, the Company
agrees to lend to the Employee as of the date first stated above, the amount of
Fifty Thousand dollars ($50,000.00) (hereinafter the "Loan"). The entire
proceeds of the loan shall be used for the sole purpose of the Employee to
exercise and purchase Company stock represented by stock options currently
available for exercise by the Employee. Such proceeds shall be used to pay only
the portion of the exercise price of the options that is in excess of the sum of
the par value of the underlying shares ($.002 per share) and the amount of any
cash bonus payable to the Employee pursuant to the terms of the options.
II
NOTE EVIDENCING THE LOAN
The Loan shall be evidenced by a promissory note (the "Note") showing
the date of making the note being the same date as first appears above. The note
shall be in a form that is acceptable to both the Company and the Employee. The
Note shall reference
<PAGE>
the Agreement. The Note shall be payable to the Company in the principal amount
of Fifty Thousand dollars ($50,000.00).
III
INTEREST AND TERM OF LOAN
The unpaid principal amount from time to time outstanding shall bear
interest at the rate of five Percent per annum, (5%). The term of the Loan
("Term") shall be Two (2) years commencing on the date first stated above.
IV
REPAYMENT AND FORGIVENESS OF LOAN
The Company and the Employee agree that, conditioned on the continuous
employment by the Company of the Employee, the Company shall forgive repayment
of One-Half (1/2) of the Loan amount, along with the accrued interest to that
date, on the first anniversary of the date of the Note and One-Half (1/2), along
with all remaining accrued interest, at the end of the Term. The Company agrees
that the Company will provide the Employee with additional compensation at the
time of such forgiveness to cover Employee's net federal and state income tax
liability on the amount (including interest) forgiven and the amount of such
additional compensation.
V
LOAN AGREEMENT IS NOT AN EMPLOYMENT CONTRACT
The Company and the Employee acknowledge and agree that the
parties do not intend the Agreement in any way to be construed as an employment
agreement. However, should the employee at any time during the Term voluntarily
sever the employment relationship with the Company or should the Company sever
the employment relationship with the Employee for cause, any portion of the Loan
(including interest) not yet forgiven shall become immediately due and payable.
Termination for cause shall be limited to situations where the Employee is
convicted of a felony or a crime involving moral turpitude, is grossly negligent
in the performance of his duties as the Company's [president and chief executive
officer] [executive vice president and chief technical officer] [vice president,
finance and chief financial officer], persistently and willfully fails or
refuses to perform such duties, or knowingly engages in wrongful misconduct
resulting in substantial damage to the Company. The termination of the
Employee's employment at will due to the death, mental or physical disability of
the Employee shall not be deemed voluntary termination under the Agreement.
<PAGE>
VI
COVENANT OF NON-COMPETITION
In consideration of the Company's covenants set forth in Article IV of
this Agreement, the Employee hereby confirms his obligations set forth in the
employment agreement between him and the Company, dated February 1, 1995 (the
so-called Radyne Termsheet), including but not limited to his covenant (whether
or not a separate non-competition agreement has been executed as required by
Paragraph 4 of such employment agreement) to refrain from ownership of,
operation of, or employment (as an employee, consultant, independent contractor
or otherwise) by, any entity or business that competes with the Company, during
the two-year period commencing on the date on which his employment by the
Company is terminated either involuntarily for cause or voluntarily, in either
case within the meaning of Article V of this Agreement. This covenant may be
enforced by the Company via injunctive relief and/or an action for damages.
VII
TIME IS OF THE ESSENCE
Time is of the essence of the Agreement.
VIII
ADDITIONAL DOCUMENTS
Each party shall execute, acknowledge and deliver such additional
documents, writings of assurances as the other may periodically require so as to
give full force and effect to the terms and provisions of the Agreement.
IX
The terms and provisions of the Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
X
COUNTERPARTS
The Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which shall constitute but one and
the same instrument.
