PRELIMINARY COPY
SCHEDULE 14-A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for Use of
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
GEODYNAMICS CORPORATION
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
-----------------------------------------------------------------------
Name of Person(s) Filing Proxy Statement, if other than the Registrant
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-(6)(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
(2) Aggregate number of securities to which transaction applies:
3,233,000
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $11.25
(4) Proposed maximum aggregate value of transaction: $36,371,250
(5) Total fee paid: $7,275
[X] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[Geodynamics Corporation Letterhead]
January ___, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of
Shareholders of Geodynamics Corporation (the "Company") to be held on
___________, March __, 1996 at 10:00 a.m., local time, at
____________________________________. A notice of the Special
Meeting, a Proxy Statement and proxy card containing information
about the matters to be acted upon are enclosed. Shareholders of the
Company at the close of business on January __, 1996 will be entitled
to notice of and to vote at the Special Meeting.
At the Special Meeting, you will be asked to consider and to
vote upon a unified proposal (the "Proposal") to approve and adopt
(i) the Agreement and Plan of Merger (as amended, the "Merger
Agreement"), dated as of October 18, 1995, by and among the Company,
Logicon, Inc. ("Logicon") and LIN, Inc., a wholly-owned subsidiary of
Logicon ("MergerCo"), pursuant to which MergerCo will be merged with
and into the Company (the "Merger") and (ii) certain other
transactions set forth in the Merger Agreement, including the
modification of employee compensation arrangements involving Company
Common Stock such that certain employees will automatically hold
options to acquire Logicon Common Stock in lieu of options to acquire
Company Common Stock. If the Merger Agreement is approved and the
Merger becomes effective, each share of the Company's common stock,
no par value (the "Common Stock"), other than shares as to which
dissenters' rights have been duly asserted and perfected under
California law and shares held by the Company or its subsidiaries,
will be converted into the right to receive $11.25 in cash, without
interest, as adjusted pursuant to the Merger Agreement. Such
adjustment will include the net proceeds to the Company of its recent
sale of its LaFehr & Chan Technologies, Inc. subsidiary. Approval of
the Proposal requires the affirmative vote of the holders of a
majority of the voting power of the shares of the Company's capital
stock outstanding and entitled to vote thereon.
The $11.25 per share consideration is computed after deduction
for certain transaction expenses and repayments estimated at
$600,000, but is subject to further adjustment based upon the actual
amount of such expenses and repayments. Details of the Proposal and
other important information are set forth in the accompanying Proxy
Statement, which you are urged to read carefully.
Your Board of Directors has carefully reviewed and considered
the terms and conditions of the Proposal. In addition, the Board of
Directors has received the opinion of its financial advisor, A.G.
Edwards & Sons, Inc., that the consideration to be received by the
holders of Common Stock pursuant to the Proposal is fair to such
shareholders from a financial point of view.
Your Board of Directors has unanimously approved the Proposal
and recommends that you vote FOR approval and adoption of the
Proposal.
Your vote is important. Whether or not you plan to attend the
Special Meeting, please complete, sign and date the accompanying
proxy card and return it in the enclosed postage-paid envelope.
Approval of the Proposal requires the affirmative vote of holders of
a majority of the outstanding shares. If you attend the Special
Meeting, you may revoke such proxy and vote in person if you wish,
even if you have previously returned your proxy card. Your prompt
cooperation will be greatly appreciated.
Very truly yours,
PRELIMINARY COPY
W. Richard Ellis
Chairman
<PAGE>
GEODYNAMICS CORPORATION
21171 Western Avenue, Suite 110
Torrance, California 90501
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on March __, 1996
To the Shareholders of Geodynamics Corporation:
A Special Meeting of Shareholders (the "Special Meeting") of
Geodynamics Corporation, a California corporation (the "Company"),
will be held on March ____, 1996, at 10:00 a.m., local time, at
_______________________________________________, for the following
purposes:
1. To consider and vote upon a single unified proposal
described in the accompanying Proxy Statement (the
"Proposal"), the principal component of which is the merger
(the "Merger") of LIN, Inc., a Delaware corporation
("MergerCo") and a direct subsidiary of Logicon, Inc., a
Delaware corporation ("Logicon"), with and into the Company,
and the other transactions set forth in the Agreement and
Plan of Merger dated as of October 18, 1995 (as amended, the
"Merger Agreement"), among the Company, Logicon and MergerCo,
pursuant to which shareholders of the Company will receive,
for each share of common stock, no par value of the Company
("Common Stock"), $11.25, as adjusted pursuant to the Merger
Agreement.
2. To transact such other business as may properly come before
the Special Meeting or any adjournments or postponements
thereof.
The Proposal is being presented as a single, unified proposal
and approval of the Proposal will constitute approval of the Merger,
including approval and adoption of the Merger Agreement and the
transactions contemplated thereby, and ratification of the other
components of the Proposal (including ratification of substantially
the form of documents annexed to the Proxy Statement). In addition,
shareholders should be aware that, in the event that the Proposal is
approved and the transactions consummated, employee compensation
arrangements involving Company Common Stock will be modified such
that certain employees will automatically hold options to acquire
Logicon Common Stock in lieu of options to acquire Company Common
Stock. and warrants.
Approval of the Proposal requires the affirmative vote of the
holders of a majority of the outstanding shares of the Company.
Pursuant to the Bylaws of the Company, the Board of Directors has
fixed February ___, 1996 as the record date for the determination of
shareholders entitled to notice of and to vote at the Special
Meeting. Only the Company's shareholders of record at the close of
business on such date will be entitled to notice of and to vote at
the Special Meeting or any adjournments or postponements thereof. A
list of the Company's shareholders entitled to vote at the Special
Meeting will be available for examination during ordinary business
hours, at the offices of the Company, 21171 Western Avenue, Suite
110, Torrance, California 90501 for ten days prior to the Special
Meeting.
Shareholders of the Company who comply with the requirements of
Section 1300 of the California General Corporation Law will be
entitled, if the Merger is consummated, to seek an appraisal of their
shares of capital stock. See "THE MERGER--Dissenter's Rights" in the
accompanying Proxy Statement.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU
OWN. EACH SHAREHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE
SPECIAL MEETING, IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE WITHOUT DELAY. ANY
PROXY GIVEN BY A SHAREHOLDER MAY BE REVOKED AT ANY TIME BEFORE IT IS
EXERCISED. ANY SHAREHOLDER PRESENT AT THE SPECIAL MEETING MAY REVOKE
HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE
THE SPECIAL MEETING. HOWEVER, IF YOU ARE A SHAREHOLDER WHOSE SHARES
ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL
DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE PERSONALLY AT THE
SPECIAL MEETING. PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES
AT THIS TIME.
By Order of the Board of Directors
Joanne M. Dunlap,
Secretary
Torrance, California
January __, 1996
<PAGE>
GEODYNAMICS CORPORATION PRELIMINARY COPY
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
MARCH ___, 1996
_______________________________
This Proxy Statement is being furnished to shareholders of
Geodynamics Corporation, a California corporation ("Geodynamics"
or the "Company"), in connection with the solicitation of proxies
by the Board of Directors of the Company (the "Board of
Directors") from the holders of shares of the Company's common
stock, no par value (the "Common Stock") for use at a Special
Meeting of Shareholders (the "Special Meeting") to be held at
10:00 a.m., local time, on ______day, March __, 1996, at
_______________________________________, and at any adjournments
or postponements thereof.
At the Special Meeting, shareholders will be asked to consider
and vote upon a unified proposal providing for a sale of the
Company's Department of Defense and related U.S. Government
("DoD") business (the "Proposal"), the principal component of
which is the merger (the "Merger") of LIN, Inc., a Delaware
corporation ("MergerCo") and a direct subsidiary of Logicon,
Inc., a Delaware corporation ("Logicon"), with and into the
Company, and the other transactions set forth in the Agreement
and Plan of Merger dated as of October 18, 1995 (as amended, the
"Merger Agreement"), among the Company, Logicon and MergerCo,
pursuant to which shareholders of the Company will receive, for
each share of common stock, no par value of the Company ("Common
Stock"), $11.25, as adjusted pursuant to the Merger Agreement.
Such adjustments will include an increase in the merger
consideration relating to the net proceeds of the Company's
recent sale of its LaFehr & Chan Technologies, Inc. ("LCT")
subsidiary and a reduction for certain transaction expenses and
payments. It is expected that the net proceeds to the
shareholders of Geodynamics will be $_____ per share.
The Proposal is being presented as a single, unified proposal
and approval of the Proposal will constitute approval of the
Merger, including approval and adoption of the Merger Agreement
and the transactions contemplated thereby, and ratification of
the other components of the Proposal (including ratification of
substantially the form of the documents attached hereto). In
addition, shareholders should be aware that, in the event that
the Proposal is approved and the transactions consummated,
employee compensation arrangements involving Company Common Stock
will be modified such that certain employees will automatically
hold options to acquire Logicon Common Stock in lieu of options
to acquire Company Common Stock.
The Board of Directors knows of no additional matters that
will be presented for consideration at the Special Meeting.
Execution of a proxy, however, confers on the designated
proxyholders discretionary authority to vote the shares of Common
Stock covered thereby in accordance with their best judgment on
such other business, if any, that may properly come before the
Special Meeting or any adjournments or postponements thereof.
This Proxy Statement and the accompanying form of proxy are
first being mailed to shareholders on or about January ___, 1996.
No persons have been authorized to give any information or to
make any representations other than those contained in this Proxy
Statement in connection with the solicitation of proxies made
hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Company or any other person. All information contained in
this Proxy Statement relating to the Company has been supplied by
the Company and all information contained in this Proxy Statement
relating to Logicon, MergerCo and their affiliates has been
supplied by Logicon. The Company and Logicon have made certain
covenants to each other with respect to the information contained
in this Proxy Statement.
(continued on next page)
The date of this Proxy Statement is January___, 1996
<PAGE>(Continued from previous page)
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements
and other information can be inspected and copied at the public
reference facilities of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at its Midwest Regional Office at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at
its Northeast Regional Office at 7 World Trade Center, Suite
1300, New York, New York 10048. Any interested party may obtain
copies of such material at prescribed rates from the Public
Reference Section of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549. In addition, the Company's Common Stock is included
and traded on the Nasdaq National Market System. Reports, proxy
statements and other information can also be inspected and copied
at the National Association of Securities Dealers, Inc., 1735 K
Street, Washington, D.C. 20549.
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION 2
SUMMARY 1
SELECTED FINANCIAL INFORMATION 7
Geodynamics Selected Financial Data 7
THE SPECIAL MEETING 8
General 8
Matters to be Considered at the Special
Meeting 8
Voting at the Special Meeting;
Record Date; Required Vote 8
Proxies 9
CERTAIN CONSIDERATIONS RELATING
TO THE TRANSACTIONS 10
Background of the Transactions 10
Reasons for the Merger;
Recommendation of the Company's
Board of Directors 17
Financial Advisor; Fairness Opinion 18
Merger Consideration 20
Comparable Transaction Analysis 20
Premiums Paid Analysis 21
Comparable Company Analysis 21
Discounted Cash Flow Analysis 22
Other Factors and Analyses 22
Terms of A.G. Edwards' Engagement 22
Interests of Certain Persons in the Transactions 23
Employee Retention Agreements 24
Indemnification and Insurance 25
Treatment of Options 25
Risks of Non-Consummation 25
Expenses of the Transactions 26
THE MERGER 26
Form of Merger 26
Merger Consideration 27
Shareholder Meeting 27
Effective Time of the Merger 27
Procedures for Exchange of Certificates 28
Financing Arrangements by Logicon 29
Regulatory Matters 29
Dissenters' Rights 29
The Merger Agreement 32
Merger Consideration 32
Merger Consideration Adjustment 32
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Stock Options 32
Representations and Warranties 33
Certain Covenants 33
Conduct of Business Pending the Merger 33
No Solicitation of Acquisition Proposals 35
Conditions to the Merger 36
Termination 37
Indemnifications; Insurance and
Employment Retention Agreements 38
Termination Fee and Expenses 39
Amendment; Waiver 40
Payments to Dissenting Shareholders 40
Accounting Treatment 40
CERTAIN FEDERAL INCOME TAX CONSEQUENCES 40
DESCRIPTION OF GEODYNAMICS 41
Business 41
Business Areas 41
C4I Systems 42
Weapons Systems 42
Space Systems 42
Services 43
Systems Engineering 43
Applications Software 43
Gravity and Magnetic Applications 43
Customers 44
U.S. Government Contracts 44
Backlog 45
Marketing 45
Government Security Clearances 46
Patents and Technical Data 46
Competition 46
Employees 46
Properties 46
Legal Proceedings 47
Seleceted Historical Financial
Data of Geodynamics 48
Management's Discussion and Analysis of
Historical Financial Condition and Results
of Operations 49
Results of Operations 49
Liquidity and Capital Resources 51
Effect of Inflation 51
Management 51
Director Compensation 56
Employment Agreements 56
Option Grants in Last Fiscal Year 59
ii
<PAGE>
Ten Year-Option/SAR Repricing 59
Aggregated Option/SAR Exercises 60
Certain Relationships and Related Transactions 60
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 60
Price Range of Common Stock and Dividends 62
PAYMENT TO SHAREHOLDERS 63
EXPERTS 63
PROPOSALS BY SHAREHOLDERS 64
Annexes
Annex I - Merger Agreement
Annex II - A.G. Edwards Opinion
Annex III - California Corporations Code
Sections 1300 - 1304
iii
<PAGE>
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement/Prospectus. This summary is
qualified in its entirety by the more detailed information
contained, or incorporated by reference, in this Proxy
Statement/Prospectus and the Annexes hereto. Shareholders are
urged to read this Proxy Statement/Prospectus and the Annexes
hereto in their entirety. Unless otherwise defined herein,
capitalized terms used in this summary have the respective
meanings ascribed to them elsewhere in this Proxy
Statement/Prospectus.
The Companies
Geodynamics Corporation
Geodynamics Corporation and its subsidiaries ("Geodynamics"
or the "Company") provide information engineering services
primarily to Government customers. The majority of its
revenues (approximately 89% in fiscal 1995) are from contracts
with the Department of Defense and related U.S. Government
agencies ("DoD"). The Company provides these services to DoD
customers engaged in three major systems areas: command,
control, communications, computers and intelligence (C4I)
systems; weapons systems; and space systems. Non-DoD revenues
are derived primarily from support of petroleum exploration and
Geographic Information Systems (GIS).
The Company was incorporated under the laws of the State of
California on May 22, 1967. The Company's executive offices
are located at 21171 Western Avenue, Suite 110, Torrance,
California 90501, and its telephone number is (310) 320-2300.
Logicon, Inc.
Logicon, Inc., and its subsidiaries ("Logicon") provide
advanced technology systems and services to support national
security, civil and industrial needs in the following areas:
Command, Control, Communications & Intelligence; Weapon
Systems; Information Systems; Science & Technology; and
Training & Simulation. Contracts with the United States
government are Logicon's primary revenue source, accounting for
99% of total revenues from services and systems for fiscal
years 1993 through 1995. Logicon's stock is listed on the New
York Stock Exchange, and it has sufficient resources to
conclude the acquisition of Geodynamics' DoD business through
internally generated cash and existing credit arrangements.
Logicon's executive offices are located at 3701 Skypark
Drive, Suite 200, Torrance, California 90505, and its telephone
number is (310) 373-0220.
LIN, Inc.
LIN, Inc. ("MergerCo") was organized by Logicon to effect
acquisitions such as the Merger. At the Effective Time (as
defined below), MergerCo will, pursuant to the terms of the
Merger Agreement, merge with and into the Company, with the
Company surviving the Merger as a subsidiary of Logicon. The
principal executive offices of MergerCo are located at 3701
Skypark Drive, Suite 200, Torrance, California 90505, and its
telephone number is (310) 373-0220.
The Special Meeting
Time, Date and Place
The Special Meeting will be held at 10:00 a.m., local time,
on March ___, 1996, at ________________________________
____________. See "The Special Meeting--General."
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Record Date; Shares Entitled to Vote
Shareholders of the Company at the close of business on
January ___, 1996 (the "Record Date") are entitled to notice of
and to vote at the Special Meeting and any adjournments or
postponements thereof. On that date, the outstanding voting
securities of the Company consisted of ______________ shares of
Common Stock (excluding shares held in treasury or by
subsidiaries which are not entitled to vote). Each share,
except if held by the Company or its subsidiaries, of Common
Stock is entitled to one vote. All such shares will vote
together as a single class on the matters expected to be acted
on at the Special Meeting. See "The Special Meeting--Voting at
the Special Meeting; Record Date; Required Vote."
Purposes of the Special Meeting
The purposes of the Special Meeting are: (1) to consider
and vote upon a single unified proposal (the "Proposal") and
(2) to transact any other business as may properly come before
the Special Meeting or any adjournments or postponements
thereof.
The Proposal is being presented as a single, unified
proposal and approval of the Proposal will constitute approval
of the Merger, including approval and adoption of the Merger
Agreement and the transactions contemplated thereby, and
ratification of the other components of the Proposal (including
ratification of substantially the form of the documents
attached hereto). In addition, shareholders should be aware
that, in the event that the Proposal is approved and the
transactions consummated, employee compensation arrangements
involving Company Common Stock will be modified such that
certain employees will automatically hold options to acquire
Logicon Common Stock in lieu of options to acquire Company
Common Stock.
Vote Required
Under applicable provisions of the General Corporation Law
of the State of California (the "CGCL"), approval of the Merger
Agreement requires the affirmative vote of the holders of a
majority of the voting power of the shares of the Company's
capital stock outstanding and entitled to vote. In determining
whether the proposal has received the requisite number of
affirmative votes, abstentions and broker non-votes will be
counted and will have the same effect as a vote against the
proposal. The presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares
of the Company is necessary to constitute a quorum at the
Special Meeting. Approval of the Merger Agreement by the
requisite vote of the Company's shareholders is a condition to
the consummation of the Merger. See "The Special
Meeting--Voting at the Special Meeting; Record Date; Required
Vote."
As of the Record Date, the Directors of the Company have
the right to vote ____% of the voting power of all stock
entitled to vote at the Special Meeting. Each of the Directors
has indicated to the Company that he intends to vote all of
such shares in favor of the approval and adoption of the
Proposal. As of the Record Date, Logicon owns no shares of
Geodynamics Common Stock.
Procedures for Exchange of Certificates
Promptly after the consummation of the Merger, a letter of
transmittal and instructions for surrendering stock
certificates will be mailed to holders of Common Stock for use
in exchanging such holder's stock certificates for the Merger
Consideration (as described below). SHAREHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY. See "The
Merger--Procedures for Exchange of Certificates."
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Recommendation of the Company's Board of Directors
The Board of Directors believes that the Proposal is fair
to, and in the best interests of, the Company and its
shareholders, and has unanimously approved the Merger and the
other transactions related thereto and described herein (the
"Transactions") and recommends that the Company's shareholders
vote FOR the approval and adoption of the Proposal. The Board
of Directors' recommendation is based upon a number of factors
described in this Proxy Statement. See "Certain Considerations
Relating to the Transactions--Reasons for the Merger;
Recommendation of the Company's Board of Directors."
Opinion of Financial Advisor
On October 3, 1995, the date on which the Board of
Directors approved the Proposal, A.G. Edwards & Sons, Inc.
("A.G. Edwards"), financial advisor to the Company in
connection with the Proposal, delivered to the Board of
Directors its oral opinion to the effect that the consideration
to be received by holders of Common Stock in the Merger and in
conjunction with the contemplated disposition of its interest
in LCT is fair, from a financial point of view, to such
shareholders. A.G. Edwards subsequently confirmed such opinion
in writing and thereafter delivered a written opinion dated the
date of this Proxy Statement, a copy of which is attached to
this Proxy Statement as Annex II. The attached opinion sets
forth the assumptions made, matters considered, the scope and
limitations of the review undertaken and procedures followed by
A.G. Edwards, and should be read in its entirety. See "Certain
Considerations Relating to the Transactions--Financial Advisor;
Fairness Opinion."
The Transactions
Form of Merger
Pursuant to the Merger Agreement, MergerCo will merge with
and into the Company, with the Company surviving the Merger as
a subsidiary of Logicon. See "The Merger--Form of Merger."
Upon consummation of the Merger, the shares of Common Stock
will, except as described below, be converted into the right to
receive the merger consideration (as described below), and the
Company's shareholders will have no ownership interest in or
control over either the Company or Logicon. In addition, the
Common Stock will no longer be quoted in the Nasdaq National
Market System and the registration of Common Stock under the
Exchange Act will be terminated.
The Effective Time
The Merger will become effective with respect to the
Company on the date and at the time on which a certificate of
merger is filed with the Secretary of State of the State of
California (the "Effective Time"). Pursuant to the Merger
Agreement, the filing of the certificate of merger will be
effected as promptly as practicable after satisfaction or, if
permissible, waiver of the conditions to the Merger (but in any
event within five business days thereafter), provided that the
Merger Agreement has not been terminated in accordance with its
terms. See "The Merger--Effective Time of the Merger" and
"--The Merger Agreement--Termination."
Consideration to be Received in the Merger
Upon the consummation of the Merger, each outstanding share
of Common Stock, other than shares as to which dissenters'
rights have been duly asserted and perfected under California
law and shares held by the Company or its subsidiaries, will be
automatically converted into the right to receive $11.25 in
cash, as adjusted pursuant to the terms of the Merger
Agreement, which includes adjustments for the net proceeds to
the Company received in its recent sale of its LCT subsidiary
and for certain transaction expenses or taxes incurred in
connection with the Transactions (the "Merger Consideration").
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See "The Merger--Merger Consideration," "--Procedures for
Exchange of Certificates" and "--The Merger Agreement--Merger
Consideration--Merger Consideration Adjustment."
Treatment of Stock Options
In connection with the Merger, each outstanding option
("Option") to purchase Common Stock granted by the Company
(other than Options held by Directors), whether or not then
vested or exercisable, will, by virtue of such Option and the
Merger, remain outstanding. If not exercised prior to the
Effective Date, each such Option shall become an option to
acquire Logicon common stock, $.10 par value ("Parent Common
Stock"). The Company will endeavor to see that all vested
options are exercised prior to the Merger. The number of
shares of Parent Common Stock covered by such option and the
exercise price of such option shall be adjusted to reflect the
Merger Consideration and differing number of shares outstanding
of the two companies. See "Interests of Certain Persons in the
Transactions--Treatment of Options" and "The Merger--The Merger
Agreement--Merger Consideration--Stock Options."
Conditions to the Merger
The obligations of the Company and Logicon to consummate
the Merger are subject to various conditions, including
obtaining requisite shareholder and regulatory approvals and
other conditions customary to transactions of this nature. It
is anticipated that such conditions will be satisfied by the
date of the Special Meeting and that the Merger will be
effected promptly following such meeting. A significant
condition to the Merger was the disposition by Geodynamics of
LCT. See "The Merger--The Merger Agreement--Conditions to the
Merger" and "--Regulatory Matters."
No Solicitation of Acquisition Proposals
Pursuant to the Merger Agreement, the Company and its
representatives are prohibited from encouraging or seeking
acquisition proposals or furnishing any non-public information
to any person relating to an acquisition proposal. If the
Company receives an unsolicited acquisition proposal or
information request, the Company can provide information to and
negotiate with the person making such proposal or request, if
the Board of Directors of the Company determines in good faith
and based, as to legal matters, on advice of counsel that
failing to do so would be a breach of its fiduciary duties.