<PAGE>
XI
ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties and no
previous representations, inducements, promises of agreements, oral or
otherwise, shall be of any force or effect. No change or modification to the
Agreement shall be valid and enforceable unless the same is in writing and
signed by the party against whom such change or modification is sought to be
enforced.
XII
APPLICABLE LAW
The Agreement shall be governed by the laws of the State of Arizona.
The parties agree that the venue of any and all litigation that may arise
concerning the Agreement shall be limited to Maricopa County, State of Arizona.
In witness whereof, this agreement has been signed by the Employee and
the Company effective as of the date first appearing above.
The Company Employee
Radyne ComStream Inc.
By: /s/ Robert C. Fitting /s/ Garry Kline
-------------------------- -------------------------
Its: President
<PAGE>
EXHIBIT 10.15
PROMISSORY NOTE
U.S. $ 50,000 Phoenix, Arizona
Date: October 8, 1999
FOR VALUE RECEIVED, the undersigned Promissor, promises to pay to the
order of RADYNE COMSTREAM INC (the "Company") at its offices at 3138 East Elwood
Street, Phoenix, Arizona, 85034, the principal sum of Twenty-five Thousand
Dollars ($25,000) with interest on the first anniversary of the date of this
Note and the principal sum of Twenty-five Thousand Dollars ($25,000) with
interest on the second anniversary of the date of this Note.
The unpaid principal amount hereof outstanding shall bear interest from
the date hereof at the rate of Five Percent (5%) per annum. Payments of both
principal and interest shall be paid in lawful currency of the United States of
America.
This Note evidences indebtedness incurred under, and is subject to the
provisions and conditions of, a Stock Purchase Loan Agreement between the
Company and the Promissor bearing the same date as this Note and, if amended,
all amendments thereto. This reference to the Stock Purchase Loan Agreement is
hereby made for notice of and a statement of said provisions and conditions
governing the retirement of the obligation this Note represents.
Should this Note be placed in the hands of an attorney for collection
through legal proceedings or otherwise, the Promissor will pay reasonable
attorneys' fees to the holder hereof together with the costs and reasonable
expenses of collection.
The Promissor waives diligence, demand, presentment for payment
(protest) and notice and consent to the extension or extensions of the time of
payment with out notice and agree that recourse may be had against the
Promissor's separate property as well as Promissor's community property.
Promissor /s/ Garry Kline
----------------------------
Garry Kline
<PAGE>
EXHIBIT 10.16
STOCK PURCHASE
LOAN AGREEMENT
This Loan Agreement ("Agreement") is made this 8th day of October, 1999
by and between Radyne ComStream Inc., a New York corporation ("the Company")
with principal offices at 3138 East Elwood, Phoenix, Arizona, 84034 and Steve
Eymann, (the "Employee") whose address is, 11810 S. Warpaint Dr., Phoenix,
Arizona 85004.
WHEREAS the Board of Directors of the Company has determined that the
Company shall lend to the Employee that certain amount as stated elsewhere
herein for the sole purpose of purchasing stock of the Company represented by
stock options the Company has previously granted to the Employee; and
WHEREAS the Company's Board of Directors intends that the Company
forgive the loan made to the Employee, one-half of which will be forgiven on the
first anniversary of the loan and the other half of which shall be forgiven on
the second anniversary of the loan; and
WHEREAS the Company's Board of Directors intends that the loan, the
interest thereon and its forgiveness shall be without expense to the Employee
from the burden of federal, FICA/MEDICARE or state taxation
NOW, THEREFORE the parties agree and covenant as follows;
I
COMMITMENT
Subject to the terms and conditions of the Agreement, the Company
agrees to lend to the Employee as of the date first stated above, the amount of
One Hundred Thousand dollars ($100,000.00) (hereinafter the "Loan"). The entire
proceeds of the loan shall be used for the sole purpose of the Employee to
exercise and purchase Company stock represented by stock options currently
available for exercise by the Employee. Such proceeds shall be used to pay only
the portion of the exercise price of the options that is in excess of the sum of
the par value of the underlying shares ($.002 per share) and the amount of any
cash bonus payable to the Employee pursuant to the terms of the options.
II
NOTE EVIDENCING THE LOAN
The Loan shall be evidenced by a promissory note (the "Note") showing
the date of making the note being the same date as first appears above. The note
shall be in a form that is acceptable to both the Company and the Employee. The
Note shall reference
<PAGE>
the Agreement. The Note shall be payable to the Company in the principal amount
of One Hundred Thousand dollars ($100,000.00).
III
INTEREST AND TERM OF LOAN
The unpaid principal amount from time to time outstanding shall bear
interest at the rate of five Percent per annum, (5%). The term of the Loan
("Term") shall be Two (2) years commencing on the date first stated above.
IV
REPAYMENT AND FORGIVENESS OF LOAN
The Company and the Employee agree that, conditioned on the continuous
employment by the Company of the Employee, the Company shall forgive repayment
of One-Half (1/2) of the Loan amount, along with the accrued interest to that
date, on the first anniversary of the date of the Note and One-Half (1/2), along
with all remaining accrued interest, at the end of the Term. The Company agrees
that the Company will provide the Employee with additional compensation at the
time of such forgiveness to cover Employee's net federal and state income tax
liability on the amount (including interest) forgiven and the amount of such
additional compensation.
V
LOAN AGREEMENT IS NOT AN EMPLOYMENT CONTRACT
The Company and the Employee acknowledge and agree that the
parties do not intend the Agreement in any way to be construed as an employment
agreement. However, should the employee at any time during the Term voluntarily
sever the employment relationship with the Company or should the Company sever
the employment relationship with the Employee for cause, any portion of the Loan
(including interest) not yet forgiven shall become immediately due and payable.
Termination for cause shall be limited to situations where the Employee is
convicted of a felony or a crime involving moral turpitude, is grossly negligent
in the performance of his duties as the Company's [president and chief executive
officer] [executive vice president and chief technical officer] [vice president,
finance and chief financial officer], persistently and willfully fails or
refuses to perform such duties, or knowingly engages in wrongful misconduct
resulting in substantial damage to the Company. The termination of the
Employee's employment at will due to the death, mental or physical disability of
the Employee shall not be deemed voluntary termination under the Agreement.
<PAGE>
VI
COVENANT OF NON-COMPETITION
In consideration of the Company's covenants set forth in Article IV of
this Agreement, the Employee hereby confirms his obligations set forth in the
employment agreement between him and the Company, dated February 1, 1995 (the
so-called Radyne Termsheet), including but not limited to his covenant (whether
or not a separate non-competition agreement has been executed as required by
Paragraph 4 of such employment agreement) to refrain from ownership of,
operation of, or employment (as an employee, consultant, independent contractor
or otherwise) by, any entity or business that competes with the Company, during
the two-year period commencing on the date on which his employment by the
Company is terminated either involuntarily for cause or voluntarily, in either
case within the meaning of Article V of this Agreement. This covenant may be
enforced by the Company via injunctive relief and/or an action for damages.
VII
TIME IS OF THE ESSENCE
Time is of the essence of the Agreement.
VIII
ADDITIONAL DOCUMENTS
Each party shall execute, acknowledge and deliver such additional
documents, writings of assurances as the other may periodically require so as to
give full force and effect to the terms and provisions of the Agreement.
IX
The terms and provisions of the Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
X
COUNTERPARTS
The Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which shall constitute but one and
the same instrument.
<PAGE>
XI
ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties and no
previous representations, inducements, promises of agreements, oral or
otherwise, shall be of any force or effect. No change or modification to the
Agreement shall be valid and enforceable unless the same is in writing and
signed by the party against whom such change or modification is sought to be
enforced.
XII
APPLICABLE LAW
The Agreement shall be governed by the laws of the State of Arizona.
The parties agree that the venue of any and all litigation that may arise
concerning the Agreement shall be limited to Maricopa County, State of Arizona.
In witness whereof, this agreement has been signed by the Employee and
the Company effective as of the date first appearing above.