The Merger Agreement further provides that if the Board of
Directors of the Company determines in good faith based, as to
legal matters, on the advice of counsel that it would breach
its fiduciary duties to shareholders by not accepting an
unsolicited proposal and entering into a definitive agreement
with respect thereto or not withdrawing or modifying its
approval of the Merger, the Company has the option to terminate
the Merger Agreement by paying to Logicon an amount equal to 5%
of the amount equal to the product of $11.25 times the amount
of outstanding Company Common Stock, plus expense reimbursement
of up to $250,000. See "The Merger--The Merger Agreement--No
Solicitation of Acquisition Proposals" and "--Termination Fee
and Expenses."
Termination
The Merger Agreement may be terminated in certain
circumstances (at any time prior to consummation, whether
before or after approval and adoption of the Merger Agreement
by the shareholders of the Company), including the following:
(i) by the Company pursuant to the provisions described above
regarding unsolicited proposals; (ii) by mutual written
agreement of the Company and Logicon; or (iii) by either the
Company or Logicon (a) if there has been a material breach of
any representation, warranty, covenant or agreement which
breach has not been cured within ten business days following
receipt of notice thereof, (b) if any required approval of the
Company's shareholders is not obtained or any action by any
court, arbitrator, governmental body or agency making illegal
or otherwise restricting, preventing or prohibiting the Merger
has become final and non-appealable, or (c) at any time after
March 29, 1996, if the Merger has not been consummated on or
4
<PAGE>
before such date and such failure to consummate is not caused
by a breach of the Merger Agreement by the party electing to
terminate the Merger Agreement. See "The Merger--The Merger
Agreement--Termination." In some circumstances, such a
termination will require the Company to pay to Logicon a
termination fee and reimburse Logicon for its expenses. See
"The Merger--The Merger Agreement--Termination Fee and
Expenses."
Regulatory Matters
The consummation of the Merger is subject to the filing by
the Company and Logicon of a pre-merger notification report
with the Federal Trade Commission and the Antitrust Division of
the Justice Department under Section 7A of the Clayton Act
(Title II of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976), as amended in connection with the Merger and the
expiration or termination of the waiting period thereunder.
See "The Merger--The Merger Agreement--Conditions to the
Merger" and "--Regulatory Matters."
Interests of Certain Persons in the Transactions
In considering the recommendation of the Company's Board of
Directors with respect to the Proposal, the Company's
shareholders should be aware that certain members of the
Company's management and its Board of Directors have certain
interests in the Proposal that may present them with actual or
apparent conflicts of interest in connection with the Proposal.
These include, among others, payments under employment
retention agreements, the conversion of options into the merger
consideration, the acceleration of unvested Director options
upon the Merger and provisions in the Merger Agreement relating
to indemnification and the continuation of directors' and
officers' liability insurance following the consummation of the
Merger. The benefits to be received by the various executive
officers and directors of the Company pursuant to the foregoing
arrangements are described in this Proxy Statement. See
"Certain Considerations Relating to the Transactions--Interests
of Certain Persons in the Transactions."
Certain Federal Income Tax Consequences
The conversion of Common Stock into the right to receive
cash consideration in the Merger will be a taxable transaction
for federal income tax purposes and may also be a taxable
transaction for state, local, foreign and other tax purposes.
Shareholders are urged to consult their own tax advisors as to
the particular tax consequences to them resulting from the
Merger, including the applicability and effect of federal,
state, local, foreign and other tax laws. See "Certain Federal
Income Tax Consequences."
Tax Sharing Agreement
The Company has agreed, subject to certain limitations and
exceptions, to be responsible for the taxes of LCT for all
taxable periods up to the effective time of the disposition of
the Company's interest in LCT. Under the Merger Agreement, any
taxes payable by the Company in excess of $1,458,000 resulting
from the disposition of LCT will be deducted from the merger
consideration; however, pursuant to the Merger Agreement, these
taxes have been estimated and no merger consideration
adjustment will be required. See "The Merger--The Merger
Agreement--Merger Consideration--Merger Consideration Adjustment."
Dissenters' Rights
Under California law, shareholders who vote against or
abstain from voting in favor of the Merger and file a demand
for appraisal no later than the date of the shareholder vote on
the Merger have the right to obtain cash payment for the "fair
market value" of their shares of Common Stock (excluding any
element of value arising from the accomplishment or expectation
of the Merger). Dissenters' rights are not available with
respect to any aspect of the Proposal other than the Merger.
In order to exercise such rights, a shareholder must comply
5
<PAGE>
with all the procedural requirements of Sections 1300 to 1306
of the CGCL, descriptions of which are provided below under the
heading "The Merger--Dissenters' Rights" and the full text of
which are attached to this Proxy Statement as Annex III. Such
"fair market value" would be determined in judicial
proceedings, the result of which cannot be predicted. Failure
to take any of the steps required under Section 1300 of the
CGCL may result in loss of such statutory appraisal rights.
See "The Merger--Dissenters' Rights" and Annex III to this
Proxy Statement.
Disbursing Agent
U.S. Stock Transfer Corporation will act as Disbursing
Agent for the Merger. See "Payment to Shareholders."
Subsequent Event
On January 17, 1996, the Company sold LCT to an investor
group composed of LCT employees and former shareholders of LCT,
together with the Tudor Trust, a New York investment fund. The
sale was for cash of $4,900,000 which was funded partially
through the redemption of the Company's shares held by certain
of those parties.
A Special Committee of the Board of Directors of the
Company had negotiated and approved this transaction which
involved one existing Geodynamics director, Thomas R. LaFehr, a
former principal shareholder of LCT and a director of LCT. The
Tudor Trust is also a significant shareholder of the Company,
owning approximately 14.8% of Geodynamics' outstanding shares.
The Company also concluded a definitive agreement on the
amount of earnout due the Former LCT Shareholders, which will
be payable on February 1, 1996 in an amount of $1,600,000.
6
<PAGE>
SELECTED FINANCIAL INFORMATION
Geodynamics Selected Financial Data
The following selected income statement data for Geodynamics
for each of the three years ended June 2, 1995 and consolidated
balance sheet and other data as at June 3, 1994 and June 2, 1995
are derived from the consolidated financial statements of the
Company, which have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere herein.
The income statement data for the years ended May 28, 1993, May 29,
1992 and May 31, 1991 and the balance sheet and other data at May
28, 1993, May 29, 1992 and May 31, 1991 are derived from audited
financial statements not included herein. The income statement
data for the six months ended December 1, 1995 and December 2,
1994, and the balance sheet data as of those dates have been
prepared by the Company without audit. The data set forth below
should be read in conjunction with the information located under
the captions "Description of Geodynamics--Management's Discussion
and Analysis of Historical Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related
Notes of Geodynamics located elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
- ---------------------------------------------------------------------------- -------------------------
INCOME May 31, May 29, May 28, June 3, June 2, December 2, December 1,
STATEMENT DATA: 1991 1992 1993 1994 1995 1994 1995
(in thousands, except (unaudited) (unaudited)
per-share data)
- ---------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $62,114 $58,424 $57,696 $54,823 $60,770 $27,763 $32,053
------ ------ ------ ------ ------ ------ ------
Costs and expenses 56,817 55,487 55,017 53,734 57,937 26,095 30,583
------ ------ ------ ------ ------ ------ ------
Income from operations 5,297 2,937 2,679 1,089 2,833 1,668 1,470
Other income 278 395 288 351 312 128 109
------ ------ ------ ------ ------ ------ ------
Income before provision
for income taxes 5,575 3,332 2,967 1,440 3,145 1,796 1,579
Provision for income
taxes 2,100 1,271 1,019 555 1,227 691 608
------ ------ ------ ------ ------ ------ ------
Net income $3,475 $2,061 $1,948 $885 $1,918 $1,105 $971
====== ====== ====== ====== ====== ====== ======
Earnings per common
share $1.22 $.77 $.80 $.38 $.73 $.43 $.33
====== ====== ====== ====== ====== ====== ======
Weighted average number
of common shares
outstanding 2,856 2,689 2,428 2,327 2,630 2,571 2,905
====== ====== ====== ====== ====== ====== ======
Dividends per common
share $.25 $.28 $.28 $.28 $.28 $.07 $.07
====== ====== ====== ====== ====== ====== ======
BALANCE SHEET AND
OTHER DATA:
(in thousands)
- ---------------------------------------------------------------------------- -------------------------
Working capital 19,918 17,331 18,405 16,634 15,738 15,629 17,570
Total Assets 38,920 34,352 32,722 32,279 40,640 38,920 39,837
Long-term liabilities 1,507 1,135 305 142 1,872 2,027 1,834
Shareholders' equity 27,962 26,334 26,820 26,408 30,456 29,775 31,684
(1) Results for the fiscal year ended June 2, 1995 and the six-month periods ended December 1, 1995
and December 2, 1994, include the operations of Geodynamics and LCT. Comparative data from prior
years include only the results of Geodynamics.ed
</TABLE>
7
<PAGE>
THE SPECIAL MEETING
General
This Proxy Statement is being furnished to the holders of
shares of Geodynamics Common Stock in connection with the
solicitation of proxies by the Board of Directors for use at the
Special Meeting of Shareholders to be held at 10:00 a.m., local
time, on ___________, March ___, 1996, at_________________________,
and at any adjournments or postponements thereof.
Matters to be Considered at the Special Meeting
At the Special Meeting, shareholders will be asked to consider
and vote upon a single unified proposal (the "Proposal"), the
principal component of which is the Merger of MergerCo, a wholly-
owned subsidiary of Logicon, with and into the Company, and the
other transactions set forth in the Merger Agreement, pursuant to
which shareholders of Geodynamics will receive for each share of
Geodynamics Common Stock $11.25, as adjusted pursuant to the Merger
Agreement. Such adjustments will include an increase in the merger
consideration relating to the net proceeds of the Company's recent
sale of LCT and a reduction for certain transaction expenses and
payments. It is expected that the net proceeds to the
shareholders of Geodynamics will be $_____ per share.
The Proposal is being presented as a single, unified proposal
and approval of the Proposal will constitute approval of the
Merger, including approval and adoption of the Merger Agreement and
the transactions contemplated thereby, and ratification of the
other components of the Proposal (including ratification of
substantially the form of the documents attached hereto). In
addition, shareholders should be aware that, in the event that the
Proposal is approved and the transactions consummated, employee
compensation arrangements involving Company Common will be modified
such that certain employees will automatically hold options to
acquire Logicon Common Stock in lieu of options to acquire Company
Common Stock.
The Board of Directors has unanimously approved the Proposal
and recommends that the shareholders of the Company vote FOR the
approval and adoption of the Proposal.
Voting at the Special Meeting; Record Date; Required Vote
The Board of Directors has fixed the close of business on
January ___, 1996 as the record date (the "Record Date") for the
determination of shareholders of the Company entitled to notice of
and to vote at the Special Meeting and any adjournments or
postponements thereof. Only shareholders of record on such date
will be entitled to notice of and to vote at the Special Meeting.
On the Record Date, the outstanding voting securities of the
Company consisted of ___________ shares of Common Stock (excluding
any shares held in treasury which are not entitled to vote) held by
approximately _____ holders of record. Each share, except if held
by the Company or a subsidiary, of Common Stock is entitled to one
vote. All such shares will vote together as a single class on the
matters expected to be acted on at the Special Meeting.
Approval of the Proposal requires the affirmative vote of the
holders of a majority of the voting power of the shares of the
Company's capital stock outstanding and entitled to vote thereon.
The obtaining of such vote is a condition to consummation of the
Merger. If an executed proxy card is returned and the shareholder
has abstained from voting on any matter, the shares represented by
such proxy will be considered present at the meeting for purposes
of determining a quorum and for purposes of calculating the vote,
but will not be considered to have been voted in favor of such
matter. If an executed proxy card is returned by a broker holding
shares of Common Stock in street name which indicates that the
broker does not have discretionary authority as to certain shares
to vote on any matter, such shares will be considered present at
the meeting for purposes of determining a quorum and for purposes
of calculating the vote, but will not be voted with respect to such
matter. Because the Merger requires the affirmative vote of a
majority of the voting power of all shares of the Company's capital
stock outstanding and entitled to vote at the Special Meeting,
8
<PAGE>
abstentions and "broker non-votes" will have the same effect as a
vote against the proposal.
As of the Record Date, directors of the Company have the right
to vote ___% of the voting power of all stock entitled to vote at
the Special Meeting. The Directors have indicated to the Company
that they intend to vote all of such shares in favor of the
approval and adoption of the Proposal. As of the Record Date,
Logicon owns no shares of Common Stock.
If the Proposal is approved, certain dissenters' rights may be
available. See "The Merger--Dissenters' Rights."
Proxies
This Proxy Statement is being furnished to holders of Common
Stock in connection with the solicitation of proxies by the Board
of Directors for use at the Special Meeting. The presence, in
person or by properly executed proxy, of the holders of a majority
of the outstanding shares of Geodynamics Common Stock is necessary
to constitute a quorum at the Special Meeting. All shares of
Common Stock which are entitled to vote and are represented at the
Special Meeting by properly executed proxies received prior to or
at the Special Meeting, and not duly revoked, will be voted at the
Special Meeting in accordance with the instructions indicated on
such proxies. If no instructions are indicated on a properly
executed proxy, such proxy will be voted FOR the approval and
adoption of the Proposal.
If any other matters are properly presented for consideration
at the Special Meeting, including, among other things,
consideration of a motion to adjourn or postpone the Special
Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies or
obtaining necessary regulatory approvals), the persons named in the
enclosed form of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment.
The Company has no knowledge of any matters to be presented at the
Special Meeting other than those matters described herein.
GEODYNAMICS SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
Any proxy given pursuant to this solicitation may be revoked by
the person giving it at any time before it is voted. Proxies may
be revoked by (i) filing with the Secretary of the Company, at or
before the taking of the vote at the Special Meeting, a written
notice of revocation bearing a later date than the proxy, (ii) duly
executing a latter dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the
taking of the vote at the Special Meeting or (iii) attending the
Special Meeting and voting in person. Attendance at the Special
Meeting will not in and of itself constitute a revocation of a
proxy. In addition, shareholders whose shares of Common Stock are
not registered in their own name will need additional documentation
from the record holder of such shares to vote personally at the
Special Meeting. Any written notice of revocation or subsequent
proxy should be sent so as to be delivered to Geodynamics
Corporation, 21171 Western Avenue, Suite 110, Torrance, California
90501, Attention: Joanne M. Dunlap, Secretary, or hand-delivered
to the Secretary of the Company, at or before the taking of the
vote at the Special Meeting.
If a quorum is not present at the time of the Special Meeting,
or if fewer shares are likely to be voted in favor of approval of
the Proposal than the number required for approval, the Special
Meeting may be adjourned, with or without a vote of shareholders,
for the purpose of obtaining additional proxies or votes or for any
other purpose, including obtaining necessary regulatory approvals.
If the Company proposes to adjourn the Special Meeting by a vote of
the shareholders, the persons named in the enclosed proxy card will
vote all shares for which they have voting authority in favor of
such adjournment. At any subsequent reconvening of the Special
Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the original convening of the
meeting (except for any proxies which have theretofore effectively
been revoked or withdrawn), notwithstanding that they may have been
effectively voted on the same or any other matter at a previous
meeting.
9
<PAGE>
Proxies are being solicited by and on behalf of the Board of
Directors. All expenses of this solicitation, including the cost
of preparing this Proxy Statement, will be borne by the Company.
Such expenses are expected not to exceed $200,000. In addition to
solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of the Company or its
subsidiaries in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-
of-pocket expenses, in connection with such solicitation.
Arrangements will also be made with custodians, nominees and
fiduciaries for the forwarding of proxy solicitation materials to
beneficial owners of shares held of record by such persons, and the
Company may reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.
CERTAIN CONSIDERATIONS RELATING TO THE TRANSACTIONS
Background of the Transactions
Beginning in the late 1980s, the Company began to feel the
effects of a more competitive defense contracting environment. A
decline in DoD spending, coupled with increased profit margin
pressures from DoD customers and competitors, placed pressure on
the Company's operating results, as well as on the stock market's
valuation of the Company and a number of its peers. As a result of
these trends, the Company developed and implemented a long-term
strategic program designed to allow shareholders to realize the
Company's asset values through increased operating efficiencies,
cash distributions to shareholders and diversification of the
Company into non-DoD businesses complementary to the Company's DoD
expertise. During the period from 1988 through 1994, these
activities were focused on the repurchase of approximately 857,000
shares at a total cost of approximately $7.9 million and the
decision to investigate ways of utilizing the Company's technology
in non-DoD applications.
In 1993, the Company identified LCT as an opportunity
consistent with the Company's diversification plan. At the time,
the Company was involved in a strategic alliance with LCT involving
the development of a system for airborne geophysical gravity
surveys. The Board of Directors determined that LCT's emphasis and
expertise in geological data retrieval and analysis and related
services were complementary to the Company's geological and
geophysical areas of expertise. As a result, LCT was acquired by
Geodynamics in June 1994. The transaction was structured as an
acquisition of the shares of the former shareholders of LCT (the
"Former LCT Shareholders") through a merger with a newly formed
Geodynamics subsidiary. The purchase price was to be paid in two
installments, an initial payment to the Former LCT Shareholders of
approximately $5 million, half in cash and half in Company Common
Stock, and an earnout payment to the Former LCT Shareholders based
upon the revenues and profit margins of LCT through December 31,
1995, also payable in cash and Company Common Stock (the "LCT
Earnout"). See "Description of LCT" and "Description of
Geodynamics."
In late 1994, certain shareholders became dissatisfied with the
progress and orientation of the Company's efforts to maximize
shareholder value and challenged Geodynamics' incumbent Board of
Directors in a proxy contest at the forthcoming annual meeting. In
February 1995, the Company retained A.G. Edwards & Sons, Inc.
("A.G. Edwards") to, among other things, examine alternatives
available to the Company to maximize shareholder value. The proxy
contest subsequently led to litigation and a contested election of
directors. In the final shareholder vote, four incumbent directors
and three members of the opposing slate were elected, Dr. Edleson,
Mr. Stackhouse and Mr. Gordon.
During this period, the news of the proxy contest generated
inquiries by third parties interested in possibly acquiring the
Company, and the receipt of an indication of interest to acquire
the Company, including LCT, for $9.50 per share. The Board was
advised by A.G. Edwards that the $9.50 per share reflected in such
indication of interest was inadequate. The Board determined not to
take immediate action on these inquiries pending the outcome of the
proxy contest. After the director election, the Company contacted
all persons who had indicated an interest as part of the Company's
efforts described below.
10
<PAGE>
Subsequent to the proxy contest, the new Board changed senior
management of the Company, and Dr. Thomas R. LaFehr, a Director of
Geodynamics, was elected as Chairman of the Board of Geodynamics,
and Bruce J. Gordon, a newly elected Director of Geodynamics, was
elected President and Chief Executive Officer of Geodynamics. Mr.
Gordon was coming out of retirement and made a commitment to
December 31, 1996 to continue in this role, during which time he
would endeavor to recruit his successor. Dr. LaFehr had previously
been a Director, Chairman and President and a major shareholder of
LCT prior to its acquisition by the Company. Dr. LaFehr served as
Chairman of the Board without additional cash compensation and Mr.
Gordon secured an employment agreement which included salary,
bonus, stock options and deferred compensation. Dr. LaFehr's
Director Stock Option was modified to permit immediate full vesting
notwithstanding his employee status at LCT.
At its meeting on April 19, 1995, A.G. Edwards rendered its
report on available alternatives to maximize shareholder value.
These alternatives to maximize shareholder value included: further
share repurchases, acquisition of complementary DoD companies,
acquisition of complementary commercial software and systems
engineering service companies and the outright sale of the Company.
From April to June 1995, the Board of Directors and management
continued to investigate the various strategic alternatives for the
Company. During this time, the Company received additional
indications of interest from third parties interested in acquiring
all or parts of the Company. Throughout April and May, the Company
responded to each of these inquiries, indicating that the Company
was continuing to investigate its strategic alternatives and that
in such investigations such indication of interest would be
considered.
At a June 7, 1995 meeting of the Board of Directors, the Board
discussed the matters and analysis presented at the April 19, 1995
Board meeting, as well as the third-party contacts that had
occurred since that meeting and various operational issues
affecting the Company. At the meeting, the Board determined to
continue to retain A.G. Edwards to explore strategic alternatives
to maximize shareholder value, with a particular emphasis on the
potential sale or merger of the Company. Due to the uncertainty
about the Company's business direction and the increased
speculation, both inside and outside the Company, about the
Company's future, the Board further determined that it was
important for the exploration of the Company's merger or sale
alternatives to be conducted relatively promptly. The retention of
A.G. Edwards for this purpose was publicly disclosed in the
Company's June 8, 1995 press release. Geodynamics was not then in
advance negotiations with any potential acquiror.
Based upon its understanding of the defense industry
environment, the Company's extensive involvement in and reliance on
classified contracts and the Board's determination that an
indiscriminate auction atmosphere could reduce the interest level
of significant possible acquirors, many of which are involved in
highly-classified DoD businesses, the Board of Directors determined
not to direct A.G. Edwards to conduct a wide-spread auction-type
canvassing of potential acquirors. Rather, it was determined that,
in addition to the June 8th press release, a more targeted
investigation of a sale of the Company would be appropriate to
maximize the level of participant interest. As a result of the
retention of A.G. Edwards, Geodynamics began to affirmatively
explore a possible sale of the Company to potentially interested
companies in the defense and non-defense areas, including companies
who had contacted Geodynamics or A.G. Edwards previously or as a
result of the June 8th press release. The Company believes that
the June 8th press release was available to and read by a large
percentage of possible acquirors. Although there was no formal
proposal or specific expectation that a disposition of LCT would
not be involved in a sale of the Company, the Board also informally
requested Dr. LaFehr to investigate the possibility of a
disposition of the Company's non-DoD business subsidiary, LCT, as
part of a separate transaction. The Board of Directors also
informally inquired of Dr. LaFehr, as the largest former
shareholder of LCT, regarding his possible interest in leading a
management buyout of LCT. Dr. LaFehr made it clear that, for
personal reasons not having to do with LCT's performance or
prospects, he did not have an interest in such a significant new
investment.
Subsequent to the June 8, 1995 press release, the party who had
given the Company an expression of interest at $9.50 per share
submitted a second preliminary indication of interest at $12.50 per
share (including LCT) conditioned on, among other things, the
execution and public announcement of a binding letter of intent
prior to the party conducting substantive due diligence.
Geodynamics declined this proposal after consultation with its
legal and financial advisors, due primarily to the highly
contingent nature of the proposal, the lack of the party's
diligence to date, and the significant potential for a public
announcement of such an arrangement to deter other interested
11
<PAGE>
parties. The Company offered the party the potential for
conducting diligence in accordance with the procedures the Company
and A.G. Edwards were concurrently establishing so as to reduce the
contingent nature of its proposal. The party declined and withdrew
its proposal.
On behalf of the Company, A.G. Edwards contacted and responded
to contacts from over 18 entities or persons who were believed to
have the ability to acquire Geodynamics in order to determine if
these entities had an interest in engaging in a transaction
beneficial to the Company's shareholders. After A.G. Edwards'
initial contacts, confidentiality agreements were signed with
approximately 13 entities and persons, who were then provided a
disclosure memorandum containing data on the personnel, properties,
business, financial statements, liabilities and operations of the
Company. Interested parties who executed the confidentiality
agreements were also provided additional data on a case by case
basis and had the opportunity to ask questions of the A.G. Edwards
representatives.
Certain of the interested parties had expressed specific
interest in acquiring LCT as part of their acquisition of the
Company. As a result, during June through early August 1995, Dr.