The Company Employee
Radyne ComStream Inc.
By: /s/ Garry Kline /s/ Steven W. Eymann
-------------------------- --------------------
Its: Vice President of Finance
<PAGE>
EXHIBIT 10.17
PROMISSORY NOTE
U.S. $ 100,000 Phoenix, Arizona
Date: October 8, 1999
FOR VALUE RECEIVED, the undersigned Promissor, promises to pay to the
order of RADYNE COMSTREAM INC (the "Company") at its offices at 3138 East Elwood
Street, Phoenix, Arizona, 85034, the principal sum of Fifty Thousand Dollars
($50,000) with interest on the first anniversary of the date of this Note and
the principal sum of Fifty Thousand Dollars ($50,000) with interest on the
second anniversary of the date of this Note.
The unpaid principal amount hereof outstanding shall bear interest from
the date hereof at the rate of Five Percent (5%) per annum. Payments of both
principal and interest shall be paid in lawful currency of the United States of
America.
This Note evidences indebtedness incurred under, and is subject to the
provisions and conditions of, a Stock Purchase Loan Agreement between the
Company and the Promissor bearing the same date as this Note and, if amended,
all amendments thereto. This reference to the Stock Purchase Loan Agreement is
hereby made for notice of and a statement of said provisions and conditions
governing the retirement of the obligation this Note represents.
Should this Note be placed in the hands of an attorney for collection
through legal proceedings or otherwise, the Promissor will pay reasonable
attorneys' fees to the holder hereof together with the costs and reasonable
expenses of collection.
The Promissor waives diligence, demand, presentment for payment
(protest) and notice and consent to the extension or extensions of the time of
payment with out notice and agree that recourse may be had against the
Promissor's separate property as well as Promissor's community property.
Promissor /s/ Steven W. Eymann
-----------------------------
Steve Eymann
<PAGE>
EXHIBIT 10.18
GENERAL RELEASE AND SETTLEMENT AGREEMENT
This Settlement Agreement and Release (the "Agreement") is entered
into on this 29th Day of September, 1999, by and between Spar Aerospace Limited
("Spar"), on the one hand, and Radyne ComStream Inc., formerly known as Radyne
Corp. ("Radyne"), on the other hand (sometimes referred to individually as a
"Party" or collectively as the "Parties").
1.0 RECITALS
1.1 The Parties' Agreement. On or about August 28, 1998, Spar and
Radyne entered into that certain Stock Purchase Agreement by and between Spar
Aerospace Limited and Radyne (the "Purchase and Sale Agreement") for, inter
alia, the purchase and sale of all of the outstanding capital stock of ComStream
Holdings, Inc.
1.2 The Parties' Note. Pursuant to the terms of the Purchase and Sale
Agreement, the Parties had certain duties and obligations to each other,
including but not limited to the payment of a certain Convertible Promissory
Note, the form of which was attached as Exhibit A to the Purchase and Sale
Agreement and executed by Radyne in favor of Spar in the principal amount of
$7,000,000 plus interest (the "Note") and the satisfaction of certain
representations, warranties, and indemnities set forth in the Purchase and Sale
Agreement. To date, Radyne has made certain payments of approximately $3,596,632
under the Note, but approximately $3,893,368 remains currently due and owing,
absent any off-sets, compromises, or other adjustments.
<PAGE>
1.3 The Dispute. A dispute has now arisen between the Parties
regarding their respective duties and obligations under the Purchase and Sale
Agreement and Note, including the payment of certain amounts by Radyne to Spar
under the Note and certain claims by Radyne against Spar for certain offsets and
credits resulting from various alleged duties owed under and breaches of the
Purchase and Sale Agreement (the "Dispute"). More specifically, Spar contends
that Radyne owes Spar approximately $3,893,368 under the Note, that Radyne has
failed to timely pay such amounts when due, and that, as a result, Radyne is in
default under the terms and conditions of the Purchase and Sale Agreement and
Note. Radyne disputes that such amounts are currently due and owing. Radyne
contends that it is entitled to a number of indemnity obligations and offsets
against any amounts otherwise due and owing pursuant to the Purchase and Sale
Agreement and Note as a result of various breaches of the representations,
warranties, and indemnities provided by Spar in the Purchase and Sale Agreement,
including various matters set forth, in part, in Radyne's letter of July 6, 1999
to Spar, its letter of June 23, 1999 to Spar regarding various patent
infringement and other claims by Hughes Electronics Corporation, and in various
other correspondence. Spar disputes such matters.
1.4 Complete Settlement of All Disputes. The Parties to this Agreement
wish to resolve and settle, fully and forever, the Dispute, including but not
limited to certain claims or further claims the Parties have or may have against
each other under the Purchase and Sale Agreement and/or Note.
THEREFORE, in consideration of the recitals set forth above and the
promises and covenants contained in this Agreement, and for good and valuable
consideration, the receipt
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<PAGE>
and adequacy of which are hereby acknowledged by the Parties hereto, the Parties
hereby agree as follows:
2.0 AGREEMENT
2.1 No Admission. This Agreement effects the settlement of actual
and/or potential claims that are denied, disputed, and contested, and nothing
contained herein shall be construed as an admission of wrongdoing by any Party
or as an admission of any liability of any kind to any other Party. Rather,
the Parties have entered into this Agreement solely to avoid the cost and
uncertainties of litigation and to end, fully and forever, the Dispute.
2.2 Payment by Radyne to Spar. Radyne hereby agrees to wire transfer
by no later than noon, Pacific Standard Time, on September 30, 1999, the total
combined sum of $2,576,366 to Spar (the "Payment"). The Payment shall be for the
balance of the principal amount due under the Note, less an off-set for certain
claims by Radyne, certain amounts otherwise due by Spar, and the forgiveness of
certain interest payments due under the Note. Such wire transfer shall be to the
account previously identified by Spar and utilized by Radyne in the prior
payment of amounts due and owing under the Note. Such Payment, when completed,
shall fully and finally satisfy Radyne's obligations to Spar under the Note.
2.3 Remaining Duties and Obligations. Other than as set forth in this
Section 2.3 and the other obligations herein, the Parties agree to remove, waive
and fully and forever release any and all further obligations between them,
including but not limited to any remaining representations, warranties, or
indemnities otherwise given and/or due under the Purchase and Sale Agreement and
Note. The sole remaining obligations between the Parties under the
3
<PAGE>
Purchase and Sale Agreement and Note, to which the first proviso of Section 10.1
thereof (relating to a $2,500,000 "basket") shall not apply, shall therefore be
as follows:
A. Spar shall continue to remain obligated pursuant to the terms and
conditions of the Purchase and Sale Agrement for its indemnity obligations, if
any, for taxes as set forth in Section 10.3 of the Purchase and Sale Agreement;
provided, however, that Spar shall have no liability for any amount due property
taxes related to Sequence Drive;
B. Spar shall continue to remain obligated pursuant to the terms and
conditions of the Purchase and Sale Agreement for its indemnity obligations, if
any, for environmental matters set forth in Sections 3.24 and 10.1(a) of the
Purchase and Sale Agreement;
C. Spar shall continue to remain obligated pursuant to the terms and
conditions of the Purchase and Sale Agreement for its indemnity obligations, if
any, for any foreign corrupt practices liabilities as set forth in Sections 3.27
and 10.1(a) of the Purchase and Sale Agreement;
D. Spar shall continue to remain obligated pursuant to the terms and
conditions of the Purchase and Sale Agreement for its indemnity obligations, if
any, for those items set forth in Section 10.1(d) of the Purchase and Sale
Agreement, except as it relates to Section 5.6 thereof;
E. Radyne specifically acknowledges and agrees that it shall assume
any and all liability or responsibility for: (1) the claims asserted by Hughes
Electronics Corporation, as
4
<PAGE>
set forth in or otherwise related to the matters in the June 23, 1999 letter
from Radyne to Spar; and (2) the property taxes due on the Sequence Drive
property; and
F. The parties shall continue to remain obligated for their respective
obligations, if any, under the following Sections of the Purchase and Sale
Agreement: 4.3, 5.4, 6.3, 7.1, 9.1, 9.2, 10.2, 10.4, 10.5, 11, and 5.5, 10.3,
and 12.1 in each case as modified herein by paragraph A and E above relating to
the Sequence Drive property and by that certain letter dated November 18, 1998,
attached hereto as Exhibit A and incorporated herein by reference.