LaFehr and senior management of LCT along with A.G. Edwards
suspended their active investigation of the sale or other
disposition of LCT. During this period, they did, however,
continue to informally identify potential acquirors or merger
partners and informally considered the possibility of a sale to
management or financial participants. In August 1995, the Board of
Directors determined that the uncertainty about the final size of
the LCT Earnout (which is based in part on December 31, 1995
year-end financial results and would not be calculable until an
audit of such numbers was prepared) could prove to be a substantial
impediment to a sale of Geodynamics, whether or not it included
LCT. The Board of Directors directed a special committee
comprising Dr. Edleson, Mr. Ellis and Mr. Gordon to commence
discussions with appropriate representatives of the Former LCT
Shareholders about the possibility of negotiating a sum certain for
the LCT Earnout as a means of facilitating the possible sale or
merger of Geodynamics. The special committee immediately commenced
discussions with Dr. Kwok Chan, the president of LCT, as the
representative of the Former LCT Shareholders.
At its August 3, 1995 Board of Directors meeting, A.G. Edwards
updated certain aspects its April 19, 1995 analysis and briefed the
Board on the status of expressions of interest by possible
acquirors. The Board of Directors also received briefings from the
Company's general counsel, Joseph E. Nida, of Nida & Maloney, and
special counsel to the Board of Directors, Roger C. Cohen, of
Cohen, Brame & Smith, who had previously served as counsel to LCT.
As part of its update report, A.G. Edwards indicated that on and
after the presentation to the Board of Directors on April 19, 1995,
several events had occurred with the potential to adversely impact
valuation of the Company, including: (i) the estimated 1995
operating income was expected to be $500,000 lower than previously
projected due to unforeseen non-LCT commercial losses, although
management's projections for years after 1995 remained intact; (ii)
management believed the outcome of the Company's Air Force Tactical
Applications of National Capabilities ("TENCAP") contract bid had a
greater level of uncertainty; and (iii) the Company had made
additional stock option grants to employees and directors.
At the meeting, A.G. Edwards further reported that they had
reason to believe that the most significant industry participants
had learned of the opportunity to seek to acquire or merge with the
Company. The Board decided to encourage interested parties to
continue their diligence in an effort to determine whether it was
possible to conclude a transaction based on completed diligence and
additional negotiation. The Board also discussed the possible
treatment of LCT by potential acquirors in any proposed
transaction. Based in part on the Board's observation that a
substantial number of the interested parties were defense
contractors who were currently expressing less interest in the
Company's non-DoD LCT business than originally expressed, the Board
requested Dr. LaFehr and A.G. Edwards to further investigate a
possible sale of LCT, including a possible sale of LCT to a group
including LCT's own management.
In August 1995, Geodynamics, with the assistance of A.G.
Edwards, established a data room at the Company's Torrance,
California headquarters for those potential buyers expressing
interest in Geodynamics. Substantial due diligence was conducted
by four potential acquirors. During the due diligence process by
these potential acquirors, senior management of Geodynamics and the
possible acquirors met to discuss, among other things, the
financial aspects of a business combination and concerns regarding
the business rationale and synergies that might be obtained from a
12
<PAGE>
transaction. Each of the potential acquirors visited Geodynamics'
data room and conducted additional interviews with the Company's
four senior management and, in some instances, lower-level
management. Certain of the bidders also conducted visits to the
Company's various operating sites. Further, for those potential
acquirors who had adequate security clearances, classified
briefings were given on Geodynamics' classified contracts. During
this period, Dr. LaFehr and A.G. Edwards, with the assistance of
LCT's senior management, also increased the emphasis on the
investigation of a possible sale of LCT.
In a press release dated August 21, 1995, Geodynamics
reiterated its June 8th announcement that it was in the process of
talking to potential buyers but that no decision had yet been made
on a sale of the Company. Concurrent with the press release, the
Company requested formal proposals from the four interested parties
who had conducted detailed due diligence, and A.G. Edwards, on
behalf of the Company, distributed drafts of an Agreement and Plan
of Merger to the interested parties for their review and comment.
By September 11, 1995, the Company had received two detailed
formal proposals. Logicon's proposal was $11.00 per share, plus
50% of the value of LCT to the extent it exceeded the LCT Earnout,
less the amount of the LCT Earnout in excess of $1.0 million. The
second formal proposal received by the Company was at a lower cash
value and excluded LCT entirely. The proposals received by the
Company from the other two remaining potential acquirors were at
lower prices and were more conditional and general in nature.
By mid-September 1995, the Company had reached an impasse in
its negotiations with the representatives of the Former LCT
Shareholders over a liquidated sum to satisfy the LCT Earnout.
There were material differences of opinion about the prospects of
LCT for the balance of the LCT Earnout calculation period ending
December 31, 1995. The negotiations were suspended with the
Company having offered $2 million in satisfaction of the LCT
Earnout and the representatives of the Former LCT Shareholders
offering $2.5 million.
At a September 19, 1995 Board of Directors meeting, A.G.
Edwards made a presentation updating certain aspects of its
previous presentations and discussing the possible acquisition of
Geodynamics by any of the four remaining interested parties and the
strategic alternatives available to Geodynamics and their
implications in light of the Board of Directors' objective of
maximizing shareholder value. At the meeting, the Board of
Directors was also advised of (i) the Company's loss of the Air
Force TENCAP contract in competitive rebidding, which had generated
$8.7 million in revenues (16% of Geodynamics' DoD revenues) for the
fiscal year ending June 2, 1995 and was of strategic importance to
several of the potential buyers, (ii) the Company's 1995 earnings
performance and (iii) the continued competitive DoD environment and
Management's concerns about re-establishing a favorable track
record in DoD business. A.G. Edwards also advised the Board that,
as a result of the continuing diligence of the interested parties
and further diligence with their principals, it had become apparent
that the two primary potential acquirors, who were primarily
defense contractors, were not interested in acquiring LCT because
of its non-DoD business focus. A.G. Edwards reported that the
potential sale of LCT by the potential acquirors of the Company, or
by Geodynamics, would likely reduce the overall value achievable by
Geodynamics' shareholders by the corporate level tax liability to
be paid upon its sale as a separate entity.
The Board of Directors excused their financial advisors and,
with their legal advisors, deliberated on the presentation and
conclusions of its financial advisor. After review of the formal
proposals received, the presentation of A.G. Edwards and additional
presentations from the Company's legal advisors, the Board
determined that neither of the two detailed proposals was
acceptable as submitted, and that it would be in the best interest
of Geodynamics shareholders for each of these interested parties,
who had made formal proposals, to be offered the opportunity to
make revised and increased offers, accompanied by all requested
substantive changes to the Company's form of Agreement and Plan of
Merger. The Board directed A.G. Edwards to secure from the
interested bidders definitive proposals without material conditions
at values higher than the previously submitted proposals. The
Board further established October 2, 1995 as a deadline for the
parties to submit such revised and improved bids. As a result of
A.G. Edwards' report on the potential acquirors' consideration and
treatment of LCT, the Board further requested Dr. LaFehr, in
consultation with A.G. Edwards, to intensify the investigation of a
sale or other disposition of LCT. The Board also considered other
strategic alternatives of the Company, including remaining an
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independent company and pursing an appropriate diversification or
other strategy. The Board directed management to prepare a
presentation for the Board on remaining an independent company, to
be presented at the Board's September 30, 1995 meeting.
At the September 30, 1995 Board of Directors meeting, senior
management briefed the Board of Directors on an alternative
strategy of remaining independent, and A.G. Edwards briefed the
Board of Directors on the current status of the discussions with
third parties and other matters relating to the Company's valuation
and its strategic alternatives. A.G. Edwards reported that it
expected to receive updated offers from Logicon and the other
remaining interested parties on the following Monday, October 2,
1995. With respect to LCT, A.G. Edwards reported that a spin-off
of LCT to Geodynamics shareholders was one potential alternative
for transferring value to Geodynamics shareholders in addition to
the sale of the DoD business. A.G. Edwards indicated that it
expected to receive offers for the purchase of the Company's DoD
business which, when combined with the proceeds of the disposition
or spin-off of LCT, would result in a transaction that would be
fair from a financial viewpoint to Geodynamics shareholders.<R/>
After reviewing the various presentations to the Board and
other matters presented to the Board relating to a possible
transaction, the Board of Directors again concluded that the
Company's DoD business continued to involve material uncertainties
and may not be able to achieve satisfactory profitable growth in
the short-term due, in part, to industry consolidation and
increasing profit margin pressures. The Board further determined
that management's projected value in its business plan alternative
as an independent company was less in the projected periods than
the value, based on the acquisition proposals received, the Board
anticipated shareholders would receive from the interested third
parties. The Board of Directors therefore determined that, if
updated proposals were submitted that met the Board's minimum value
expectations, then it would be in the best interest of Geodynamics
shareholders for the Company to attempt to negotiate a definitive
agreement on the best acceptable transaction available as soon as
possible. At the Board's request, its financial advisors also
advised the Board of Directors on the anticipated value of LCT as a
stand-alone spun-off public entity. Among other matters, the Board
of Directors was advised that the precise trading pattern of LCT,
as a stand-alone public company, could not be accurately predicted,
but it was likely that the initial trading prices might be
substantially below a reasonable long-term trading value for LCT
common equity. Among those reasons would be the sale of LCT stock
by Geodynamics' shareholders who did not wish to own shares in LCT
as a stand-alone public company.
The Board observed that one of the critical steps that remained
to be taken was to finalize the negotiations to achieve an
arrangement with the Former LCT Shareholders by which the LCT
Earnout payment would be fixed. The Board of Directors instructed
its legal and financial advisors to again discuss with appropriate
representatives of the Former LCT Shareholders the possibility of
negotiating a sum certain for the LCT Earnout as a necessary
condition to any sale or merger of Geodynamics. The Company's
legal and financial advisors immediately re-commenced discussions
with Kwok Chan as the representative of the Former LCT
Shareholders.
By the October 2, 1995 bidding deadline, two definitive
proposals had been received. The Board evaluated the proposals.
After analysis of the proposals and discussion with its legal and
financial advisors, the Board determined that the proposal from
Logicon at $11.25 per share net to the shareholders in cash (as
adjusted) along with a required disposition of LCT provided the
greatest value to shareholders and that it was in the interest of
the Company's shareholders for the Company to (i) determine whether
it was possible to substantially increase the second best offer and
to remedy certain other structural issues that made its offer less
desirable than the Logicon offer, (ii) determine whether Logicon's
offer could be increased and (iii) offer to the highest bidder the
opportunity to negotiate on an exclusive basis toward a definitive
agreement and plan of merger. The Board of Directors also approved
a tentative negotiated settlement of the LCT Earnout. The Board
instructed management and its legal and financial advisors to reach
conclusion of the LCT Earnout, subject to final Board approval.
At the October 3, 1995 Board of Directors meeting, A.G. Edwards
reported that the party who had presented the second best offer had
been contacted and that it was unwilling to substantially increase
or modify its offer. Mr. Gordon also reported to the Board that,
pursuant to the Board's direction, he had sought to have Logicon
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increase its offer, but that $11.25 per share was Logicon's best
offer. Mr. Gordon further reported that, pursuant to the Board's
direction, an acceptance of the $11.25 per share offer had been
orally delivered to Logicon by Mr. Gordon and that Mr. Gordon had
invited Logicon to negotiate a definitive merger agreement on an
exclusive basis. Because the Logicon offer excluded LCT and
permitted the Company to dispose of LCT and distribute the proceeds
to Geodynamics shareholders, and because no definitive proposals or
reasonable indications of interest had yet been received in
response to the Company's sale efforts relating to LCT, the Board
directed the Company's legal and financial advisors to attempt to
structure a spin-off of LCT that would provide the maximum value to
Geodynamics' shareholders, including structuring such a transaction
that would permit listing the spun-off LCT's common stock on the
Nasdaq SmallCap Market, if eligible. The Board, however, at the
same time, also appointed Directors LaFehr and Edleson to a special
committee to continue to pursue the sale of LCT to a third party.
The Company's legal and financial advisors were instructed to
provide necessary support to the special committee.
From October 3, 1995, the Company's management and legal and
financial advisors worked to negotiate the final terms of the
definitive Merger Agreement with Logicon, as well as the final
terms of the LCT Earnout and the terms of an acceptable disposition
of LCT. At meetings on October 5 and 6, 1995, the Board was briefed
on the status of the Logicon negotiations and related open issues.
The Board also received briefings from management and its financial
and legal advisors on the LCT Earnout negotiations.
At an October 10, 1995 Board of Directors meeting, the
Company's legal advisors reported that all material legal issues in
the Logicon negotiations had been resolved. Mr. Gordon further
reported that certain interim management issues had been resolved,
in part, through the establishment of a transitional working group.
A.G. Edwards then delivered to the Board its oral opinion as to the
fairness, from a financial point of view, to the Company's
shareholders of the consideration to be received by the holders of
the Company's Common Stock in the Merger in conjunction with the
disposition or spin-off of LCT. After further deliberation over
the final negotiated terms of the Merger Agreement, the Board of
Directors approved the Transactions, including the Merger Agreement
with Logicon, including the $11.25 cash price per share, as
adjusted pursuant to the terms of the Merger Agreement, the
tentative LCT Earnout, the management participation in LCT and a
spin-off of LCT to Geodynamics' shareholders.
From October 10 to October 18, 1995, the negotiators for
Geodynamics and the Former LCT Shareholders met in person and
telephonically to negotiate the final terms of the LCT Earnout.
Concurrently, the Company's legal and financial advisors continued
to structure a spin-off of LCT. The final negotiated terms of the
LCT Earnout provided that the LCT Earnout would be specified at
$2,057,750. However, either party could request that the LCT
Earnout be paid in accordance with the original terms of the LCT
acquisition agreement, upon payment to the other party of $10,000
by January 15, 1996, if that party believed that the amount of the
LCT Earnout as originally calculated would be 5% greater or less
than the specified amount. Based on LCT's year-end results, in
January 1996 the LCT Earnout was reduced by mutual agreement of the
parties to $1,600,000.<R/>
Concurrent with the negotiations with the representatives of
the Former LCT Shareholders about the LCT Earnout, discussions
commenced between the Company and senior members of LCT's
management about the possible participation of LCT management in a
spun-off or sold LCT. The Board of Directors had determined that,
because of the reliance of LCT on the performance and participation
of its management and other key personnel in the business of LCT,
it was important for such personnel to be adequately incentivized
to make an independent spun-off LCT as successful as possible. The
Board further determined that an appropriate method for providing
this management incentive was substantial participation by such
employees in the equity ownership of LCT if it was spun off. The
Board determined that this participation should be effected
initially through a purchase of equity at fair market value and not
through outright grants or options.
Pursuant to the negotiations, members of LCT's management and
other LCT employees agreed to purchase up to 33% of the equity of
LCT (on a diluted basis) at a price based on LCT's 1994 and 1995
average operating margins and revenues in the event a spin-off of
LCT was consummated. The purchase price for such 33% of the equity
of LCT is anticipated to be substantially equal to the amount of
the LCT Earnout payment.
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The Board was apprised of continuing developments at meetings
held on October 12, 13 and 16, 1995 for that purpose. At an
October 17, 1995 meeting, the special committee appointed for such
purpose presented the Board with the final negotiated terms of the
LCT Earnout. The Board had also received presentations or updates
of prior presentations relating to the LCT Earnout from the
Company's financial and legal advisors and from its accountants.
After considering these matters, the Board determined that the
negotiated settlement of the LCT Earnout was in the best interest
of the Company's shareholders. The Board unanimously approved the
terms of the LCT Earnout negotiations, with Dr. LaFehr abstaining.
On October 18, 1995, the Company executed an agreement
providing for the negotiated LCT Earnout and executed the
definitive Merger Agreement with Logicon. Concurrently with the
announcement of the execution of the definitive agreement with
Logicon, Geodynamics advised its customers and employees about the
Transactions.
Since October 18, 1995, the Company, through Drs. LaFehr and
Edleson and A.G. Edwards, continued to market LCT to interested
third-party buyers. Throughout the sale efforts, A.G. Edwards
contacted 39 potential strategic and financial buyers and sent a
confidentiality agreement and an executive summary of LCT to each
of them. Of these potential buyers, 14 signed confidentiality
agreements and were sent confidential information relating to LCT.
Dr. LaFehr separately contacted seven potential strategic and
financial buyers. Of these, one requested a confidentiality
agreement and an executive summary and subsequently requested
confidential information regarding LCT. In all, seven potential
buyers visited LCT's Houston facilities and received in-depth
presentations on LCT's business. In conjunction with these
efforts, the Company's Board directed the members of the LCT
Earnout special committee, Dr. Edleson, Mr. Gordon and Mr. Ellis,
to analyze third-party or management offers relating to LCT.
Two of the potential buyers made proposals to purchase LCT at
prices the special committee determined were inadequate; however,
they indicated a willingness to consider increasing their bid based
on additional due diligence. Both of the potential buyers visited
LCT in Houston. During these visits, each had the opportunity to
interview LCT management as well as review information in a data
room established by LCT with the assistance of A.G. Edwards.
Neither potential acquiror presented a satisfactory improvement in
their offers and discussions were suspended. Through the efforts
to sell LCT, it became apparent that the timing for endeavoring to
sell LCT may not have been favorable because, while the Company and
LCT believe that LCT's airborne gravity business represents a
substantial part of LCT's possible future value, the lack of a more
substantial history of operations and earnings for its airborne
gravity business made it difficult for potential acquirors to value
LCT.
The Company also received a proposal from existing LCT
management at a price the special committee found to be inadequate.
A.G. Edwards was asked to determine if LCT management would
significantly increase their offer. LCT management declined to do
so and discussions were suspended.
Subsequently, on January 2, 1996, the Company received a letter
of intent (the "LCT Letter of Intent") from members of LCT
management, including Drs. LaFehr and Chan, and Mr. Bain, and the
Tudor Trust, a New York investment fund, a large shareholder of the
Company which had previously been contacted by the Company's
representatives regarding participation in a sale of LCT
(collectively, the "LCT Purchasers"). In the LCT Letter of Intent,
the LCT Purchasers proposed to acquire the stock of LCT for $4.9
million, payable at closing in the form of a combination of cash
and shares of Geodynamics Common Stock. The LCT Letter of Intent
also included an agreed reduction of the LCT Earnout from
$2,057,750 to $1,600,000. Such proposal was in lieu of the agreed
LCT management participation in a spin-off of LCT.
The special committee of the Board comprising Dr. Edleson, Mr.
Ellis and Mr. Gordon discussed the LCT Letter of Intent in numerous
telephonic meetings from January 2 through January 11, 1996.
During this period, the committee conferred with the Company's
financial and legal advisors regarding the LCT Letter of Intent and
also held discussions with the LCT Purchasers and their
representatives. The committee determined that, after settlement
of the LCT Earnout and expenses paid to A.G. Edwards, the LCT sale
results in approximately an additional $1.00 per share to
Geodynamics shareholders. On January 11, 1996, after consultation
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with its financial and legal advisors, the special committee voted
to approve the offer to purchase LCT as presented in the LCT Letter
of Intent, subject to definitive documentation. On January 17,
1996, the sale was consummated at a price of $4,900,000, plus
certain adjustments payable in cash. The purchase price was funded
in part through the redemption of Geodynamics shares at $12.00 per
share from certain of the LCT Purchasers. The LCT Earnout of
$1,600,000 will be paid on February 1, 1996.
Reasons for the Merger;
Recommendation of the Company's Board of Directors
The Board of Directors of the Company has unanimously approved
the Transactions and believes that the Transactions are in the best
interests of the shareholders. The Board of Directors recommends
that shareholders vote FOR the Proposal. Each of the directors of
the Company has advised the Company that he intends to vote all
shares of Geodynamics Common Stock in favor of the Proposal.
The Board of Directors, in reaching its decision, considered a
number of factors, including, without limitation, the following:
(i) the financial terms of the Merger;
(ii) the terms of the Merger Agreement and the other
documents executed or to be executed in connection with the
Merger;
(iii) information with respect to the financial
condition, results of operations, business and prospects of
Geodynamics and its component businesses, including LCT, and
information with respect to current industry, economic and
market conditions, as well as the risks involved in achieving
those prospects;
(iv) the current and prospective economic and
competitive environment facing the Company;
(v) historical market prices and trading activity of
the shares of Geodynamics Common Stock and the fact that
shareholders would be provided with an opportunity to receive
a significant amount of cash (through the Merger) ;
(vi) the substantial number of outstanding options to
acquire Company Common Stock;
(vii) the oral and written presentations of A.G.
Edwards, including the opinion of A.G. Edwards as of October
18, 1995 as to the fairness, from a financial point of view,
to the shareholders of the Company of the Transactions;
(viii) the Board of Directors' evaluation of the
risks to consummation of the Transactions, including the risks
associated with obtaining all necessary regulatory approvals;
(ix) the fact that the Company may, in accordance
with the Merger Agreement, under certain circumstances furnish
information to, and discuss and negotiate with, parties other
than Logicon who have an interest in a transaction with the
Company, and that the Company may terminate the Merger
Agreement if an unsolicited transaction is proposed which the
Board of Directors believes is more favorable to the Company
and its shareholders than the terms of the Merger Agreement,
subject to the payment of a fee to Logicon of 5% of the amount
equal to the product of $11.25 times the amount of outstanding
shares of the Company in cash, plus expense reimbursement of
up to $250,000 (see "--The Merger Agreement--No Solicitation
of Acquisition Proposals" and "--Expenses; Termination Fee");
the Board of Directors considered the amount of such fee in
relation to the consideration offered by Logicon and concluded
17
<PAGE>
that the obligation of the Company to pay such fee in the
event it exercises its right to terminate the Merger Agreement
would not materially deter alternative proposals; and
(x) the Board of Directors' review of the possible
alternatives to the Transactions.<R/>
In addition, the Board considered: (i) the activities of
members of the Board, Geodynamics' and LCT's management and A.G.
Edwards to sell LCT to a third party or to LCT's management; (ii)
the actual or potential conflicts of interest that certain members
of management or the Board of Directors of the Company may have in
the Transactions (see "Certain Considerations Relating to the
Transactions--Interests of Certain Persons in the Transactions");
(iii) the terms and conditions of the Merger Agreement and the sale
of LCT; and (iv) the involvement of the independent directors in
the structuring and negotiation of the Transactions, and the
separate concurrence of these Directors with the decisions of the
Board of Directors.
In view of the wide variety of factors considered by the
Geodynamics Board, the Board did not find it practicable to
quantify or otherwise attempt to assign relative weights to the
specific factors considered in making its determination.
Consequently, the Board did not quantify the assumptions and
results of its analysis in reaching its determination that the
Transactions are fair to, and in the best interests of,
Geodynamics' shareholders.
Financial Advisor; Fairness Opinion
Geodynamics initially retained A.G. Edwards to explore the
Company's alternatives for maximizing shareholder value.
Thereafter, Geodynamics retained A.G. Edwards to act as its
exclusive investment banking representative and financial advisor
for the purpose of advising Geodynamics concerning possible
business combinations and, upon a negotiation of an agreement to
acquire Geodynamics by another entity, to render an opinion as to
the fairness, from a financial point of view, of the consideration
to be received by the shareholders of Geodynamics in the Merger.
After consideration of proposals from several bidders, A.G. Edwards
was also retained to provide advisory services regarding the
possible spin-off/sale of LCT.
A.G. Edwards is a nationally recognized securities and
investment banking firm engaged in, among other things, the
evaluation of businesses and their securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate
and other purposes. A.G. Edwards was selected as financial advisor
based upon such expertise, its knowledge of Geodynamics, and its
reputation in investment banking and mergers and acquisitions.
At the October 3, 1995 meeting of Geodynamics' Board of
Directors at which the form, terms and provisions of the Merger
Agreement were approved and adopted, A.G. Edwards rendered its oral
opinion to the Geodynamics' Board of Directors, based on various
considerations and assumptions discussed below and A.G. Edwards'
general knowledge of the mergers and acquisitions market for
companies similar to Geodynamics, that, as of such date, the
consideration to be received by the holders of Common Stock in the
Merger was fair, from a financial point of view, to the
shareholders of Geodynamics. The full text of the opinion of A.G.
Edwards, dated October 18, 1995, which sets forth assumptions made,
matters considered and limits on the review undertaken by A.G.
Edwards, is attached as Annex II to this Proxy Statement and is
incorporated herein by reference. Geodynamics' shareholders are
urged to read the opinion in its entirety. A.G. Edwards' opinion
is directed only to the fairness, from a financial point of view,
to the shareholders of Geodynamics of the consideration to be
received in the Transactions, and does not constitute a
recommendation to Geodynamics shareholders as to how such
shareholders should vote at the Geodynamics Special Meeting. The
summary of the opinion of A.G. Edwards set forth in this Proxy
Statement is qualified in its entirety by reference to the full
text of such opinion included in Annex II.
In arriving at its written opinion, A.G. Edwards, among other
things:
(i) reviewed the definitive Merger Agreement,
as well as the agreement with respect to the
acquisition by the employees of LCT of a partial
ownership therein;
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(ii) reviewed Annual Reports to Stockholders and
Annual Reports on Form 10-K of Geodynamics for the
five fiscal years ended June 2, 1995;
(iii) reviewed recent news articles and
research analysts' reports related to Geodynamics
and reviewed certain interim reports to stockholders
and Quarterly Reports on Form 10-Q of Geodynamics;
(iv) reviewed certain other internal financial
analyses and forecasts for Geodynamics and for LCT
as prepared by management of Geodynamics;
(v) held discussions with members of the
management of Geodynamics regarding the past and
current business operations, financial condition and
future prospects of Geodynamics and of LCT;
(vi) reviewed the reported price and trading
activity for Geodynamics' Common Stock;
(vii) reviewed schedules prepared by
Geodynamics management detailing the number of
outstanding options to acquire Company Common Stock;
(viii) compared certain financial information
for Geodynamics and for LCT and stock market
information for Geodynamics with similar information
for certain other companies whose securities are
publicly traded;
(ix) reviewed the financial terms of certain
recent business combinations in software and systems
engineering and DoD related industries specifically
and in other industries generally;
(x) reviewed the audited financial statements
of LCT for the year ended May 31, 1994 and the
unaudited financial statements of LCT for the years
ended December 31, 1993 and May 31, 1995;
(xi) reviewed certain other communications and
certain internal financial analyses and forecasts
for LCT, as prepared by management of Geodynamics;
(xii) reviewed unaudited interim internal
financial reports for Geodynamics and LCT for the
three month period ended September 1, 1995 and
August 31, 1995, respectively, including an
estimated pro forma balance sheet as of September 1,
1995;
(xiii) reviewed a list of estimated
transaction costs prepared by Geodynamics management
to be incurred by Geodynamics in the Merger, and
calculated their impact on the Merger Consideration
to be received by Geodynamics shareholders;
(xiv) participated in discussions with the
Geodynamics legal and tax advisors regarding the
potential for adverse tax ramifications to
Geodynamics, its shareholders and/or LCT of the
Merger; and
(xv) performed such other studies and analyses
as A.G. Edwards considered appropriate.
A.G. Edwards relied upon and assumed, without independent
verification, the accuracy and completeness of all financial and
other information that was furnished to it by Geodynamics or LCT or
otherwise reviewed by A.G. Edwards. The Board of Directors of
Geodynamics did not specifically engage A.G. Edwards to, and
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<PAGE>
therefore A.G. Edwards did not, verify the accuracy or completeness
of any such information nor did A.G. Edwards make any evaluation or
appraisal of any assets or liabilities of Geodynamics or of LCT.
A.G. Edwards' opinion was necessarily based on economic, market
and other conditions as they existed on, and the information made
available to it as of, the date thereof. A.G. Edwards' opinion as
expressed herein, in any event, is limited to the fairness, from a
financial point of view, to the shareholders of Geodynamics as
defined in Annex II of the consideration to be received by the
holders of Company Common Stock.
Merger Consideration
Under the Merger Agreement, shareholders of Geodynamics are
estimated to receive $11.08 in cash per share of common stock of
Geodynamics after deducting expected transaction expenses.
Pursuant to the agreement to sell LCT to the LCT Purchasers, the
shareholders of Geodynamics are estimated to receive an additional
$1.02 in cash per share of Geodynamics Common Stock. In aggregate,
Geodynamics shareholders are expected to receive approximately
$39.1 million or $12.10 per share of Geodynamics Common Stock,
based on approximately 2.6 million shares outstanding and assuming
all vested options as of September 30, 1995 are exercised prior to
closing.
The following is a summary of the analyses used by A.G. Edwards
in rendering its opinion as to the fairness, from a financial point
of view, to the Company's shareholders of the consideration to be
received by the holders of Company Common Stock.
Comparable Transaction Analysis
Using publicly available information, A.G. Edwards analyzed the
purchase prices and the implied transaction multiples of fifteen
merger and acquisition transactions of DoD-related software and
systems engineering companies since January 1, 1992, including the
following (acquiror/acquired company): Apollo Holdings
Inc./Intermetrics, Inc.; Raytheon Company/E-Systems; Loral
Corporation/Unisys (Defense Systems Division); Logicon, Inc./Syscon
Corporation; Simon Group/Wyle Laboratories (SS&S Division); Tracor,
Inc./GDE Holdings, Inc.; BTG, Inc./Delta Research Corporation;
Cubic Corporation/Titan Corporation (Defense Applications); Loral
Corporation/IBM (Federal Systems Division); Comarco, Inc./CACI
International, Inc.; CACI International, Inc./Comarco, Inc.; CACI
International, Inc./SofTech, Inc.; Tracor, Inc./Vitro Corporation;
Identix, Inc./ANDAC, Inc.; C3, Inc./Telos Corporation (Contel
Federal Systems) (the "Comparable Transactions"). Among other
things, A.G. Edwards analyzed for the Comparable Transactions, as
available (i) the aggregate purchase price (common equity value,
plus the book value of debt and preferred stock) to latest twelve
months ("LTM") revenues, (ii) the aggregate purchase price to LTM
EBITDA (earnings before interest, taxes and depreciation and
amortization), (iii) the aggregate purchase price to LTM EBIT
(earnings before interest and taxes) and (iv) the purchase price
(common equity value) to LTM net income. An analysis of the
Comparable Transactions' aggregate purchase price to LTM revenues
yielded a range of 0.2x to 1.1x, with a median of 0.4x as compared
to 0.5x for the proposed merger. An analysis of the Comparable
Transactions' aggregate purchase prices to LTM EBITDA yielded a
range of 3.6x to 10.4x, with a median of 5.0x as compared with 5.3x
for the proposed Merger. An analysis of the Comparable
Transactions' aggregate purchase price to LTM EBIT yielded a range
of 4.8x to 14.2x, with a median of 8.3x as compared to 12.6x for
the proposed Merger. An analysis of the Comparable Transactions'
purchase price to LTM net income yielded a range of 8.0x to 22.3x,
with a median of 15.9x as compared to 21.9x for the proposed
Merger.
No Comparable Transaction used in A.G. Edwards' analysis is
identical to this Merger, however, relatively high weight was given
to the Apollo Holdings, Inc./Intermetrics, Inc. and Tracor, Inc/GDE
Systems, Inc. transactions by A.G. Edwards due to the comparability
of the underlying businesses to Geodynamics and/or its DoD related
businesses, as well as their proximity as to timing.
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Premiums Paid Analysis
A.G. Edwards investigated, using data compiled by Securities
Data Company, mergers consummated between January 1, 1992 and
December 31, 1994, where the target was a public company prior to
the transaction, 50% or more of the target was acquired, there was
a disclosed dollar value and the target company's stock price was
determined to be unaffected prior to announcement of the
transaction. Data was available on 82 transactions meeting the
criteria. A.G. Edwards found that the median premium paid by the
acquiror over the price of the stock of the target company one day,
one week and four weeks prior to the announcement of the
transaction was 39.3%, 42.3% and 51.2%. A.G. Edwards also
investigated, using data compiled by MergerStatR Review 1994,
certain terms of mergers consummated over the period ending
December 31, 1985 - 1993 based on the target company's closing
market price one week before the initial announcement, including
transactions in which under 50% ownership was acquired. Data was
available on 2,241 transactions meeting this criteria in all
industries, and 78 transactions in the computer software, supplies
and services industry. A.G. Edwards found that the average premium
paid by the acquiror over the price of the stock of the target
company was approximately 40% in all industries and approximately
44% in the computer software, supplies and services industry.
To measure a comparable premium applicable to Geodynamics
Common Stock, A.G. Edwards took into account events that affected
Geodynamics' stock price prior to the October 18, 1995 announcement
that Logicon had entered into a definitive agreement to acquire
Geodynamics' defense business. Prior to announcement, the
following major events had a significant impact on Geodynamics'
stock price: a contested proxy fight culminating on March 6, 1995,
a change in senior management of the Company on April 19, 1995 and
a June 8, 1995 press release stating that Geodynamics had retained
A.G. Edwards to advise it with respect to the possibility of a sale
or merger of the company.
The total Merger Consideration of $12.10 per share represents a
34.4% premium over the stock price on June 6, 1995, the last day
the stock was traded prior to the issuance of the press release
stating Geodynamics had retained A.G. Edwards, a 44.5% premium over
the stock price on April 18, 1995, one day prior to the change in
senior management of the Company and a 61.3% premium over the stock
price on March 3, 1995, one day prior to the announcement of the
final results of Geodynamics' proxy fight, respectively.
Comparable Company Analysis
A.G. Edwards reviewed and compared Geodynamics' financial and
operating information with the publicly available financial and
operating information of seven publicly traded defense contractors:
Analysis and Technology, Inc.; CACI International, Inc.; Comarco,
Inc.; DBA Systems, Inc.; Intermetrics, Inc.; Logicon, Inc.; and
Nichols Research Corporation (the "Comparable Companies"). A.G.
Edwards considered among other things: (i) the Comparable
Companies' market capitalization (common equity value, plus the
book value of debt and preferred stock) to the LTM revenues, (ii)
the Comparable Companies' market capitalization to LTM EBITDA,
(iii) the Comparable Companies' market capitalization to LTM EBIT
and (iv) the Comparable Companies' current stock price to LTM
earnings per share. An analysis of the Comparable Companies'
market capitalization to LTM revenues yielded a range of 0.3x to
1.4x, with a median of 0.6x as compared to 0.5x for the proposed
Merger. An analysis of the Comparable Companies' market
capitalization to LTM EBITDA yielded a range of 3.3x to 17.0x, with
a median of 7.4x as compared to 5.3x for the proposed Merger. An
analysis of the Comparable Companies' market capitalization to LTM
EBIT yielded a range of 5.7x to 21.1x with a median of 9.8x as
compared to 12.6x for the proposed Merger. An analysis of the
Comparable Companies' current stock price to the LTM earnings per
share yielded a range of 13.3x to 18.8x, with a median of 17.0x as
compared to 21.9x for the proposed Merger.
No Comparable Company used in the above analysis is identical
to Geodynamics.
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Discounted Cash Flow Analysis
A.G. Edwards used a discounted cash flow analysis to estimate
the present value as of October 18, 1995 of the future operating
cash flows that Geodynamics could produce over a period ending
December 31, 1999, if Geodynamics performs in accordance with the
forecasts of Geodynamics management and certain variants thereof.
Discounted cash flow analysis is a valuation methodology used to
derive a valuation of an equity interest by reducing to the present
the projected cash flows of the entity. A.G. Edwards performed
discounted cash flow analyses using the financial projections
prepared by Geodynamics' management. A.G. Edwards calculated the
range of implied net present values of the Common Stock from the
projected tax adjusted operating cash flow available for the
remainder of the year 1995 and subsequent years through and
including 1999 assuming, among other things, discount ranges
ranging from 14.0% to 19.0% and a range of terminal growth rates of
tax adjusted operating cash flows from 0.0% to 10.0%. Based on
this analysis, Edwards derived a range of implied present values of
the Common Stock of $9.46 per share to $20.63 per share (assuming
2.6 million shares of Common Stock outstanding plus vested options
being exercised).
Other Factors and Analyses
The summary of the A.G. Edwards report set forth above does not
purport to be a complete description of the main elements of A.G.
Edwards' analyses used in deriving its fairness opinion presented
to Geodynamics' Board of Directors on October 18, 1995. It does
not purport to be a complete description of the analyses performed,
or the matter considered, by A.G. Edwards in rendering its opinion.
A.G. Edwards believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of
such analyses, without considering all analyses, would create an
incomplete view of the process underlying the analyses set forth in
the A.G. Edwards report and its fairness opinion. The fact that
any specific analyses have been referred to in the summary above is
not meant to indicate that such analyses were given greater weight
than any other analyses. Of the analyses discussed above,
significantly greater weight was applied to the comparable
transactions and premiums paid analyses with substantially lower
weight given the Comparable Company and Discounted Cash Flow
analyses.
The preparation of a fairness opinion is not necessarily
susceptible to partial analyses or summary. In rendering its
fairness opinion, A.G. Edwards applied its judgment to a variety of
complex analyses and has deemed various assumptions more or less
probable than other assumptions.
In performing its analyses, A.G. Edwards made numerous
assumptions with respect to industry performance and general
business and economic conditions, many of which are beyond the
control of Geodynamics. The analyses performed by A.G. Edwards are
not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as
part of A.G. Edwards' analyses of the fairness, from a financial
point of view, to the shareholders of Geodynamics of the resulting
Merger Consideration and were provided to Geodynamics Board of
Directors in connection with the delivery of A.G. Edwards' fairness
opinion. Based upon the foregoing analyses and its general
knowledge of and experience in the valuation of securities, A.G.
Edwards concluded that the Merger Consideration to be received by
the shareholders of Geodynamics is fair from a financial point of
view to the Company's shareholders. In addition, as described
above, the presentation of A.G. Edwards' fairness opinion to
Geodynamics' Board of Directors was one of the many factors taken
into consideration by Geodynamics' Board of Directors in making its
determination to approve the Merger Agreement.
Terms of A.G. Edwards' Engagement
The terms of engagement of A.G. Edwards by Geodynamics are set
forth in a letter dated February 8, 1995, as amended by a
subsequent letter agreement dated June 30, 1995 between A.G.
Edwards and Geodynamics and as amended by a subsequent letter
agreement dated October 25, 1995 between A.G. Edwards and LCT (the
"Engagement Letter"). Pursuant to the terms of the Engagement
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<PAGE>
Letter, as compensation for services as financial advisor and for
rendering its opinion to the Board of Directors, Geodynamics has
agreed to pay A.G. Edwards a fee of $500,000, payable upon the
consummation of the Merger. In addition, LCT has agreed to pay
A.G. Edwards an additional fee of $50,000 for financial advisory
services rendered to Geodynamics and LCT in the event of a
successful sale of LCT. Geodynamics has agreed to reimburse A.G.
Edwards for the reasonable fees of A.G. Edwards' counsel, and for
A.G. Edwards' travel and out-of-pocket expenses incurred in
connection with its engagement. Geodynamics and LCT have agreed
to indemnify A.G. Edwards against certain liabilities arising out
of A.G. Edwards' engagement, including liabilities under the
federal securities laws.
Interests of Certain Persons in the Transactions
In considering the recommendation of Geodynamics' Board of
Directors with respect to the Transactions, the Company's
shareholders should be aware that certain members of the Company's
management and its Board of Directors have certain interests in the
transactions that are in addition to the interests of the Company's
shareholders generally, which may present them with conflicts in
connection with the Transactions. The Board of Directors was aware
of these matters and considered them together with the other
factors described under "Certain Considerations Relating to the
Transactions--Reasons for the Merger; Recommendation of the
Company's Board of Directors." Information concerning certain
matters relating to the employment and compensation of the
Directors and Executive Officers of the Company are included in
this Proxy Statement under the caption "Description of
Geodynamics--Management."
Dr. LaFehr was elected Chairman of the Board of Directors of
Geodynamics in April 1995 and resigned as Chairman in November
1995. Dr. LaFehr also serves as Chairman of the Board of LCT.
Prior to the acquisition by Geodynamics, Dr. LaFehr was the largest
shareholder of LCT, holding 45,718 shares of the common stock of
LCT. As such, Dr. LaFehr received 42.1% of the original payment of
stock and cash for LCT and is entitled to 42.1% of the LCT Earnout
payment. Dr. LaFehr, as a former holder of LCT common stock and as
a member of LCT management, also participated in the purchase of
LCT. Because of these involvements, Dr. LaFehr was excused from
all Geodynamics Board deliberations and abstained from all votes
with respect to LCT. In November 1995, with the Merger Agreement
with Logicon completed and the remaining substantive business of
the Board of Directors focused on determining the disposition of
LCT, in which Dr. LaFehr had an interest, Dr. LaFehr resigned as
Chairman of the Board of Directors.
The following table sets forth certain information as of
December 31, 1995 concerning the ownership of shares and options of
the Company before the Effective Time by the directors of the
Company. For a description of options held by certain members of
management of the Company, see "Description of
Geodynamics--Executive Compensation." On February 15, 1995, the
prior Board of Directors of the Company determined to cancel the
previously existing policy of paying Directors annual fees in cash.
In lieu of such cash payments, the Directors determined to grant to
each of the Directors options to acquire 18,182 shares of
Geodynamics Common Stock. Pursuant to the plan, the options vest
ratably over a five-year period, subject to the respective
Director's continuing service as a member of the Board of
Directors. The exercise price for the options was set at $5.00 per
share. At the time of the option grants, the market price of the
Company's Common Stock was $8.75. The options contain a provision
accelerating vesting in the event of a change in control of the
Company. The Merger will be a change in control of the Company
within the meaning of the director options and so, as a result of
the Merger, the vesting with respect to director-held options to
acquire 101,819 shares of Geodynamics Common Stock will be
accelerated.
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Cash Upon
Name of Beneficial Number of Option
Owner Shares Number of Options Conversion(1)
-------------------- ----------- ----------------- -------------
Michael E. Edleson 5,636 14,546 @ 5.00 $90,913
W. Richard Ellis 7,500 18,182 @ 5.00 113,638
Bruce J. Gordon (2) 2,000 15,000 @ 12.00 0
15,000 @ 8.00 48,750
30,000 @ 10.00 37,500
14,546 @ 5.00 90,913
Donald L. Haas 3,000 18,182 @ 5.00 113,638
6,000 @ 6.25 30,000
Delbert H. Jacobs 1,000 18,182 @ 5.00 113,638
5,000 @ 6.25 25,000
4,500 @ 6.00 23,625
3,000 @ 6.00 15,575
Will Stackhouse, III 0 18,182 @ 5.00 113,638
Thomas R. LaFehr 135,530 18,182 @ 5.00 113,638
__________________________
(1) Calculated with respect to options by
multiplying (i) the difference between
(a) the exercise price of each option
held by the employee or director and (b)
$11.25, times (ii) the number of shares
of Common Stock covered by such option,
before personal income taxes.
(2) Includes options granted to hire him as
an employee. The initial twenty percent
(20%) of his 18,182 in Director's
options were not vested because he was
an employee.
It is anticipated that the Directors will exercise their
options concurrent with the closing of the Transactions as required
under the Merger Agreement.
For a description of how these management and director options
will be treated in connection with the Transactions, see "Treatment
of Stock Options" below.
Employee Retention Agreements
The Company has an employment agreement with Bruce J. Gordon,
President and Chief Executive Officer of the Company, which
provides for compensation, bonuses, stock options and deferred
compensation. See "Description of Geodynamics--Employment
Agreements." In addition, in order to incentivize certain
employees whose assistance and effort in the sale process was
necessary, the Board of Directors entered into employee retention
agreements with Joanne M. Dunlap, Vice President-Administrative
Services and Secretary of the Company, David P. Nelson, Vice
President and Chief Financial Officer of the Company, Paul
Henrikson, a Vice President of the Company and Carolyn Mihara,
Executive Assistant to Bruce J. Gordon. Each employee retention
agreement provides that the respective employee is entitled to
receive certain payments if the employee's employment is not
continued for one year from the occurrence of a Change in Control
(as defined therein), or fixed bonus payment, or both. Logicon has
acknowledged that the Merger will constitute a Change in Control of
the Company for purposes of the employee retention agreements. The
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<PAGE>
total to be paid to all four employees if their employment is
terminated within one year is approximately $350,000.
Additional information relating to executive compensation and
various benefit arrangements of the Company is set forth under the
caption "Description of Geodynamics--Executive Compensation."
Indemnification and Insurance
The Merger Agreement provides that Logicon and the Surviving
Corporation will indemnify the directors and officers of the
Company against certain liabilities arising prior to or in
connection with the Merger. For a discussion of certain provisions
of the Merger Agreement relating to the indemnification of
directors and officers of the Company, see "The Merger--The Merger
Agreement--Indemnification; Insurance and Employee Retention
Agreements." In addition, subject to certain conditions, the
Merger Agreement requires Logicon and the Surviving Corporation to
cause the Surviving Corporation to cause coverage to be continued
for a period of not less than one year from the Effective Time,
directors and officers liability insurance for the benefit of the
directors and officers of the Company, so long as the annual
premium for such policy would not be in excess of 100% of the
aggregate annual premium paid by the Company in 1995.
Treatment of Options
At or prior to the Effective Time, each outstanding and
unexercised option ("Option") to purchase Common Stock granted by
the Company (other than Options held by Directors), whether or not
then vested or exercisable, will, by virtue of the Merger, be
assumed by Logicon and continued in accordance with their
respective terms and each such option shall become an option to
acquire a number of shares of Logicon common stock, $.10 par value
("Parent Common Stock"), equal to the product (rounded up to the
nearest whole share) of (i) a fraction (the "Conversion Number")
(A) the numerator of which is the cash merger consideration, as
adjusted pursuant to the Merger Agreement and (B) the denominator
of which is the Average Price of Parent Common Stock and (ii) the
number of shares of Company Common Stock subject to such option
immediately prior to the Effective Time; and the option exercise
price per share of Parent Common Stock at which such option is
exercisable shall be the amount (rounded down to the nearest whole
cent) obtained by dividing (iii) the option exercise price per
share of Company Common Stock at which such option is exercisable
immediately prior to the Effective Time by (iv) the Conversion
Number; provided, however, that, the option price, the number of
shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall in all instances be
determined in order to comply with Section 424(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). As used above,
"Average Price" shall be equal to the arithmetic average of the
Sales Price on each of the last 20 Trading Days preceding the third
day before the closing date of the Merger; the term "Sales Price"
means, on any Trading Day, the average of the high and low sales
prices of Logicon's common stock reported on the NYSE Composite
Tape on such day; and the term "Trading Day" means any day on which
securities are traded on a national securities exchange. The
Company has agreed to use reasonable diligence and timely efforts
to cause all vested options to be exercised prior to the Closing.
See "The Merger--The Merger Agreement--Stock Options" and "--Merger
Consideration Adjustment."
In connection with the Merger Agreement, the Directors of the
Company are required to exercise all options held by them.
Pursuant to the terms of options covering an aggregate of 101,819
shares of Geodynamics Common Stock granted to the directors in
April 1995, the five-year ratable vesting of such options is
accelerated upon as a result of the Merger. See "Interests of
Certain Persons in the Transactions" above.
Risks of Non-Consummation
The obligations of the Company to consummate the Transactions
are subject to a number of conditions, including approval of the
Merger Agreement by the holders of at least a majority of the
outstanding shares of Geodynamics Common Stock, expiration or
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<PAGE>
termination of the waiting period under the HSR Act. See "The
Merger--The Merger Agreement--Conditions to the Merger."