3.0 RELEASES
3.1 General Release. Except for the obligations arising under this
Agreement, including those obligations specifically set forth in Section 2.3
above, each Party, on behalf of itself and its respective predecessors,
successors, affiliates, and assigns, hereby fully and forever releases each
other Party, and its respective employees, officers, directors, shareholders,
subsidiaries, affiliates, agents, attorneys, executors, administrators and/or
other legal or personal representatives, from any and all causes of action,
demands, actions, judgments, liens, indebtedness, damages, losses, claims, or
liabilities, now existing or hereafter arising, from or in any way relating to
the terms or covenants of, and the performance or inability to perform under,
the Purchase and Sale Agreement, the Note, or in any way relating to the
Dispute. By way of example and not limitation, the Parties expressly waive and
fully release any and all claims for breach of any representations and/or
warranties contained in Articles III and IV of the Purchase and Sale Agreement
and any Indemnification obligations under Article X of the Purchase and Sale
Agreement, including any duties or obligations under Section 10.6, other than as
expressly
5
<PAGE>
set forth in this Agreement. The Parties further stipulate and agree that, other
than as set forth in this Agreement, all obligations, rights, and duties under
the Purchase and Sale Agreement, Note, and relating to the Dispute, upon payment
of the monies due and obligations under this Agreement, have been discharged,
satisfied, and released. In furtherance of this intention, the Parties, and each
of them, hereby expressly waive any and all rights or benefits conferred by the
provisions of Section 1542 of the California Civil Code, and by any similar
provision of California law now in effect or which becomes effective in the
future, and expressly agree that this Agreement shall be given full force and
effect according to each and all of its express terms and conditions, including
those relating to the release of any known or unknown, suspected or unsuspected,
actual or potential, direct or contingent claims, demands, rights and/or causes
of action. Section 1542 of the California Civil Code provides:
A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by her must have materially affected his settlement with the debtor.
3.2 Different or Additional Facts. The Parties understand and
acknowledge that they may discover facts different from, or in addition to,
those which are presently known or believed to be true concerning the matters on
which the release contained herein is based, and the Parties agree that such
releases shall be and remain effective notwithstanding the subsequent discovery
of any such different or additional facts.
6
<PAGE>
4.0 WARRANTY OF AUTHORIZATION
The Parties hereto, and each of them, warrant and represent that their
respective representatives, whose signatures appear below, are duly authorized
to execute this Agreement on their behalf.
5. NO ASSIGNMENT OF CLAIMS TO THIRD PARTIES
Each Party hereby represents and warrants that it has not assigned or
transferred, or purported to assign or transfer, to any person or entity any
claim, demand and/or cause of action released hereunder, and further agrees to
indemnify the other Parties hereto against any liability, loss, damage, cost or
expense, including reasonable attorneys' fees, arising out of or in any way
relating to any breach of this representation and warranty.
6.0 ENTIRE AGREEMENT
This Agreement and Release constitutes and contains the entire
Agreement and understanding between the Parties. This Agreement supersedes and
replaces all prior negotiations and all agreements, proposed or otherwise,
whether written or oral, concerning the subject matter hereof. This is a fully
integrated agreement.
7.0 SEVERABILITY
If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not affect other provisions or applications of the
Agreement that can be given effect without the invalid provision or application
and, to this end, the provisions of this Agreement are declared to be severable.