Expenses of the Transactions
The Transactions will involve the payment of various expenses
by the parties. The Merger Agreement provides generally that each
party will bear its own expenses in connection with the
Transactions. Through the Merger, Logicon will effectively be
responsible for all expenses incurred by Geodynamics in connection
with the Transactions. However, certain limits exist under the
Merger Agreement on the ability of Geodynamics to incur expenses,
and the incurrence by Geodynamics in excess of these amounts will
result in a reduction of the per share consideration to be received
in the Merger. Pursuant to the Merger Agreement, the per share
consideration to be received by stockholders in the Merger will be
reduced, on a pro rata basis, by (i) amounts paid to the Former LCT
Shareholders in the LCT Earnout (net of sums received by the
Company in connection with the sale of LCT), (ii) transaction
expenses in excess of $600,000 (plus an additional agreed $69,000),
(iii) LCT debt assumed by Geodynamics and contributed to LCT's
capital in excess of $597,000 and inter-company advances and (iv)
taxes incurred in connection with the disposition of LCT in excess
of $1,458,000, in each case net of any distributions by LCT to
Geodynamics. See "The Merger--The Merger Agreement--Merger
Consideration Adjustment." Expenses in connection with the
Transactions include amounts paid to financial advisors; legal fees
and expenses; and other miscellaneous expenses including printing,
insurance and other costs. The amount of these expenses cannot be
determined at this time. For further information with respect to
fee arrangements with financial advisors, see "The Special
Meeting--Financial Advisor; Fairness Opinion."
Logicon will be responsible for all transaction expenses
incurred by it and its subsidiaries and, through the Merger, will
be responsible for amounts incurred by Geodynamics and amounts, if
any, paid in connection with the retirement, assumption and
assignment of indebtedness of Geodynamics and its subsidiaries.
Other expense to be borne by Logicon include legal and accounting
fees and expenses; and other miscellaneous expenses including
insurance and other costs. The amount of these expenses cannot be
determined at this time.
THE MERGER
The following description of certain provisions of the Merger
Agreement and the exhibits and schedules thereto is only a summary
and does not purport to be complete. This description is qualified
in its entirety by reference to the complete text of the Merger
Agreement, a conformed copy of which is attached hereto as Annex I
and incorporated herein by reference.
Form of Merger
The Merger Agreement provides that, subject to the requisite
approval by the Company's shareholders and satisfaction or waiver
of certain other conditions, at the Effective Time, MergerCo will
be merged with and into the Company, the separate corporate
existence of MergerCo will cease and the Company will continue as
the Surviving Corporation. The charter and bylaws of the Company
in effect at the Effective time will be the charter and bylaws of
the Surviving Corporation. The directors of MergerCo and the
officers of the Company at the Effective Time will be the directors
and officers, respectively, of the Surviving Corporation.
Upon consummation of the Merger, the shares of Common Stock
will, except as described below (see "--Merger Consideration" and
"--The Merger Agreement--Merger Consideration"), be converted into
the right to receive the merger consideration (as described below),
and the Company's shareholders will have no ownership in or control
over either the Company or Logicon. In addition, the Common Stock
will no longer be quoted in the Nasdaq system and the registration
of the Common Stock under the Exchange Act will be terminated.
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<PAGE>
Merger Consideration
The Merger Agreement provides that, at the Effective Time,
shares of Geodynamics Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of
Geodynamics' Common Stock which are held by the Company or
shareholders who have been duly asserted and perfected their
dissenters' rights under California law) shall automatically be
converted into the right to receive, without interest, $11.25, as
adjusted pursuant to the Merger Agreement. See "--The Merger
Agreement--Merger Consideration" and "--Merger Consideration
Adjustment" below. Pursuant to the Merger Agreement, no transfers
of shares of Geodynamics' Common Stock will be made on the stock
transfer books of the Company after the close of business on the
day prior to the date of the Effective Date.
At the Effective time, each share of Geodynamics' Common Stock
issued and held in the Company's treasury immediately prior to the
Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, cease to be outstanding,
be canceled and retired without payment of any consideration
therefor and cease to exist. Each share of Common Stock, par value
$.10 per share, of MergerCo issued and outstanding immediately
prior to the Effective Time shall automatically be converted into
one share of Common Stock, par value $.01 per share, of the
Surviving Corporation. As a result of the Merger, therefore, the
Surviving Corporation will be a wholly-owned subsidiary of Logicon.
Shareholder Meeting
Pursuant to the Merger Agreement, the Company will take all
action necessary in accordance with applicable law and its Articles
of Incorporation and Bylaws to convene a meeting of its
shareholders as promptly as practicable to consider and vote upon
the approval or ratification, as appropriate, of the Merger
Agreement, the Merger and any other matters requiring shareholder
approval or for which shareholder ratification is reasonably sought
(including any other transactions contemplated by the Merger
Agreement).
The Merger Agreement provides that, subject to the fiduciary
duties of the Company's Board of Directors under applicable law and
the next succeeding sentence, the Board of Directors of the Company
shall recommend such approval and the Company shall take all lawful
action to solicit such approval. The Board of Directors acting on
behalf of the Company may at any time prior to the Effective Time
withdraw, modify or change any recommendation regarding the Merger
Agreement, the Merger, or recommend any other offer or proposal, if
the Board of Directors determines that the failure to so withdraw,
modify, or change its recommendation would cause the Board of
Directors to breach its fiduciary duties to the Company's
shareholders under applicable laws as advised in writing by
counsel. Notwithstanding anything contained therein to the
contrary, any such withdrawal, modification or change of
recommendation shall not constitute a breach of the Merger
Agreement by the Company, but may result in the incurrence of a fee
as described below in "--The Merger Agreement--Termination Fee and
Expenses."
Effective Time of the Merger
The Merger will become effective on the date and at the time on
which a certificate of merger is filed with the Secretary of State
of the State of California (the "Effective Time"). Pursuant to the
Merger Agreement, the filing of the Certificate of Merger will be
effected as promptly as practicable after satisfaction, or if
permissible, waiver of the conditions to the Merger (but in any
event within 10 business days thereafter) and provided that the
Merger Agreement has not been terminated in accordance with its
terms. See "--The Merger Agreement--Conditions to the Merger."
The Merger Agreement may be terminated by either party if, among
other reasons, the Merger has not been consummated on or before
March 29, 1996. See "--The Merger Agreement--Termination."
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<PAGE>
Procedures for Exchange of Certificates
At the Effective Time, MergerCo will deposit with the agent
bank for U.S. Stock Transfer Corporation, in its capacity as
disbursing agent under the Merger Agreement (the "Disbursing
Agent"), in trust for the benefit of the holders of shares of
Common Stock and other persons who have rights to receive payments
upon consummation of the Merger, an amount of cash equal to the sum
of the aggregate merger consideration payable pursuant to the terms
of the Merger Agreement.
As soon as practicable after the Effective Time, the Disbursing
Agent will send to each record holder of Common Stock a notice and
a letter of transmittal (which will specify that delivery will be
effected, and risk of loss and title to certificates for shares of
Common Stock will pass, only upon proper delivery of such
certificates to the Disbursing Agent) advising the holder of the
effectiveness of the Merger and the procedure for surrendering to
the Disbursing Agent certificates for exchange into the merger
consideration.
SHAREHOLDERS SHOULD NOT FORWARD GEODYNAMICS STOCK CERTIFICATES
TO THE DISBURSING AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS.
SHAREHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED
PROXY.
Upon surrender to the Disbursing Agent of a certificate
("Certificate") theretofore evidencing shares of Common Stock,
together with and in accordance with a duly executed letter of
transmittal, the holder of such Certificate will be entitled to
receive in exchange therefor the merger consideration payable under
the Merger Agreement (in the form of a check) in respect of each
share of Common Stock theretofore evidenced by such Certificate or
Certificates so surrendered. Upon such surrender, the Disbursing
Agent will, as promptly as practicable, pay the merger
consideration. Until surrendered, each such Certificate (other
than Certificates representing shares held by the Company or any of
its subsidiaries and shares as to which dissenters' rights have
been duly asserted and perfected under California law), will be
deemed for all purposes to evidence only the right to receive the
merger consideration. In no event will the holder of any
surrendered Certificate be entitled to receive interest on the
merger consideration.
If the merger consideration (or any portion thereof) is to be
delivered to a person other than the person in whose name the
Certificates surrendered in exchange therefor are registered, it
will be a condition to the payment of such consideration that the
certificates so surrendered are properly endorsed and otherwise are
in proper form for transfer, that such transfer otherwise is proper
and that the person requesting such transfer pay to the Disbursing
Agent any transfer or other taxes payable by reason of the
foregoing or establish to the satisfaction of the Disbursing Agent
that such taxes have been paid or are not required to be paid.
From and after the Effective Time, the stock transfer books of
the Company in place prior to the Effective Time will be closed,
and thereafter there will be no transfers on such books (other than
transfers by, to or for the Company or Logicon) of the shares of
Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they will be canceled and
exchanged for the merger consideration as provided in the Merger
Agreement.
Any funds remaining with the Disbursing Agent 180 days
following the Effective time will be delivered to the Surviving
Corporation, after which time former shareholders of the Company,
subject to applicable law, may look only to the Surviving
Corporation for payment of their claims for the merger
consideration for their shares of Common Stock, without interest
thereon, and such former shareholders will have no greater rights
against the Surviving Corporation than may be accorded to general
creditors of the Surviving Corporation under California law.
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Financing Arrangements by Logicon
Consummation of the Merger is not conditioned upon Logicon
obtaining the cash necessary in order for it to pay the aggregate
merger consideration due to the holders of Common Stock upon
consummation of the Merger.
Regulatory Matters
Under Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), as amended,
and the rules and regulations thereunder (the "HSR Act"), certain
acquisition transactions may not be consummated unless certain
information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal
Trade Commission (the "FTC"), and certain waiting period
requirements have been satisfied. Under the provisions of the HSR
Act applicable to the Merger, the Merger cannot be consummated
until the expiration of a 30-day waiting period after the date on
which certain required information and documentary material is
furnished to the Antitrust Division and the FTC with respect to the
Merger, unless both the Antitrust Division and the FTC terminate
the waiting period prior thereto. If, within such 30-day waiting
period, either the Antitrust Division or the FTC requests
additional information or documentary material relevant to the
Merger, the waiting period will be extended for an additional
period of 20 calendar days following the date of substantial
compliance with such request. Thereafter, the waiting period can
only be extended by court order or with the consent of the filing
party. On December 20, 1995, Logicon and the Company furnished to
the Antitrust Division and the FTC certain required information and
documentary material with respect to the Merger. On January 4,
1996, the Antitrust Division and the FTC requested additional
information from Logicon and the Company, which information Logicon
and the Company provided on and before January 19, 1996. The
required waiting period has expired.
The Antitrust Division and the FTC frequently scrutinize the
legality under the antitrust laws of transactions such as the
Merger. At any time before or after the consummation of the
Merger, the Antitrust Division or the FTC could take such action
under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of
the Merger or seeking divestiture of substantial assets of Logicon,
the Company or their respective subsidiaries.
The Company and Logicon believe that the consummation of the
Merger will not violate the antitrust laws. However, there can be
no assurance that a challenge to the Merger on antitrust grounds
will not be made, or if such a challenge is made, what the result
will be.
Dissenters' Rights
Pursuant to Section 1300 of the California General Corporation
Law ("CGCL"), any holder of Common Stock who does not wish to
accept the consideration to be paid pursuant to the Merger
Agreement may dissent from the Merger and elect to have the fair
market value of his or her shares of Common Stock (exclusive of any
element of value arising from the accomplishment or expectation of
the Merger) judicially determined and paid to him or her in cash,
provided that he or she complies with the provisions of Sections
1300 to 1304 of the CGCL.
The following is a brief summary of the statutory procedures to
be followed by a holder of Common Stock in order to dissent from
the Merger and perfect appraisal rights under the CGCL. This
summary is not intended to be complete and is qualified in its
entirety by reference to Sections 1300 to 1304 of the CGCL, the
texts of which are attached as Annex III to this Proxy Statement.
If any holder of Common Stock elects to exercise his or her
right to dissent from the Merger and demand appraisal, such
shareholder must satisfy each of the following conditions:
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(i) such shareholder must deliver a written demand
for appraisal of his or her shares to the Company not later
than the date of the shareholders' meeting with respect to the
Merger Agreement (this written demand for appraisal must be in
addition to and separate from any proxy or vote against the
Merger Agreement; neither voting against, abstaining from
voting nor failing to vote on the Merger Agreement will
constitute a demand for appraisal within the meaning of
Section 1300);
(ii) such shareholder must not vote in favor of the
Proposal (a failure to vote will satisfy this requirement, but
a vote in favor of the Proposal, by proxy or in person, or the
return of a signed proxy which does not specify a vote against
approval and adoption of the Proposal, will constitute a
waiver of such shareholder's right of appraisal and will
nullify any previously filed written demand for appraisal);
and
(iii) such shareholder must, within in 30 days of
the mailing of a notice to shareholders of the approval of the
Merger, submit the certificates for such dissenting shares to
the Surviving Corporation to be stamped or endorsed with a
statement that the shares are dissenting shares.
If any shareholder fails to comply with any of these conditions
and the Merger becomes effective, he or she will be entitled to
receive the consideration provided in the Merger Agreement, but
will have no appraisal rights with respect to his or her shares of
Common Stock.
All written demands for appraisal should be addressed to:
Joanne M. Dunlap, Secretary, Geodynamics Corporation, 21171 Western
Avenue, Suite 110, Torrance, California 90501, before the taking of
the vote concerning the Proposal at the Special Meeting, and should
be executed by, or on behalf of, the holder of record. Such demand
must reasonably inform the Company of the identity of the
shareholder and that such shareholder is thereby demanding
appraisal of his or her shares.
To be effective, a demand for appraisal must be executed by or
for the shareholder of record who held such shares on the date of
making such demand, and who continuously holds such shares through
the time the certificates for such shares are submitted to the
Company for endorsement as dissenting shares, fully and correctly,
as such shareholder's name appears on his or her stock
certificate(s) and cannot be made by the beneficial owner if he or
she does not also hold the shares of record. The beneficial holder
must, in such case, have the registered owner submit the required
demand in respect of such shares.
If Common Stock is owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of a demand
for appraisal should be made in such capacity. If Common Stock is
owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by or for all joint
owners. An authorized agent, including one of two or more joint
owners, may execute the demand for appraisal for a shareholder of
record; however, the agent must identify the record owner or owners
and expressly disclose the fact that, in executing the demand, he
or she is acting as agent for the record owner. A record owner,
such as a broker, who holds Common Stock as a nominee for others
may exercise his or her right of appraisal with respect to the
shares held for one or more beneficial owners, while not exercising
such right for other beneficial owners. In such case, the written
demand should set forth the number of shares as to which the record
owner dissents. Where no number of shares is expressly mentioned,
the demand will be presumed to cover all shares of Common Stock in
the name of such record owner.
Following the Effective Time, the Company (as the Surviving
Corporation in the Merger) will give written notice that the Merger
has become effective to each shareholder who so filed a written
demand for appraisal and voted against the Proposal. Any
shareholder entitled to appraisal rights must, in order to perfect
its appraisal rights, within 30 days after the date of mailing of
the notice, submit the certificates representing any shares which
the shareholder demands that the Company (as the Surviving
Corporation) purchase.
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If the Surviving Corporation and a dissenting shareholder agree
that the shares are dissenting shares and agree upon the price of
the shares, the dissenting shareholder is entitled to the agreed
price with interest thereon at the legal rate on judgments from the
date of the agreement. Subject to applicable legal limits on
distributions to shareholders, payment of the fair market value of
dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or
contractual conditions to the Merger are satisfied, whichever is
later, subject to surrender of the certificates therefor.
If the Surviving Corporation denies that the shares are
dissenting shares, or the Corporation and the shareholder fail to
agree upon the fair market value of the shares, then the
shareholder demanding purchase of such shares as dissenting shares
may, within six months after the date on which notice of the
approval by the outstanding shares was mailed to the shareholder,
but not thereafter, file a complaint in the superior court of the
proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting
shares, or both, or may intervene in any action pending on such a
complaint.
Inasmuch as the Company has no obligation to file such a
petition, the failure of a shareholder to do so within the period
specified could nullify such shareholder's previous written demand
for appraisal. In any event, at any time with the written consent
of the Company any shareholder who has demanded appraisal has the
right to withdraw the demand and to accept payment of the
consideration provided in the Merger Agreement.
After determination of the shareholders entitled to an
appraisal, the superior court will appraise (or commission the
appraisal of) the shares of Common Stock, determining their fair
market value exclusive of any element of value arising from the
accomplishment or expectation of the Merger. When the value is so
determined, the court will direct the payment by the Company of
such value, with interest thereon at the legal rate from the date
judgment is entered, to the shareholders entitled to receive the
same, upon surrender to the Company by such shareholders of the
certificates representing such Common Stock. In determining the
fair market value, the superior court will take into account all
factors the court considers relevant.
Section 1300 provides that fair market value is to be
determined as of the day before the first announcement of the
proposed Merger and is to "exclude any appreciation or depreciation
in consequence of the proposed action." Shareholders considering
seeking appraisal should bear in mind that the fair market value of
their shares of Common Stock determined under Section 1300 could be
more than, the same as or less than the consideration they are to
receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares of Common Stock, and that an opinion of
an investment banking firm as to the fairness is not an opinion as
to fair market value under Section 1300.
Costs of the appraisal proceeding may be assessed against the
parties thereto (i.e., the Company and the shareholders
participating in the appraisal proceeding) by the court as the
court deems equitable in the circumstances, but if the appraisal
exceeds the price offered by the Surviving Corporation, the
Surviving Corporation shall pay the costs, including at the
discretion of the court, attorneys and witness fees and interest if
the value of the award exceeds such amount by more than 25%.
However, if no petition for appraisal is filed within six months of
the Surviving Corporation's mailing of notice to dissenting
shareholders of the effectiveness of the Merger or if such
shareholder delivers to the Surviving Corporation a written
withdrawal of his or her demand for an appraisal and an acceptance
of the Merger with the written approval of the Surviving
Corporation, then the right of such shareholder to an appraisal
will cease. Notwithstanding the foregoing, no appraisal proceeding
in the superior court will be dismissed as to any shareholder
without the approval of the court, and such approval may be
conditioned upon such terms as the court deems just.
Failure to comply strictly with these procedures will cause the
shareholder to lose his or her dissenters' rights. Consequently,
any shareholder who desires to exercise his or her dissenters'
rights is urged to consult a legal advisor before attempting to
exercise such rights.
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The Merger Agreement
The following is a summary of certain terms of the Merger
Agreement, a copy of which is attached as Annex I to this Proxy
Statement and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement.
Shareholders are urged to read the Merger Agreement carefully.
Merger Consideration
Common Stock
At the Effective Time, each outstanding share of Common Stock,
other than shares as to which dissenters' rights have been duly
asserted and perfected under California law and shares held by the
Company or its subsidiaries, will be automatically converted into
the right to receive up to $11.25 per share in cash, as adjusted
pursuant to the Merger Agreement.
Merger Consideration Adjustment
Pursuant to the Merger Agreement the $11.25 per share in merger
consideration is subject to adjustment downward in certain events
pursuant to certain formulae set forth in the Merger Agreement.
The Merger Agreement provides that the Original Total Conversion
Amount shall be reduced to an amount equal to the quotient obtained
by dividing (a) the sum of the Original Total Conversion Amount,
and the net of all cash received in connection with the LCT Earnout
Payment and the sale of LCT by (b) the sum of (i) the number of
shares outstanding on the closing date of the Merger, and (ii) the
number of shares underlying options to acquire Company Common Stock
outstanding on the date of the Merger Agreement, reduced by the
number of options exercised between October 18, 1995 and the
closing date of the Merger. The "Original Total Conversion Amount"
as used above means the per share merger consideration of $11.25
multiplied by the sum of (i) the number of shares outstanding on
the date of the Merger Agreement and (ii) the number of shares
underlying Options to acquire Company Common Stock outstanding on
the date of the Merger Agreement. The cash portion of the LCT
Earnout payment will be deemed to be reduced by any cash repaid by
LCT or paid to the Company in the sale of LCT. In addition,
pursuant to the Merger Agreement, if any of the following occur:
(i) the transaction costs of the Transactions exceed $600,000 (plus
an additional agreed $69,000), (ii) taxes are incurred in excess of
$1,458,000 in connection with the disposition of LCT net of any
distributions by LCT to Geodynamics or (iii) Geodynamics assumes or
is transferred any liability of LCT in excess of $597,000 plus
intercompany advances made by Geodynamics of $2,716,000, then such
excess shall be deemed to be a cash amount paid in respect of the
LCT Earnout payment and shall cause an adjustment of merger
consideration. Any expenses in addition to transaction costs
incurred by LCT from September 1, 1995 to the closing of the Merger
paid or required to be paid by the Company on behalf of LCT and not
paid by LCT to the Company prior to closing will be deemed to be a
transaction cost and shall be included in any such adjustment
calculation. The Company anticipates that an adjustment to the
purchase price of $700,000 or less (in aggregate) will be required
as a result of these provisions.
Stock Options
At or prior to the Effective Time, each outstanding and
unexercised option ("Option") to purchase Common Stock granted by
the Company (other than Options held by Directors), whether or not
then vested or exercisable, will, by virtue of the Merger, be
assumed by Logicon and continued in accordance with their
respective terms and each such option shall become an option to
acquire a number of shares of Logicon common stock, $.10 par value
("Parent Common Stock"), equal to the product (rounded up to the
nearest whole share) of (i) a fraction (the "Conversion Number")
(A) the numerator of which is the cash merger consideration, as
adjusted pursuant to the Merger Agreement and (B) the denominator
of which is the Average Price of Parent Common Stock and (ii) the
number of shares of Company Common Stock subject to such option
immediately prior to the Effective Time; and the option exercise
price per share of Parent Common Stock at which such option is
exercisable shall be the amount (rounded down to the nearest whole
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cent) obtained by dividing (iii) the option exercise price per
share of Company Common Stock at which such option is exercisable
immediately prior to the Effective Time by (iv) the Conversion
Number; provided, however, that, the option price, the number of
shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall in all instances be
determined in order to comply with Section 424(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). As used above,
"Average Price" shall be equal to the arithmetic average of the
Sales Price on each of the last 20 Trading Days preceding the third
day before the closing date of the Merger; the term "Sales Price"
means, on any Trading Day, the average of the high and low sales
prices of Logicon's common stock reported on the NYSE Composite
Tape on such day; and the term "Trading Day" means any day on which
securities are traded on a national securities exchange. The
Company has agreed to use reasonable diligence and timely efforts
to cause all vested options to be exercised prior to the Closing.
See "--Merger Consideration Adjustment" above. See "Certain
Considerations Relating to the Transactions--Interests of Certain
Persons in the Transactions--Treatment of Options."
Representations and Warranties
The Merger Agreement contains various representations and
warranties of each of the Company and Logicon and MergerCo. These
include, among other things, representations and warranties of the
Company as to (i) its organization and good standing, (ii) its
authority relative to the execution and delivery of, and
performance of its obligations under, the Merger Agreement, (iii)
its capitalization, (iv) the identity and ownership of its
subsidiaries, (v) the absence of conflicts between the Merger
Agreement and applicable law and the contracts of the Company, (vi)
the conformity to applicable accounting standards of its financial
statements and the accuracy of its filings with the SEC and
regulatory authorities, (vii) the absence of undisclosed
liabilities in and changes with respect to its financial statements
in its filings with the SEC, (viii) taxes, (ix) the absence of
pending or threatened material litigation or other actions, (x)
compliance with laws, (xi) employee benefit plans, (xii) its
properties, licenses and permits, (xiii) certain environmental
matters, (xiv) intellectual property rights and (xv) insurance.
Logicon's and MergerCo's representations and warranties
include, among other things, those as to (i) Logicon's and
MergerCo's organization and good standing, (ii) their authority
relative to the execution and delivery of, and performance of their
obligations under, the Merger Agreement, (iii) the absence of
conflicts between the Merger Agreement and applicable law and the
contracts of Logicon and MergerCo and (iv) the availability to
Logicon of sufficient funds to fulfill its obligations under the
Merger Agreement.
Certain Covenants
Pursuant to the Merger Agreement, each of the Company and
Logicon has made various customary covenants for transactions of
this type, including, among others, that each party will use all
commercially reasonable efforts to take or cause to be taken all
actions necessary or desirable to obtain all approvals and consents
required to consummate the Merger.
Pursuant to the Merger Agreement, the Company has covenanted,
among other things, to (i) provide Logicon access to the Company's
employees and representatives and certain books and records of, and
other information regarding, the Company and (ii) supply Logicon
with certain reports on a periodic basis.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, the Company has agreed that
the Company shall not, nor shall it permit any of its subsidiaries
to: (A) amend or propose to amend its certificate or articles of
incorporation or bylaws (or other comparable corporate charter
documents); (B) declare, set aside or pay any dividends on or make
other distributions in respect of any of its capital stock, except
that the Company may continue the declaration and payment of
regular quarterly cash dividends on Company Common Stock with usual
record and payment dates for such dividends in accordance with past
dividend practice, except that the Company may declare and pay a
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special dividend equal to the proceeds of a disposition of LCT, or
may effect a spin-off of its interest in LCT to the Company's
shareholders, in either case subject to the limitations set for in
subparagraph (I) below, and except for the declaration and payment
of dividends by a wholly owned subsidiary solely to its parent
corporation, (x) split, combine, reclassify or take similar action
with respect to any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, (y) adopt a
plan of complete or partial liquidation or resolutions providing
for or authorizing such liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or other
reorganization or (z) directly or indirectly redeem, repurchase or
otherwise acquire any shares of its capital stock or any Option
with respect thereto; provided, however, that the foregoing shall
not restrict the ability of the Company to enter into any
transaction referenced in clause (I) below; (C) issue, deliver or
sell, or authorize or propose the issuance, delivery or sale of,
any shares of its capital stock or any Option with respect thereto
(other than (w) the issuance of shares of Company Common Stock upon
exercise of presently outstanding Options pursuant to plans
disclosed in connection with the merger Agreement, (x) the issuance
by a wholly-owned subsidiary of its capital stock to its parent
corporation, or modify or amend any right of any holder of
outstanding shares of capital stock or Options with respect
thereto, (y) issuances of Company Common Stock in connection with
the LCT Earnout payment and (z) issuances of LCT stock in
connection with the transactions referred to in clause (I) below);
(D) acquire (by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the
assets of, or by any other manner) any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets other
than in the ordinary course of its business consistent with past
practice; (E) other than dispositions in the ordinary course of its
business consistent with past practice or a disposition of the
Company's interest in LCT, sell, lease, grant any security interest
in or otherwise dispose of or encumber any of its assets or
properties; (F) except to the extent required by applicable law,
(x) permit any material change in (A) any pricing, marketing,
purchasing, investment, accounting, financial reporting, inventory,
credit, allowance or tax practice or policy or (B) any method of
calculating any bad debt, contingency or other reserve for
accounting, financial reporting or tax purposes or (y) make any
material tax election or settle or compromise any material income
tax liability with any Governmental or Regulatory Authority; (G)
(x) incur (which shall not be deemed to include entering into
credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements) any indebtedness for
borrowed money or guarantee any such indebtedness other than in the
ordinary course of its business consistent with past practice in an
aggregate principal amount exceeding $1,000 (net of any amounts of
any such indebtedness discharged
during such period), or (y) voluntarily purchase, cancel, prepay or
otherwise provide for a complete or partial discharge in advance of
a scheduled repayment date with respect to, or waive any right
under, any indebtedness for borrowed money other than in the
ordinary course of its business consistent with past practice in an
aggregate principal amount exceeding $1,000; (H) enter into, adopt,
amend in any material respect (except as may be required by
applicable law) or terminate any Company Employee Benefit Plan or
other agreement, arrangement, plan or policy between such party or
one of its subsidiaries and one or more of its directors, officers
or employees, or, except for normal increases in the ordinary
course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or
compensation expense to such party and its subsidiaries taken as a
whole, increase in any manner the compensation or fringe benefits
of any director, officer or employee or pay any benefit not
required by any plan or arrangement in effect as of the date
hereof; (I) enter into any contract or amend or modify any existing
contract, or engage in any new transaction outside the ordinary
course of business consistent with past practice or not on an arm's
length basis, with any affiliate of such party or any of its
subsidiaries, provided, however, that the Company is expressly
permitted to dispose of its interest in LCT; (J) make any capital
expenditures or commitments for additions to plant, property or
equipment constituting capital assets except in the ordinary course
of business consistent with past practice in an aggregate amount
not exceeding $100,000; (K) make any change in the lines of
business in which it participates or is engaged other than such
changes effected in connection with any disposition of LCT; (L)
without the prior written consent of Logicon, which consent shall
not unreasonably be withheld, do any of the following: enter into
any fixed price contracts in excess of $50,000; enter into any new
lease agreements; invest any excess cash in instruments with a
maturity date beyond ninety days; appoint any additional officers
of the Company; effect any changes to the management structure of
the Company other then those changes disclosed to Logicon prior to
the execution of the Merger Agreement; make any capital expenditure
or commitment to make a capital expenditure towards the purchase of
a management information system; increase the salary of any officer
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or employee in a manner inconsistent with past practice but in no
event shall any increase exceed eight percent (8%); or grant to any
officer or employee any bonus payment, provided however the Company
may make spot awards which collectively shall not exceed $25,000.
Subject to the foregoing, the Company and Logicon will establish an
interim working committee chaired by the Company's Chief Executive
Officer and an individual chosen by the Chief Executive Officer of
Logicon to facilitate the transition and management of the Company
in anticipation of the closing of this transaction. In addition,
the Chief Financial Officer of the Company and of Logicon shall
participate as members of the interim working committee; or (M)
enter into any contract, agreement, commitment or arrangement to do
or engage in any of the foregoing.
No Solicitation of Acquisition Proposals
Pursuant to the Merger Agreement, the Company, Logicon and
MergerCo and their respective representatives are prohibited from
encouraging or seeking acquisition proposals or furnishing any
non-public information to any person relating to an acquisition
proposal. The Merger Agreement provides that no party shall, nor
shall it permit any of its subsidiaries to, nor shall it authorize
or permit any officer, director, employee, investment banker,
financial advisor, attorney, accountant or other agent or
representative (each, a "Representative") retained by or acting for
or on behalf of it or any of its subsidiaries to, directly or
indirectly, initiate, solicit, encourage, or, unless the Board of
Directors believes, on the basis of advice furnished by independent
legal counsel, that the failure to take such actions would
constitute a breach of applicable fiduciary duties, participate in
any negotiations regarding, furnish any confidential information in
connection with, endorse or otherwise cooperate with, assist,
participate in or facilitate the making of any proposal or offer
for, or which may reasonably be expected to lead to, an Acquisition
Transaction, by any person, corporation, partnership or other
entity or group (a "Potential Acquiror"); provided, however, that
nothing contained in the restrictions shall prohibit the Company or
its Board of Directors from taking and disclosing to its
stockholders a position with respect to a tender offer by a
Potential Acquiror pursuant to Rules 14d-9 and 14e-2(a) promulgated
under the Exchange Act or from making such disclosure to its
stockholders which, in the judgment of the Board of Directors based
upon the opinion of independent counsel, may be required under
applicable law; provided, however, that (i) the Company may furnish
or cause to be furnished information concerning the Company and its
businesses, properties or assets to a Potential Acquiror (on terms,
including confidentiality terms, substantially similar to those set
forth in the confidentiality letter dated August 8, 1995 between
Logicon and the Company), (ii) the Company may engage in
discussions or negotiations with a Potential Acquiror, (iii)
following receipt of a proposal or offer for an Acquisition
Transaction, the Company may take and disclose to its stockholders
a position contemplated by Rules 14d-9 and 14e-2(a) under the
Exchange Act or otherwise make disclosure to the Company's
stockholders and (iv) following receipt of a proposal or offer for
an Acquisition Transaction the Board of Directors may withdraw or
modify its recommendation to shareholders referred to in the Merger
Agreement, but in each case referred to in the foregoing
clauses (i) through (iv) only to the extent that the Board of
Directors of the Company shall conclude in good faith on the basis
of advice from independent counsel that such action is necessary or
appropriate in order for such Board of Directors to act in a manner
which is consistent with its fiduciary obligations under applicable
law. The Company is obligated under the Merger Agreement to
immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
prior to executing the Merger Agreement with respect to any
Acquisition Transaction. As used in this Proxy Statement,
"Acquisition Transaction" means any merger, consolidation or other
business combination involving the Company or any of its
Significant Subsidiaries other than LCT, or any acquisition in any
manner of all or a substantial portion of the equity of, or all or
a substantial portion of the assets of, the Company and its
subsidiaries taken as a whole (without regard to LCT), whether for
cash, securities or any other consideration or combination thereof
other than pursuant to the transactions contemplated by the Merger
Agreement; and "Significant Subsidiary" means any subsidiary of the
Company that would constitute a Significant Subsidiary of the
Company within the meaning of Rule 1-02 of Regulation S-X of the
SEC. If the Company's Board of Directors exercise their fiduciary
duties as described above, the Company must pay to Logicon an
amount equal to 5% of the merger consideration, as adjusted, times
the number of shares outstanding prior to the date of the Merger
Agreement, as disclosed in the Merger Agreement, plus an expense
reimbursement of up to $250,000. See "-- Termination Fee and
Expenses" below.<R/>
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Conditions to the Merger
The respective obligations of each party to effect the Merger
are subject to the satisfaction, at or prior to the Effective Time,
of the following conditions: (a) the merger Agreement shall have
been adopted by the requisite vote of the stockholders of the
Company under the CGCL and the Company's Articles of Incorporation
and the Merger Agreement shall have been adopted by the requisite
vote of Logicon as the sole stockholder of MergerCo; (b) any
waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or
been terminated (c) no court of competent jurisdiction or other
competent Governmental or Regulatory Authority shall have enacted,
issued, promulgated, enforced or entered any Law or Order (whether
temporary, preliminary or permanent) which is then in effect and
has the effect of making illegal or otherwise restricting,
preventing or prohibiting consummation of the Merger or the other
transactions contemplated by the Merger Agreement; (d) other than
the filing of the certificate of merger, all consents, approvals
and actions of, filings with and notices to any Governmental or
Regulatory Authority or any other public or private third parties
required of Logicon, the Company or any of their subsidiaries to
consummate the Merger and the other matters contemplated by the
Merger Agreement, the failure of which to be obtained or taken
could be reasonably expected to have a material adverse effect on
Logicon and its subsidiaries or the Surviving Corporation and its
subsidiaries, in each case taken as a whole, or on the ability of
Logicon and the Company to consummate the transactions contemplated
by the Merger Agreement shall have been obtained, all in form and
substance reasonably satisfactory to Logicon and the Company and no
such consent, approval or action shall contain any term or
condition which could be reasonably expected to result in a
material diminution of the benefits of the Merger to Logicon or to
the stockholders of the Company; (e) the Company shall have
disposed (or shall concurrently with the closing of the Merger
dispose) of its interest in LCT or the Company shall have effected
(or shall concurrently with such closing effect) the spin-off of
its interest in LCT to the Company's shareholders. The Company
sold LCT on January 17, 1996.
The obligations of the Company to effect the Merger are further
subject to the conditions that: (a) each of the representations and
warranties made by Logicon and MergerCo in the Merger Agreement
shall be true and correct as of the Closing Date as though made on
and as of the Closing Date or, in the case of representations and
warranties made as of a specified date earlier than the Closing
Date, on and as of such earlier date, in all respects material to
the validity and enforceability of the Merger Agreement and to
Logicon its subsidiaries taken as a whole, and Logicon and MergerCo
shall each have delivered to the Company a certificate, dated the
Closing Date and executed on behalf of Logicon by its Chairman of
the Board, President or any Vice President and on behalf of
MergerCo by its Chairman of the Board, President or any Vice
President, to such effect; (b) Logicon and MergerCo shall have
performed and complied with, in all material respects, each
agreement, covenant and obligation required by the Merger Agreement
to be so performed or complied with by Logicon or MergerCo at or
prior to the Closing, and Logicon and MergerCo shall each have
delivered to the Company a certificate, dated the Closing Date and
executed on behalf of Logicon by its Chairman of the Board,
President or any Vice President and on behalf of MergerCo by its
Chairman of the Board, President or any Vice President, to such
effect; (c) the Company shall have received the opinion of counsel
to Logicon and MergerCo, dated the Closing Date, substantially in
form and substance reasonably satisfactory to the Company; (d) the
fairness opinion of A.G. Edwards shall not have been withdrawn; and
(e) all proceedings to be taken on the part of Logicon and MergerCo
in connection with the transactions contemplated by the Merger
Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Company, and the Company
shall have received copies of all such documents and other
evidences as the Company may reasonably request in order to
establish the consummation of such transactions and the taking of
all proceedings in connection therewith.
The obligations of Logicon and MergerCo to effect the Merger
are further subject to the conditions that: (a) each of the
representations and warranties made by the Company in the Merger
Agreement and including those contained in the Company's Disclosure
Letter shall be true and correct as of the Closing Date as though
the Closing Date was substituted for the date of the Merger
Agreement throughout such representations and warranties, in all
respects material to the validity and enforceability of the Merger
Agreement and to the Company and its subsidiaries taken as a whole,
except as affected by the transactions contemplated by the Merger
Agreement, and the Company shall have delivered to Logicon a
certificate, dated the Closing Date and executed on behalf of the
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Company by its Chairman of the Board, President or any Vice
President, to such effect; (b) the Company shall have performed and
complied with, in all material respects, each agreement, covenant
and obligation required by the Merger Agreement to be so performed
or complied with by the Company at or prior to the Closing, and the
Company shall have delivered to Logicon a certificate, dated the
Closing Date and executed on behalf of the Company by its Chairman
of the Board, President or any Vice President, to such effect; (c)
there shall not have been issued, enacted, promulgated or deemed
applicable to Logicon, the Surviving Corporation, any of their
respective subsidiaries or the transactions contemplated by the
Merger Agreement any Order or Law of any Governmental or Regulatory
Authority which is then in effect and which could be reasonably
expected to result in a material diminution of the benefits of the
Merger to Logicon, and there shall not be pending or threatened on
the Closing Date any action, suit or proceeding in, before or by
any Governmental or Regulatory Authority which could be reasonably
expected to result in any such issuance, enactment, promulgation or
deemed applicability of any such Order or Law or of any Order or
Law reasonably expected to have a material adverse effect on
Logicon and its subsidiaries or the Surviving Corporation and its
subsidiaries, in each case taken as a whole, or on the ability of
Logicon and the Company to consummate the transactions contemplated
by the Merger Agreement; (d) other than the filing of the
certificate of merger, all consents, approvals and actions of,
filings with and notices to any Governmental or Regulatory
Authority, the failure of which to be obtained or taken could be
reasonably expected to have a material adverse effect on Logicon
and its subsidiaries or the Surviving Corporation and its
subsidiaries, in each case taken as a whole, or on the ability of
Logicon and the Company to consummate the transactions contemplated
by the Merger Agreement shall have been obtained; (e) the Company
and its subsidiaries shall have received all consents (or in lieu
thereof waivers) from parties to each Contract disclosed pursuant
to the Merger Agreement; (f) Logicon and MergerCo shall have
received the opinion of Nida & Maloney, counsel to the Company,
dated the Closing Date, in form and substance reasonably
satisfactory to Logicon; (g) Logicon and MergerCo shall have
received the issues and findings letter of Arthur Andersen LLP, the
Company's independent auditors; (h) the aggregate number of
dissenting shares shall not exceed 9.99% of the total number of
shares of Company Common Stock outstanding on the Closing Date; (i)
all proceedings to be taken on the part of the Company in
connection with the transactions contemplated by the Merger
Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to Logicon, and Logicon shall
have received copies of all such documents and other evidences as
Logicon may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings
in connection therewith and (j) the options held by Directors of
the Company shall have been exercised or canceled.
Termination
The Merger Agreement may be terminated in certain circumstances
(at any time prior to the Effective Time, whether before or after
approval and adoption of the Merger Agreement by shareholders of
the Company), including the following: (a) by mutual written
agreement of the parties hereto duly authorized by action taken by
or on behalf of their respective Boards of Directors; (b) by either
the Company or Logicon upon notification to the non-terminating
party by the terminating party: (i) at any time after March 29,
1996 if the Merger shall not have been consummated on or prior to
such date and such failure to consummate the Merger is not caused
by a breach of the merger Agreement by the terminating party; (ii)
if the Company Stockholders' Approval shall not be obtained by
reason of the failure to obtain the requisite vote upon a motion to
so approve at a meeting of such stockholders, or any adjournment
thereof, called therefor; (iii) if any Governmental or Regulatory
Authority, the taking of action by which is a condition to the
obligations of either the Company or Logicon to consummate the
transactions contemplated by the Merger Agreement, shall have
determined not to take such action and all appeals of such
determination shall have been taken and have been unsuccessful;
(iv) if there has been a material breach of any representation,
warranty, covenant or agreement on the part of the non-terminating
party set forth in the merger Agreement which breach has not been
cured within ten (10) business days following receipt by the non-
terminating party of notice of such breach from the terminating
party or assurance of such cure reasonably satisfactory to the
terminating party shall not have been given by or on behalf of the
non-terminating party within such ten (10) business day period; or
(v) if any court of competent jurisdiction or other competent
Governmental or Regulatory Authority shall have issued an Order
making illegal or otherwise restricting, preventing or prohibiting
the Merger and such Order shall have become final and
nonappealable; (c) by either the Company or Logicon if the Company
or its stockholders receive a proposal or offer for an Acquisition
Transaction in connection with which the Board of Directors of the
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Company exercises the fiduciary right to terminate the Merger
Agreement described elsewhere herein; or (d) by either the Company
or Logicon if A.G. Edwards shall withdraw their fairness opinion.
Indemnifications; Insurance and Employment Retention Agreements
Pursuant to the Merger Agreement, the Company, and from and
after the Effective Time Logicon and the Surviving Corporation
(each, an "Indemnifying Party"), shall indemnify, defend and hold
harmless each person who is now, or has been at any time prior to
the date hereof or who becomes prior to the Effective Time, a
director, officer, employee or agent of the Company or any of its
subsidiaries (the "Indemnified Parties") against (i) all losses,
claims, damages, costs and expenses (including attorneys' fees),
liabilities, judgments and settlement amounts that are paid or
incurred in connection with any claim, action, suit, proceeding or
investigation (whether civil, criminal, administrative or
investigative and whether asserted or claimed prior to, at or after
the Effective Time) that is based in whole or in part on, or arises
in whole or in part out of, the fact that such Indemnified Party is
or was a director, officer, employee or agent of the Company or any
of its subsidiaries and relates to or arises out of any action or
omission occurring at or prior to the Effective Time ("Indemnified
Liabilities"), to the extent the Company would have been permitted
under applicable law to indemnify its own directors, officers,
employees or agents, as the case may be, without giving effect to
any limitations imposed in Section 317(c) of the California
Corporations Code, and (ii) all Indemnified Liabilities based in
substantial part on, or arising in substantial part out of, or
pertaining to the merger Agreement or the transactions contemplated
by the Merger Agreement, in each case to the full extent a
corporation is permitted, without giving effect to any limitations
imposed in Section 317(c) of the California Corporations Code,
under applicable law to indemnify its own directors, officers,
employees or agents, as the case may be; provided that no
Indemnifying Party shall be liable for any settlement of any claim
effected without its written consent, which consent shall not be
unreasonably withheld. Without limiting the foregoing, in the
event that any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether
arising prior to or after the Effective Time), (w) the Indemnifying
Parties will pay expenses in advance of the final disposition of
any such claim, action suit, proceeding or investigation to each
Indemnified Party to the full extent permitted by applicable law
provided that the person to whom expenses are advanced provides an
undertaking to repay such advance if it is ultimately determined
that such person is not entitled to indemnification; (x) the
Indemnified Parties shall retain counsel reasonably satisfactory to
the Indemnifying Parties; (y) the Indemnifying Parties shall pay
all reasonable fees and expenses of such counsel for the
Indemnified Parties (subject to the final sentence of this
paragraph) promptly as statements therefor are received; and (z)
the Indemnifying Parties shall use all commercially reasonable
efforts to assist in the vigorous defense of any such matter. Any
Indemnified Party wishing to claim indemnification under this
Section, upon learning of any such claim, action, suit, proceeding
or investigation, shall notify the Indemnifying Parties, but the
failure so to notify an Indemnifying Party shall not relieve it
from any liability which it may have under this paragraph except to
the extent such failure irreparably prejudices such party. The
Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is,
under applicable standards of professional conduct, a conflict on
any significant issue between the positions of any two or more
Indemnified Parties.
Under the Merger Agreement, Logicon and the Surviving
Corporation shall, until the first anniversary of the Effective
Time, cause coverage to be continued under, to the extent
available, on commercially reasonable terms, the policies of
directors' and officers' liability insurance maintained by the
Company and its subsidiaries as of the date hereof with respect to
claims arising from facts or events within the coverage of such
policies that occurred on or prior to the Effective Time; provided
that in no event shall Logicon or the Surviving Corporation be
obligated to expend in order to maintain or procure insurance
coverage pursuant to this paragraph any amount per annum in excess
of one hundred percent (100%) of the aggregate premiums paid by the
Company and its subsidiaries in 1995 (on an annualized basis) for
such purpose; Logicon and Surviving Corporation may, in lieu of
continuing such current policies or coverage, cause comparable
coverage to be provided under another policy or policies so long as
the material terms or coverage thereof are no less advantageous
than such existing policies.
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Logicon has acknowledged that the Merger will constitute a
"Change of Control of the Company" for the purposes of the
Employment Retention Agreements and has agreed to cause the
Surviving Corporation to satisfy and discharge its obligations
thereunder.
Termination Fee and Expenses
The Merger Agreement provides that each party will bear its own
expenses in connection with the Merger Agreement and the
transactions contemplated thereby. Under the Merger Agreement,
however, if any of the following occur: (i) the transaction costs
of the Transactions exceed $600,000 (plus an additional agreed
$69,000), (ii) taxes are incurred in excess of $1,458,000 in
connection with the disposition of LCT net of any distributions by
LCT to Geodynamics or (iii) Geodynamics assumes or is transferred
any liability of LCT in excess of $597,000 plus intercompany
advances made by Geodynamics of $2,176,000, then such excess shall
be deemed to be a cash amount paid in respect of the LCT Earnout
payment and shall cause an adjustment of merger consideration. Any
expenses in addition to transaction costs incurred by LCT from
September 1, 1995 to the closing of the Merger paid or required to
be paid by the Company on behalf of LCT and not paid by LCT to the
Company prior to closing will be deemed to be a transaction cost
and shall be included in any such adjustment calculation. See "The
Merger--Merger Agreement--Merger Consideration--Merger
Consideration Adjustment."