7
<PAGE>
8.0 GOVERNING LAW
This Agreement shall be deemed to have been executed and delivered
within the State of California, and the rights and obligations of the Parties
hereunder shall be construed and enforced in accordance with, and governed by,
the laws of the State of California; provided, however, that to that extent that
California law or the choice of law would dictate application of another state's
law, the expressed intent of the Parties to apply substantive California law to
the determination of the dispute shall prevail.
9.0 CONSTRUCTION
Each Party has cooperated in the drafting and preparation of this
Agreement. Hence, this Agreement shall not be construed against any Party on the
basis that that Party was the drafter. The headings are for the convenience of
the Parties and are not to be used in construing the meaning of any provision of
this Agreement.
10.0 WRITTEN MODIFICATION
This Agreement may not be altered, amended, or in any way modified
except in a writing executed by all the Parties hereto.
11.0 NO WAIVER OF BREACH
No waiver of any breach of any term or provision of this Agreement
shall be construed to be, nor shall be, a waiver of any other breach of this
Agreement. No waiver shall be binding unless in writing and signed by the Party
waiving the breach.
8
<PAGE>
12.0 INDEPENDENT LEGAL ADVICE AND INVESTIGATION
The Parties acknowledge that they have been advised by their own
independently selected counsel and other advisors in connection with this
Agreement, and enter into this Agreement solely on the basis of that advice and
on the basis of their own independent investigation of the facts, laws, and
circumstances material to this Agreement or any provision thereof, and not in
any manner or to any degree based upon any representation, statement and/or
omission by any other Party and/or its counsel.
13.0 BINDING ON SUCCESSORS AND ASSIGNS
This Agreement is binding on, and is for the benefit of, each of the
Parties hereto and their respective predecessors, heirs, successors, assignees,
executors, administrators, transferees, agents, employees and attorneys.
14.0 COVENANT OF GOOD FAITH AND FAIR DEALING
Each Party shall cooperate fully with each other Party and do all
things reasonably necessary or convenient to accomplish the purposes of this
Agreement. The Parties acknowledge that this Agreement contains an implied and
an express covenant of good faith and fair dealing, under the terms of which
neither Party will do anything to deprive the other Party of the intended
benefits of this Agreement.
9
<PAGE>
15.0 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which shall be deemed to be one
and the same instrument. A facsimile copy of such signatures shall be treated as
an original.
16.0 DISPUTE RESOLUTION
Any disputes concerning the performance or interpretation of this
Agreement shall be resolved by a state or federal court of competent
jurisdiction in the County of Orange or San Diego, California and the Parties
hereby agree to the jurisdiction of such courts to resolve any such matters and
that any such dispute shall be resolved by such court.
10
<PAGE>
BY EXECUTING THIS AGREEMENT, EACH OF THE PARTIES ACKNOWLEDGES THAT IT HAS READ
THIS AGREEMENT AND UNDERSTANDS ITS TERMS AND PROVISIONS.
This Agreement shall become effective when it has been executed by all Parties
and approved by their respective counsel. This Agreement consists of 11 pages,
including signature pages.
DATED: October 1, 1999 RADYNE COMSTREAM INC.
By: RC Fitting
-------------------------
Its: CEO
---------------
DATED: October 1, 1999 SPAR AEROSPACE LIMITED
By: [ILLEGIBLE]
------------------------
Its: CEO
----------------
11
<PAGE>
EXHIBIT 23.1
The Board of Directors and Stockholders
Radyne ComStream Inc.:
We consent to the use 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, included herein
and to the reference to our firm under the headings "Selected Financial Data"
and "Experts" in the prospectus.
KPMG LLP
Phoenix, Arizona
January 7, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion and incorporation by reference in this Amendment No.
1 to the Registration Statement No. 333-90731 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
January 7, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-2) and related Prospectus of
Radyne ComStream Inc. for the registration of 2,300,000 units, consisting of
2,300,000 shares of common stock and 2,300,000 redeemable common stock
purchase warrants to purchase 2,300,000 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
January 7, 2000