In the event that (i) either Logicon or the Company terminates
the merger Agreement (i) because there has been a material breach
of any representation, warranty, covenant or agreement on the part
of the non-terminating party set forth in the merger Agreement
which breach has not been cured within ten (10) business days
following receipt by the non-terminating party of notice of such
breach from the terminating party or assurance of such cure
reasonably satisfactory to the terminating party shall not have
been given by or on behalf of the non-terminating party within such
ten (10) business day period; (ii) because the Company or its
shareholders receive a proposal or offer for an Acquisition
Transaction in connection with which the Board of Directors of the
Company exercises the fiduciary right to entertain other offers or
terminate the Merger Agreement; or (iii) because A.G. Edwards
withdraws its fairness opinion; or (ii) either Logicon or the
Company terminates the merger Agreement because the Company's
shareholders shall not have approved the Proposal by reason of the
failure to obtain the requisite vote upon a motion to so approve at
a meeting of such shareholders, or any adjournment thereof, called
therefor (unless in any case described in clauses (i) or (ii) due
to a breach of the merger Agreement by Logicon) and, before the
shareholders meeting there shall have been (A) a Trigger Event or
(B) a proposal or offer for an Acquisition Transaction which at the
time of the shareholders meeting shall not have been (I) rejected
by the Company and (II) withdrawn by the Potential Acquiror, then
the Company shall, within ten (10) business days after receipt of a
request from Logicon, pay to Logicon in cash (x) a termination fee
equal to 5% of the merger consideration, as adjusted, times the
number of shares outstanding prior to the date of the Merger
Agreement, as disclosed in the Merger Agreement (the "Termination
Fee") and (y) an amount equal to all documented out-of-pocket
expenses and fees incurred by Logicon in connection with the Merger
Agreement and the transactions contemplated by the Merger Agreement
(including, without limitation, fees and expenses payable to all
banks, investment banking firms and other financial institutions
and persons and their respective agents and counsel for acting as
Logicon's financial advisor with respect to, or arranging or
committing to provide or providing any financing for, the Merger),
provided that in no event shall the amount of such reimbursable
fees and expenses exceed $250,000 in the aggregate. At a merger
consideration of $11.25 per share, the Termination Fee would be
$1,497,608. If the Company shall fail to effect the disposition of
LCT prior to the close of business on March 29, 1996, then the
Company shall likewise pay to Logicon such Termination Fee and
expense reimbursement, without regard to whether or not any Trigger
Event or proposal or offer shall have occurred. A "Trigger Event"
shall have occurred if (i) any person acquires securities
representing beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) of ten percent (10%) or more, in addition
to shares held by such person on the date of the Merger Agreement,
or commences a tender or exchange offer following which the offeror
and its affiliates would beneficially own securities representing
twenty-five percent (25%) or more, of the voting power of the
Company.
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Amendment; Waiver
The Merger Agreement provides that it may be modified or
amended by the parties at any time prior to the Effective Time by
written agreement executed and delivered by duly authorized
officers of the respective parties. Amendments may be made to the
Merger Agreement without shareholder approval before or after the
Special Meeting, provided that such amendments do not reduce the
merger consideration. In addition, the conditions to each of the
parties' obligations to consummate the Merger may be waived by such
party in whole or in part to the extent permitted by applicable
law.
Payments to Dissenting Shareholders
For a discussion of dissenting shareholders' rights with
respect to the Merger Agreement, see "Rights of Dissenting
Shareholders."
Accounting Treatment
It is anticipated that the Merger will be accounted for and
treated by Logicon as a purchase business combination transaction.
Accordingly, the assets and liabilities of the Company will be
recorded at their fair values as of the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
considerations resulting from the Merger. It is a summary of
existing law and proposed Treasury Regulations only, and it is not
intended as a substitute for careful tax planning. No rulings will
be applied for from the Internal Revenue Service ("IRS") with
respect to any of the federal income tax consequences discussed
herein, and thus there can be no assurance that the IRS will agree
with the conclusions set forth below. Subsequent proposed,
temporary or final Treasury Regulations may adopt different
positions. Moreover, the legal authorities on which the discussion
is based may be changed at any time. Any such changes may be
retroactively applied and could modify the federal income tax
consequences that result from the Merger.
The federal income tax consequences to any particular
shareholder may be affected by matters not discussed below. For
example, certain types of holders (including holders who acquired
shares of Common Stock pursuant to the exercise of Options or
otherwise as compensation, holders who may be subject to the
alternative minimum tax, individuals who are not citizens or
residents of the United States, foreign corporations, insurance
companies, tax-exempt organizations and regulated investment
companies) may be subject to special rules not addressed herein.
THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL
INFORMATION ONLY. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS
TO DETERMINE THE PARTICULAR TAX CONSEQUENCES RESULTING FORM THE
MERGER AND OWNERSHIP OF A CONTINGENT PAYMENT RIGHT, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN AND
OTHER TAX LAWS.
The conversion of the Common Stock into the right to receive
cash consideration in the Merger will be a taxable transaction for
federal income tax purposes and may also be a taxable transaction
for state, local or other tax purposes. However, holders will not
be entitled to use the installment method to report any gain with
respect to the exchange of the Common Stock because the Common
Stock is publicly traded.
A holder of shares of Common Stock will recognize gain or loss
at the Effective Time equal to the difference between (i) the sum
of the amount of cash consideration to be received and (ii) such
shareholder's tax basis in the Common Stock. Recognized gain or
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loss will be capital gain or loss, assuming the shares of Common
Stock are held as a capital asset, and will be long-term capital
gain or loss if such shares of Common Stock are held for more than
one year and short-term capital gain or loss if such shares of
Common Stock are held for one year or less. Such gain or loss must
be calculated separately for each block of shares of Common Stock
(e.g. shares acquired at the same price in a single transaction)
held by the holder.
Backup Withholding and Reporting Requirements. Backup
withholding at the rate of 20% may apply with respect to dividends
paid on, and proceeds from the taxable sale, exchange or other
disposition of, Geodynamics Common Stock, unless the shareholder
(i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (ii)
provides a correct taxpayer identification number, certifies as to
no loss of exemption from backup withholding and otherwise complies
with applicable requirements of the backup withholding rules. A
shareholder who does not provide the Company with his or her
correct taxpayer identification number may be subject to penalties
imposed by the IRS. Any amount withheld under these rules will be
creditable against the shareholder's federal income tax liability.
The Company will report to their shareholders and the IRS the
amount of "reportable payments" and any amounts withheld with
respect to Geodynamics Common Stock during each calendar year.
THE FOREGOING DISCUSSION OF MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES, IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT
TAX ADVICE. ACCORDINGLY, EACH SHAREHOLDER SHOULD CONSULT HIS OR
HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS, AND OF PROPOSED CHANGES IN APPLICABLE TAX LAWS.
DESCRIPTION OF GEODYNAMICS
Business
Geodynamics and its subsidiaries provide information
engineering services primarily to Government customers. The
majority of revenues (approximately 89% in fiscal 1995) are from
contracts with the Department of Defense (DoD). The Company
provides these services to DoD customers engaged in three major
systems areas: command, control, communications, computers and
intelligence (C4I) systems; weapons systems; and space systems.
Non-DoD revenues are primarily in support of petroleum exploration
and Geographic Information Systems (GIS).
On June 2, 1995, Geodynamics had contracts, including task
orders, with intelligence, military and civil agencies of the U.S.
Government and Government prime contractors. Due to the highly
restricted nature of the Company's work, many of its contracts
cannot be described in this report.
The Company acquired LCT in June 1994, the beginning of its
fiscal year. LCT has offices in Houston, Texas and London,
England, and has approximately 51 employees. It provides software
and data interpretation services for oil and mineral exploration,
marine gravity and airborne data acquisitions. LCT operates the
largest marine gravity meter fleet in the world. Certain of its
meters are also used to perform airborne gravity surveys.
In January 1995, the Company established a wholly-owned
subsidiary, Geodynamics Services Corporation (GSC) to provide GIS
activities.
Business Areas
Although the acquisition of LCT provided some new business
areas for the Company, Geodynamics' main business remained, and
after the disposition of LCT remains, in the analysis,
specification, design, development and integration management of
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information systems for C4I, weapons, and space projects. The
Company's services in these areas include mission planning, systems
engineering technical analysis, performance analysis of existing
and planned programs, determination of requirements for new systems
and technologies design, development, and integration of commercial
off-the-shelf (COTS) software and custom software.
C4I Systems
C4I systems provide military leaders with the capability to
manage and control intelligence collection and weapons during
peacetime, crises, and military conflict. Intelligence systems
provide the battlefield commander with situation assessments and
pre- and post-strike information on opposing forces. In addition,
selected C4I systems degrade the capability of an adversary to
perform all of those critical functions.
There are a variety of C4I systems. Data collection systems
provide indications and warnings of attack, and strike and damage
assessment information. Command and control systems support
military planning, plus monitoring and execution of operations.
Communications systems provide rapid, accurate and secure exchange
of information among all users. Navigation and position fixing
systems support the deployment of friendly forces, the planning and
execution of force operations, and facilitate the accurate delivery
of military supplies. Electronic warfare and electronic
countermeasure systems are employed to disrupt the performance of
enemy weapons and C4I systems and to protect U.S. systems from
similar disruptions.
The Company recently lost its bid for renewal of its contract
with the TENCAP office of the Air Force Space Command which
requires support in the planning and management of tactical
exercises, intelligence requirements management, mission assessment
analysis, and prototype systems for support of operational forces.
This contract accounted for $8.7 million of revenue for fiscal year
1995. In November 1995, the Company won its bid for the follow-on
contract to the Air Force Tactical Application of National Space
Capability (AFTENCAP) contract entitled Space Warfare Center
Operations Support (SWC-OS) as a member of Team ITAC. The contract
will be directed toward examining, assessing and developing the
means to integrate national system and DoD system support to
enhance combat capabilities within the Air Force. This activity
also includes integrating TENCAP with existing and advanced
technology weapons and platforms as well as special test
facilities. Initial estimates are that the contract will provide
$1.0 million of budgeted revenue for fiscal 1996 and that the
remaining work under the non-renewed TENCAP contract will provide
$4.2 million of budgeted revenue for fiscal 1996. A parallel
TENCAP effort for the Air Force Space and Missile Commands Space
Applications Program Office (SAPO) entitled Systems Engineering,
Demonstration and Integration (SEDI) contract was lost.
Weapons Systems
The Company is engaged in the development of an improved
mission planning capability for the F-15 and F-16 aircraft. This
effort involves the use of multispectral imagery for determining
optimum mission routes to avoid enemy defensive missiles and yet
achieve high probability of mission success.
Geodynamics is involved in the development of the Air Force
Space Command's Space Warfare Center (SWC) which is tasked with
assessing how space systems can most effectively support the war
fighter. This involves mission planning, execution, simulation of
resources and assessment of effectiveness.
Space Systems
Use of data from space systems in preparation for military
operations is part of the forces doctrine. The Company is providing
systems engineering and development support to a customer for re-
engineering a large classified command and control system. The
Company has a long history of performance analysis for space
systems using highly complex modeling and simulation tools.
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Services
The Company's technical expertise in the above business areas
relate to systems engineering, custom applications software
development, and, more recently, the field of application and
integration of COTS software. Special areas of emphasis include
the development of complex gravity field modeling for non-seismic
oil exploration, modeling of vehicle subsystems, development,
operations and maintenance of ground station command and control
systems, guidance system analysis, sensor platforms and space
systems support to the warfighter. Geodynamics' other skills
include development of algorithms relating to mission planning,
signal processing, image processing, message handling, orbit and
trajectory determination, telemetry data analysis, digital
cartographic, GIS, and linkage analysis. The latter provides the
capability to associate any class of objects (people,
organizations, or events) with any other object class, and is used
in a number of classified government organizations to detect highly
sophisticated criminal or fraudulent activity.
Systems Engineering
The Company provides systems engineering services directly to
U.S. Government intelligence and military agencies and indirectly
through government prime contractors. Geodynamics' systems
engineering capabilities encompass all phases of a project, from
initial concept definition through system operations. Its services
may include: 1) analysis of initial program objectives to
establish system performance requirements to guide system design
activity; 2) review of the availability of equipment and systems
and assessment of the technical feasibility of their application or
adaptability to satisfy system performance requirements; 3)
development and application of computer simulations of complex
systems and "real world" environments to evaluate system
effectiveness and validate requirements; 4) preparation of test
plans, supervision of tests, analysis of test data, and preparation
of test reports for the entire system, and 5) system operations.
The Company also provides independent verification and
validation of software systems to aid the customer in evaluating
the acceptability of those systems. As part of this effort the
Company will verify and validate the design, development and
implementation of such software to ascertain that the required
objectives are satisfactorily met for each phase of operation.
Applications Software
Geodynamics designs and develops custom applications software
which allows the customer to expedite the investigation of highly
analytical problems pertaining to intelligence and military
applications. In many cases, such software is provided in
connection with the Company's systems engineering services to meet
customer requirements.
Geodynamics has developed and delivered turn-key computer
systems which consist of specifically-designed hardware systems
purchased from third party hardware vendors and packaged with
custom applications software developed by the Company. While turn-
key emphasis has pertained to mid-size and minicomputers,
significant recent emphasis has involved microprocessor capability,
particularly as it applies to planning and exploitation workstation
development.
The Company and its former LCT subsidiary have developed a
unique software applications package to separate aircraft
accelerations from true gravity variations in support of airborne
gravity measurements for petroleum and minerals exploration.
Gravity and Magnetic Applications
Through LCT, the Company provided sophisticated gravity and
magnetic data acquisition products and services to the
international energy, mining, engineering and environmental
industries. These services included marine, land and airborne
geophysical data acquisition, processing and interpretation. With
its recent disposition of its interest in LCT, the Company is no
longer involved in these business areas.
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Customers
Geodynamics provides services primarily to the U.S.
Government. U.S. Government customers include the Defense
Intelligence Agency, the National Security Agency and other
intelligence agencies, various segments of the U.S. Air Force, the
U.S. Army, the U.S. Navy, and United and Specified Commands of the
Joint Chiefs of Staff.
Among the Company's U.S. Air Force customers are the Air Staff,
Space and Missile Center, Space Command, Western Space and Missile
Center, and the Electronic Systems Center. The Company acts as a
subcontractor to such government prime contractors as Lockheed
Martin Corporation, Loral, Hughes Information Technology Company,
and Texas Instruments. See "Description of LCT" for a discussion
of LCT's primary customers.
For the year ended June 2, 1995, contracts with the U.S. Air
Force accounted for 33.8% of the Company's revenues and
subcontracts with Loral accounted for 13.6% of revenues. No other
single customer accounted for more than 10% of fiscal 1995
revenues.
U.S. Government Contracts
Substantially all of Geodynamics' revenues have been derived
from contracts with intelligence and military agencies of the U.S.
Government and from subcontracts with U.S. Government prime
contractors. The revenues and income of the Company could be
materially affected by changes in government procurement policies
or a reduction in government expenditures for services of the type
provided by the Company. The Company's business is performed under
cost reimbursement, fixed price and fixed rate time and materials
contracts.
Cost reimbursement contract types include cost plus fixed fee,
cost plus incentive fee and cost plus award fee contracts. These
contracts provide for reimbursement of costs to the extent
allocable, allowable and funded under applicable regulations, and
payment of a fee, which may either be fixed by the contract (cost
plus fixed fee) or variable, based on actual performance within
specified limits for such factors as cost, technical performance,
and management (cost plus incentive fee) or the customer's
subjective evaluation of the Company's work (cost plus award fee).
Under U.S. Government regulations, certain costs, including
financing costs, are not reimbursable.
Under fixed price contracts, the Company agrees to perform
certain work for a fixed price; under a fixed rate time and
materials contract, the customer agrees to pay a specific rate per
labor hour for each particular service to be performed.
Greater risks are involved under fixed price contracts than
under cost reimbursement contracts or time and material contracts
because in fixed price contracts the Company assumes responsibility
for providing the specific products or services regardless of the
actual costs incurred.
The following table gives the approximate percentage of the
Company's revenues realized from the basic types of contracts
during the fiscal years indicated:
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Year Ended
June 2, June 3, May 28,
1995 1994 1993
U.S. Government Defense
Contracts:
Cost Reimbursement 49.1% 51.1% 51.4%
Fixed Price 7.3% 9.6% 10.5%
Fixed Rate Time and
Materials 32.9% 37.1% 37.2%
------ ------ ------
89.3% 97.8% 99.1%
Non-Defense Revenue 10.7% 2.2% 0.9%
------ ------ ------
100.0% 100.0% 100.0%
Contract costs for services or products supplied to government
agencies, including allocated indirect costs are subject to audit
and adjustment. The Company's contract costs have been audited by
the Defense Contract Audit Agency through fiscal 1988. Contract
costs for periods subsequent to fiscal 1988 have been recorded at
amounts which are expected to be realized upon final settlement.
The Company's U.S. Government contracts may be terminated, in
whole or in part, at the convenience of the customer (as well as
for cause in the event of default). In the event of a convenience
termination, the customer generally is obligated to pay the costs
incurred by the Company under the contract plus a fee based upon
work completed.
A termination or substantial curtailment of the U.S. Government
programs under which Geodynamics holds contracts could have an
adverse effect upon the Company's revenues, income, and backlog.
Long-term U.S. Government contracts generally are conditioned
upon the continuing availability of congressional appropriations.
Congress usually appropriates funds on a fiscal year basis, even
though contract performance may take several years. Consequently,
at the outset of a major program, the contract is usually partially
funded and additional monies are normally committed to the contract
by the procuring agency only as appropriations are made by Congress
for future fiscal years.
Backlog
At June 2, 1995, Geodynamics' backlog was $101 million,
approximately $3 million higher than at the end of the prior fiscal
year. Backlog includes unexercised options which, in the Company's
opinion, will be exercised; however, there is no assurance that
such options will be exercised. All of the Company's contracts
reflected in this backlog are subject to termination for
convenience of the customer. See "U.S. Government Contracts" above
and "Description of Geodynamics--Management's Discussion and
Analysis of Historical Financial Condition and Results of
Operations."
Marketing
Geodynamics' marketing activities are conducted principally by
its senior management and by its professional staff of engineers,
scientists and analysts. Geodynamics also prepares proposals in
response to government requests for proposals.
45
Government Security Clearances
Geodynamics' ability to maintain its current business base
and to grow in the future is based in part on its ability to
provide employees and facilities which meet rigorous U.S.
Government security requirements. The Company employs a
Corporate Security Director as well as a resident Security
Representative at each of its operational divisions. Each
division has a continuing program to meet applicable security
requirements and to maintain employee awareness of the paramount
need for compliance with security requirements.
Patents and Technical Data
The Company does not consider patent protection to be
significant to its current operations. The U.S. Government has
proprietary rights to the technical data, including software
products, which result from Geodynamics' services under U.S.
Government contracts or subcontracts. In the case of
subcontracts, the prime contractor may also have certain rights
to such technical data.
Competition
Most of the business areas in which Geodynamics is involved
are competitive, and require highly skilled and experienced
technical personnel with high levels of U.S. Government security
clearances. Recent changes in U.S. Government procurement
policies have increased emphasis on competitive bidding, a trend
the Company anticipates will continue. There are many companies
which compete in the service areas in which the Company is
engaged, some of which have significantly greater financial and
personnel resources.
Employees
A majority of the technical staff holds advanced degrees in
the primary areas of math, physics, electrical and mechanical
engineering, and business. The Company's employees are generally
required to have high level U.S. Government security clearances
to operate under the Company's contract efforts on behalf of the
Government.
At June 2, 1995, Geodynamics employed 473 full-time
employees, including 367 in systems engineering and software
development and energy services, 27 in corporate management and
administration, and 79 in support staff. Of these, approximately
51 were employees of LCT, none of whom are now employees of the
Company. The numbers reflect an overall increase of
approximately 6% from the levels reported for the previous year
due primarily to the purchase of LCT. Excluding LCT, there was a
net decrease of approximately 8%.
The Company's employees are not represented by any labor
union. The Company believes that its employee relations are
good, and it has not experienced any labor disputes or work
stoppages.
Properties
Geodynamics currently maintains the following facilities
aggregating approximately 225,000 square feet:
46
<PAGE>
Current Year Facility
Facility Square Footage Established Security Level
- ------------------ -------------- ------------- --------------
Santa Barbara, CA 18,356 1968 ---
Washington, D.C. 54,036 1977 Top Secret
Torrance, CA 52,994 1977 Top Secret
Sunnyvale, CA 22,600 1981 Top Secret
Denver, CO 10,795 1982 Top Secret
Colorado Springs, CO 33,321 1984 Top Secret
Hanover, MD 10,575 1984 Top Secret
Gaithersburg, MD 1,050 1989 Unclassified
Tampa, FL 3,933 1993 Top Secret
Hampton, VA 6,156 1993 Top Secret
Two additional facilities, one in Houston, Texas and one in
London, England, were leased by LCT. All of the Company's
facilities are leased from unaffiliated third parties. The lease
expiration dates range from December 1995 to September 2000. The
leases for these facilities, with one exception, have renewal
options ranging from one to five years. The Company has made
significant leasehold improvements to most of its facilities in
order to meet U.S. Government security requirements. The
aggregate annual rent for these facilities for the fiscal year
ended June 2, 1995 was approximately $2.6 million. The Company
believes that its facilities are adequate and suitable for the
conduct of its current operations.
Legal Proceedings
The Company is not engaged in any legal proceedings which
are material to the business or financial condition of the
Company.
In the Company's third quarter Form 10-Q filed April 17,
1995, the results of a contested shareholder election were
described. The costs involved in the election of approximately
$1 million are believed to be reimbursable costs under its
contracts with the Government. Subsequent to that time, and in
order to resolve litigation surrounding the proxy contest
preceding the shareholder election, the Company entered into a
Settlement Agreement with Alney A. Baham to pay him the total sum
of approximately $328,000, and subsequently granted him two five-
year options, one for 10,000 shares at a price of $8.00 per
share, and one for 10,000 shares at a price of $10.00 per share.
The price of Geodynamics' stock at the date these options were
approved was $8.75 per share. The Company also entered into a
Settlement Agreement with William Strong and Mason Hill Asset
Management, Inc. and delivered a two-year stock option to Mr.
Strong for 20,000 shares at a price of $8.75 per share (the price
of Geodynamics' stock when the settlement was authorized). Each
settlement agreement included mutual releases by the parties.
47
<PAGE>
<TABLE>
Selected Historical Financial Data of Geodynamics
Fiscal Year Ended Six Months Ended
INCOME STATEMENT DATA:
(in thousands, except ------------------------------------------------------------------- ---------------------------------
per-share data)
<CAPTION>
May 31, May 29, 1992 May 28, 1993 June 3, 1994 June 2, 1995 December 2, 1994 December 1, 1995
(Unaudited) (Unaudited)
- -------------------------- --------- ------------ ------------ ------------ ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 62,114 $ 58,424 $ 57,696 $ 54,823 $ 60,770 $ 27,763 $ 32,053
Costs and expenses 56,817 55,487 55,017 53,734 57,937 26,095 30,583
-------- -------- -------- -------- -------- -------- ---------
Income from operations 5,297 2,937 2,679 1,089 2,833 1,668 1,470
Other income 278 395 288 351 312 128 109
-------- -------- -------- -------- -------- -------- ---------
Income before provision
for income taxes 5,575 3,332 2,967 1,440 3,145 1,796 1,579
Provision for income taxes 2,100 1,271 1,019 555 1,227 691 608
-------- -------- -------- -------- -------- -------- ---------
Net income 3,475 2,061 1,948 885 1,918 1,105 971
======== ======== ======== ======== ======== ======== =========
Earnings per common share 1.22 0.77 0.80 0.38 0.73 0.43 0.33
======== ======== ======== ======== ======== ======== =========
Weighted average number of
common shares outstanding 2,856 2,689 2,428 2,327 2,630 2,571 2,905
======== ======== ======== ======== ======== ======== =========
Dividends per common share 0.25 0.28 0.28 0.28 0.28 0.07 0.07
======== ======== ======== ======== ======== ======== =========
BALANCE SHEET AND OTHER DATA:
(in thousands)
Working capital 19,918 17,331 18,405 16,634 15,738 15,629 17,570
Total assets 38,920 34,352 32,722 32,279 40,640 38,920 39,837
Long-term liabilities 1,507 1,135 305 142 1,872 2,027 1,834
Shareholders' equity 27,962 26,334 26,820 26,408 30,456 29,775 31,684
(1) Results for the fiscal year ended June 2, 1995 and the
three-month periods ended December 1, 1995 and December 2, 1994,
include the operations of Geodynamics and LCT. Comparative data
from prior years include only the results of Geodynamics.
</TABLE>
48
<PAGE>
Management's Discussion and Analysis of Historical Financial
Condition and Results of Operations
Results of Operations
The following tables set forth for the periods indicated the
percentages which selected items in the statements of income bear
to revenues and the annual percentage change of the dollar
amounts of such items for the period indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------
June 2, June 3, May 28,
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
PERCENTAGE OF REVENUES
Revenues 100.0% 100.0% 100.0%
Costs and expenses 95.3 98.0 95.4
Income from operations 4.7 2.0 4.6
Income before provision for
income taxes 5.2 2.6 5.1
Provision for income taxes 2.0 1.0 1.7
Net income 3.2 1.6 3.4
PERCENTAGE CHANGE
Revenues 10.8% (5.0%)
Costs and expenses 7.8 (2.3)
Income from operations 160.1 (59.4)
Income before provision for income taxes 118.4 (51.5)
Provision for income taxes 121.1 (45.5)
Net income 116.7 (54.6)
</TABLE>
Six Months Ended December 1, 1995, as Compared with
Six Months Ended December 2, 1994
Revenues were $16.1 million and $32.1 million in the three
and six months ended December 1, 1995, respectively, an increase
of 9.8% and 15.5%, respectively, over the $14.6 million and $27.8
million in the corresponding fiscal 1995 periods. These
increases were attributable to higher marine and airborne survey
activity for the Company's former LCT subsidiary, and a DoD
contract with a higher volume of equipment purchases in the first
half of fiscal 1996.
Costs and expenses were $15.4 million and $30.6 million in
the three and six months ended December 1, 1995, respectively,
reflecting a decline in consolidated profit margins from 6.0%
through six months of 1995 to 4.6% through the same period in
fiscal 1996. This decline in profit margins is primarily
attributable to expenses related to the divestiture of LCT and
the proposed merger into Logicon, Inc.
49
<PAGE>
Earnings per share were $0.15 and $0.33 for the three and
six months ended December 1, 1995, declining from $0.22 and $0.43
in the comparable periods ended December 2, 1994. The declines
are attributable to lower profit margins (see above) and a higher
weighted average number of shares outstanding in fiscal 1996,
plus an increase in the dilutive effect of stock options due to
higher market prices per share in the current quarter.
Year Ended June 2, 1995 as Compared with Year Ended June 3, 1994
Revenues for fiscal 1995 increased to $60.8 million, a 10.8%
increase over the $54.8 million reported in fiscal year 1994.
The increase is primarily the result of the consolidation of LCT,
the Company's wholly-owned subsidiary which was acquired at the
beginning of the current fiscal year and disposed of in January
1996. LCT's revenues for the current fiscal year were $5.2
million. In addition, the Company's core DoD business
contributed an increase of 3% of revenues compared to the prior
fiscal year.
Costs and expenses for fiscal year 1995 were $57.9 million,
as compared with $53.7 million in the prior fiscal year. Income
from operations and the operating margin in fiscal year 1995
improved to $2.8 million and 4.7%, respectively, from the fiscal
year 1994 comparable figures of $1.1 million and 2.0%. Net costs
involved in the contested shareholder election were approximately
$1 million and are believed to be reimbursable costs under the
Company's contracts with the U.S. Government. A decrease in
operating losses incurred by non-DoD development activities, from
$2.4 million in fiscal 1994 to $.7 million in fiscal 1995, is
primarily responsible for the improvement. In fiscal 1996, no
further losses are expected from these activities, which have
been substantially curtailed, and the Company does not presently
anticipate initiating any new activities of this nature.
At the beginning of fiscal 1995, the Company acquired 100%
of the stock of LCT for $5 million plus an earnout amount to be
determined by LCT's financial performance through December 31,
1995. The $5 million was payable 1/2 in stock and 1/2 in cash,
which resulted in use of $2.5 million cash and the issuance of
322,000 shares of Geodynamics stock. In January 1996, the
Company reached a negotiated settlement of the LCT Earnout with
the Former LCT Shareholders which fixed such payment at
$1,600,000. In January 1996, the Company also disposed of its
interest in LCT.
Backlog at June 2, 1995 was $101 million, approximately 3%
higher than the $98 million reported at June 3, 1994.
Year Ended June 3, 1994 as Compared with Year Ended May 28, 1993
Revenues for fiscal 1994 were $54.8 million down 5.0% from
the $57.7 million in fiscal 1993. Of this decrease,
approximately $3.6 million was from the Company's DoD business
while non-DoD (commercial) business provided a $700,000
increase. The DoD revenue reduction was due primarily to the
continuing contraction of military spending and the reduction or
termination of military programs which impacted a number of the
Company's contracts, including one program being terminated.
Costs and expenses in fiscal 1994 were $53.7 million, down
from $55.0 million in the prior fiscal year. The resulting
income from operations in fiscal 1994 was $1.1 million, down
nearly 60% from the $2.7 million in fiscal 1993. The operating
margin was 2.0% in fiscal 1994, down from 4.6% in the prior year.
Income from operations included $3.5 million from DoD business,
representing a 6.5% margin on revenue in the current year versus
income from operations of $3.3 million in fiscal 1993 with a
margin of 5.8%. Non-DoD business showed net expenditures
(primarily for research and development) of approximately $2.4
million in fiscal 1994 including sales of $1.2 million. In the
prior year commercial business incurred net expenditures of
approximately $600,000 including revenues of approximately
$500,000.
Backlog at June 3, 1994 was $98 million, down from $102
million at May 28, 1993, representing a 4% reduction.
50
<PAGE>
Liquidity and Capital Resources
Cash and short-term investments of $8.2 million at the end
of fiscal 1995 were down from the $8.8 million in the prior
fiscal year. This decrease is primarily the result of the net
cash impact of the LCT acquisition and of purchases of equipment,
net of numerous cash sources (see Consolidated Statements of Cash
Flows). Contracts receivable were $15.4 million, up from the
$13.6 million at the end of fiscal 1994; this represented aging
at 93 days, as compared with 91 days for 1994. The Company's
working capital position decreased due to the consolidation of
LCT; the current ratio at June 2, 1995 was 2.9 to 1, compared
with 3.9 to 1 at June 3, 1994. The Company's investment in
ERDAS, Inc. remains at $1.2 million, representing a 19.5%
interest in outstanding ERDAS stock. For the year ended December
31, 1994, ERDAS reported revenues of $11,828,000 and a net profit
of $433,000. As of June 2, 1995, there were short-term
borrowings by LCT under the Company's $8 million unsecured line
of credit totaling $747,000, guaranteed by the parent company, to
provide working capital for LCT.
Cash and short-term investments decreased to $6.8 million at
December 1, 1995 from $8.2 million at June 2, 1995. The decrease
is due in large part to a decrease in accounts payable from $2.9
million at June 2, 1995 to $1.4 million at the end of the current
quarter. In addition, outstanding contract receivables increased
to $15.1 million from $14.5 million at June 2, 1995.
Accounts receivable aging at December 1, 1995 was 91 days,
decreasing slightly from 93 days at June 2, 1995. The balance
sheet remains strong, with working capital up approximately $1.8
million to a total of $17.6 million and a current ratio of 3.8 to
1 at December 1, 1995, compared with 2.9 to 1 at June 2, 1995.
The Company maintains an $8.0 million line of credit with a bank;
at December 1, 1995, borrowings were $647,000 under this line,
down from $747,000 at June 2, 1995. Borrowings under the line of
credit, which are guaranteed by the parent company, were to
provide working capital for the Company's LCT subsidiary which
was subsequently sold. The Company remains liable for such
borrowed sums and LCT has been released from such liability.
Effect of Inflation
Geodynamics believes that during the past three years
inflation has not had a material impact on operations, since
approximately one-half of its revenues were derived from cost
reimbursement contracts and most of the balance has been derived
from fixed price contracts which are bid with inflation factors
assumed in the pricing.
Management
Directors, Executive Officers and Significant Employees
The directors, executive officers and significant employees
of the Company and their ages are as follows:
51
<PAGE>
Name Age Position
Michael E. Edleson 37 Director
Bruce J. Gordon 64 President and Director
W. Richard Ellis 68 Chairman of the Board and Director
Donald L. Haas 70 Director
Thomas R. LaFehr 61 Director
Delbert H. Jacobs 63 Director
Will Stackhouse 52 Director
Kwok C. Chan 42 President and Chief Executive Officer of LCT
Robert G. Cook 49 Controller, Assistant Corporate Secretary
Joanne M. Dunlap 45 Vice President, Administrative Services and
Corporate Secretary
Paul J. Henrikson 51 Vice President, Corporate Director of Advanced
Programs
A. Ronald Jacobsen 59 Vice President and General Manager, Western
Division
M. Carolyn Mihara 57 Executive Assistant to the President and Chief
Executive Officer
David P. Nelson 54 Vice President/Finance, Chief Financial Officer
Patrick J. Reynolds 53 Corporate Contracts Manager
Jack F. Scherrer 49 Vice President and General Manager, Eastern
Division
Harry W. Utter 48 General Manager, Geodynamics Services
Corporation
Michael E. Edleson
Dr. Edleson has served as a director since February 16,
1995. He is Assistant Professor of Business Administration at
the Harvard Business School. He joined the faculty in 1990 and
teaches courses in the finance area. The primary focus of his
research and course development work has been in the field of
investments, with emphasis on managing value in corporate
investment decisions and determining the value of financial
investments.
Dr. Edleson graduated with highest honors from the U.S.
Military Academy at West Point with a Bachelor of Science in
1979. He received his Master of Science degree in 1986 from the
Massachusetts Institute of Technology, his Master of Science
Administration degree (with highest honors) from Suffolk
University in 1986, and his Ph.D. in economics (field in finance)
in 1991 from the Massachusetts Institute of Technology.
Bruce J. Gordon
Mr. Gordon has served as a Director since February 16, 1995
and was appointed President and Chief Executive Office on April
19, 1995. He retired in 1992 from Science Applications
International (SAIC), an employee-owned engineering firm, where
he served as Sector Vice President and General Manager of the
Aerospace and Defense Systems Sector. From 1964 to 1981, Mr.
Gordon was employed by TRW, in various management and engineering
positions, including Manager of the System Design and Integration
Operation, specializing in ground systems, mission planning
systems and sensor processing systems.
Prior to his 27 years of industrial experience, Mr. Gordon
served six years in the United States Navy as a carrier fighter
pilot and six years in the United States Air Force as an
Astronautical Engineer.
Mr. Gordon received his Bachelor of Arts degree in
Mathematics from Duke University, his Master of Science degree in
Astronautical Engineering from the Air Force Institute of
Technology, and is a graduate of the Executive Program, UCLA
Graduate School of Business.
52
<PAGE>
W. Richard Ellis
Mr. Ellis has served as a Director since 1978. He was
appointed Chairman of the Board effective November 15, 1995 to
fill the vacancy created in that position by Dr. LaFehr's
resignation effective that date. In 1986, he retired as the
Executive Director of Sansum Medical Clinic, Inc., one of the
largest and most highly-regarded specialty clinics on the West
Coast. During the last five years, he continued to serve the
medical industry as an independent consultant. Mr. Ellis also
served as the managing partner of Foothill Enterprises, a real
estate and investment partnership, and in 1983 he founded United
Security Trust and served as its first Board Chairman.
He holds a Bachelor's degree from Phillips University and a
Master's degree in Management from the University of Tulsa.
Donald L. Haas
Donald L. Haas has served as a Director since 1990. In
February 1990, Mr. Haas retired as Vice President and General
Manager of the Government Systems Sector of the Perkin-Elmer
Corporation as well as the former Vice President for Special
Programs in charge of the Washington systems Engineering Office
of ESL/TRW Inc., both defense contractors. Prior to joining TRW,
Mr. Haas was Air Force Deputy Undersecretary for Space Systems
from 1979 to 1982. Other government positions have included
Director of the Strategic Technology Office of the Defense
Advanced Research Projects Agency (DARPA) and Director of the CIA
Office of Development and Engineering.
Mr. Haas holds a Bachelor of Science degree in Electrical
Engineering from Purdue University and a Master of Science Degree
in Electronics and Communication from the Massachusetts Institute
of Technology.
Thomas R. LaFehr
Dr. LaFehr has served as a member of the Board of Directors
of Geodynamics since June 1995 and served as its chairman from
April 19, 1995 to November 15, 1995. Dr. LaFehr is also a member
of the Board of Directors of LCT and has served as such since its
formation. Dr. LaFehr was also a co-founder of LCT, which was a
wholly-owned subsidiary of Geodynamics prior to its disposition
in 1996. From 1990 to August 1995 when he became Chairman, he
was President of LCT. From 1969 to 1991, he was a Professor of
Geophysics at the Colorado School of Mines, completing his
academic career as the George R. Brown Professor.
Dr. LaFehr has an A.B. degree from the University of
California (Berkeley) and a Ph.D. degree in geophysics from
Stanford University. He has authored several technical papers,
served as Editor of the scientific journal, Geophysics, and was
elected to Honorary Membership (179) in the Society of
Exploration Geophysicists, and served that organization as its
President from 1984 to 1985.
Delbert H. Jacobs
Mr. Jacobs has served as a Director since 1987. In 1995, he
retired as Vice President, Advanced Design Department for
Northrop Aircraft Division of Northrop Corporation, where he
directed the activities of the advanced aircraft, simulation,
operational suitability and systems analysis design groups. He
is also a retired Brigadier General, United States Air Force
(1983). He has been a member of several Defense Science Boards
and several Air Force Scientific Advisory Boards. Several
medals and national awards have been awarded to Mr. Jacobs
including three Distinguished Flying Crosses, the Defense
Distinguished Service Medal, nine Air Combat Medals and the
Bronze Star.
Mr. Jacobs received a Bachelor of Science degree in
Engineering from the United States Military Academy at West
Point. He received a Master of Science degree in Aeronautics
from the California Institute of Technology, holds a Professional
53
<PAGE>
Aeronautical Engineering Degree and was a Distinguished Graduate
of the National War College in Washington, D.C.
Will Stackhouse III
Dr. Will Stackhouse has served as a director since February
16, 1995. He is currently an independent consultant. From 1993
through 1995, he was a member of the Senior Executive Staff in
MCI's Strategy and Advanced Technology Group. From 1991 through
1993, Dr. Stackhouse worked at NASA's Jet Propulsion Laboratory
(JPL) serving as Assistant for High Leverage Technology, attached
to the Director's Office. He is a member of the Board of
Directors of the Institute of Electrical and Electronics
Engineers (IEEE-USA) and has served as Chairman of several IEEE-
USA organizations. As an Air Force Colonel, he supported the
Defense Science Board, the Defense Manufacturing Board, as well
as serving as Chairman of the National Security Committee and as
a member of the Executive Steering Committee under OUSD(P)/CI&S.
Dr. Stackhouse holds a Bachelor of Science in Engineering
from the U.S. Air Force Academy in Colorado, a Master of Science
in Engineering Mechanics from the University of Michigan and has
a Ph.D. in Engineering Design and Bio-Engineering from Oxford
University.
Kwok C. Chan
Dr. Chan, President (since August 1995) and Chief Operating
Officer of the Company's former LCT subsidiary, is an
internationally recognized authority on the development of
workstation software, three-dimensional modeling, and dynamic
gravity and magnetic processing. Dr. Chan was also a co-founder
of LCT, which was a wholly-owned subsidiary of Geodynamics prior
to its disposition in 1996. Dr. Chan was one of the first
geoscientists developing workstation software and has been the
principal author of LCT's software product, S3MODTM, designed
specifically to facilitate modeling of subsalt and salt overhang
features.
Dr. Chan began his professional career (in collaboration
with the late geophysicist, Dr. B.K. Bhattacharyya) by pioneering
methods for the continuation of potential field data on uneven
surfaces and for facilitating their rapid computation on high-
speed digital computers. He graduated as a Phi Beta Kappa with
B.Sc., M.S. and Ph.D. degrees from the University of California
(Berkeley) while being appointed Visiting Lecturer and while
employed at Eureka Resources.
Robert G. Cook
Mr. Cook joined the Company in 1989 as Controller. In 1990,
he was also named Assistant Corporate Secretary. From 1988
through 1989, until he joined the Company, Mr. Cook performed
consulting and contract work in the accounting field, and from
1985 through 1988, he was Accounting Manager for Power Up!
Software Corporation.
Mr. Cook is a Certified Public Accountant and holds a
Bachelor's degree in Accounting, and a Masters of Business
Administration from Santa Clara University.
Joanne M. Dunlap
Ms. Dunlap joined the Company in 1984 as the Corporate
Personnel Manager. In October 1988 she also assumed the duties
of Corporate Secretary and in 1990 she was named Vice President,
Administrative Services.
Ms. Dunlap holds a Bachelor's degree in Business from Alma
College and a Masters of Business Administration from Central
State University of Oklahoma. Ms. Dunlap completed post-graduate
work at the University of Oklahoma.
54
<PAGE>
Paul J. Henrikson
Mr. Henrikson joined the Company in 1979 as Department Head
of the Advanced Technology and Applications Department. In 1982
Mr. Henrikson was named associate Site Director. In 1994, Mr.
Henrikson was appointed Corporate Director of Advanced Programs
and in 1995, he was appointed Vice President.
Mr. Henrikson received his Bachelors degree in Engineering
and Applied Physics from Harvard University and a Masters degree
in Electrical Engineering from the University of Minnesota.
A. Ronald Jacobsen
Mr. Jacobsen joined the company in 1977 as Vice President
and Site Manager of the Los Angeles facility. In May 1984, he
became Vice President of Business Development; in 1990 he assumed
the title of Vice President, Corporate Advanced Programs and in
1994 he was appointed Vice President and General Manager, Western
Division.
Mr. Jacobsen has a Bachelor of Science degree in Physics
from Northern Illinois University.
M. Carolyn Mihara
Ms. Mihara joined the Company in 1990 and has served as an
Executive Assistant to the Chairman of the Board, President and
Chief Executive Officer since that time.
Ms. Mihara graduated from the Mary Dalton Frye Secretarial
College and holds a Bachelor of Science degree in Business
Management from Pepperdine University.
David P. Nelson
Mr. Nelson joined the Company in 1990 as Vice
President/Finance and Chief Financial Officer. Previously, Mr.
Nelson was Senior Vice President, Chief Financial Officer for
Perceptronics, Inc. for six years.
Mr. Nelson holds Bachelor's and Master's degrees in
Economics from the University of California at Los Angeles.
Patrick J. Reynolds
Mr. Reynolds joined the Company in December 1991 as
Corporate Contracts Manager. He was previously employed by
McDonnell Douglas Electronic Systems Company, Northrop
Corporation, Trident Data Systems, Hughes Aircraft Company and
the United States Air Force as a Contracting Officer. Mr.
Reynolds has a Bachelor's degree in Business Administration from
the University of Iowa.
Jack F. Scherrer
Mr. Scherrer joined the Company in 1985 as a Member of the
Professional Staff. In August 1985, Mr. Scherrer was named as
Program Manager for the ORB Program and in 1994 he was appointed
General Manager, Eastern Division.
Mr. Scherrer received his Bachelor's degree in Physics from
Thomas More College and a Master's degree in Physics from the
University of Dayton.
55
<PAGE>
Harry W. Utter
Mr. Utter joined the Company in 1989 as Program Manager for
the Midwest Region. In 1992 he became the Director of Corporate
New Business Development and was appointed General Manager of the
Commercial Division in 1994. Previously, Mr. Utter served in the
United States Air Force where he was a Lieutenant Colonel and
Director of Contract Management. His Air Force career was spent
in acquisition of space systems.
Mr. Utter holds a Bachelor of Science degree in Engineering
Management form the United States Air Force Academy and a Masters
of Business Administration Management from the University of
California at Los Angeles.
Director Compensation
In February 1995, all Directors were granted a Director
Stock Option in the amount of 18,182 shares at $5.00 per share,
which vest at the rate of 20% per year beginning June 1, 1995,
with full vesting at June 1, 1999, assuming continued services as
a Director. In connection with his employment as President and
Chief Executive Officer of the Company and his receipt of
employee options, Mr. Gordon surrendered the initial vested 20%
of his Director Stock Option and he now holds a Director Stock
Option covering only 14,546 shares, which option does not vest
until he is no longer employed by Geodynamics. Outside directors
also receive a meeting fee of $500 per meeting. All Directors
are reimbursed for their reasonable and actual expenses in their
service as Directors.
Employment Agreements
Geodynamics and Mr. Gordon are parties to an employment
agreement pursuant to which Mr. Gordon agreed to serve as
President and Chief Executive Officer of the Company. The
employment agreement provides for an employment term commencing
on April 19, 1995 and ending December 31, 1996. Under the terms
of the employment agreement, Mr. Gordon is entitled to a monthly
salary of $8,000, subject to adjustment by mutual agreement of
the parties for periods after June 1, 1996. In connection with
entering into the employment agreement, Mr. Gordon received a
signing bonus of $30,000 and one short-term stock option for
15,000 shares, at an exercise price of $8.00 per share and two
long-term options for 30,000 and 15,000 shares, respectively, at
exercise prices of $10.00 and $12.00 per share, respectively.
The short-term options expire ratably in January, March, June,
September and December 1997 and are exercisable upon Mr. Gordon's
leaving the position of Chief Executive Officer or upon a change
of control of the Company. The long-term option for 30,000
shares expires 10 years from the date of grant and vests one-half
on the date of grant and one-half on December 31, 1995 if Mr.
Gordon is then the Chief Executive Officer of the Company, with
no acceleration upon any change of control. The long-term option
for 15,000 shares expires five years from the date of grant and
vests upon the earlier of June 1, 1996 or the occurrence of a
change in control of the Company. Mr. Gordon was also granted a
Director Option upon being named a Director of the Company. In
connection with the employment agreement, Mr. Gordon surrendered
the first 20% of such granted Director Option. Mr. Gordon's
remaining Director Option will only vest if he is a non-employee
Director on the relevant vesting dates for such Option or if
there is a change of control of the Company. Mr Gordon is also
entitled to receive a bonus equal to one-half of one percent
(0.5%) of all cash distributed by the Company to its
shareholders, up to a total payment of $40,000, and a bonus for
fiscal 1996 operations equal to six percent of the sum of income
from operations, interest income and $600,000, less 10% of the
Company's average total assets at the end of fiscal 1995 and of
each fiscal quarter of fiscal 1996, not to exceed $80,000. If
Mr. Gordon is the Company's Chief Executive Officer for less than
all of fiscal 1996, such bonus will be prorated. Mr. Gordon is
also entitled to a bonus, at the discretion of the Board of
Directors, based upon exceptional performance of Mr. Gordon or if
Mr. Gordon has conducted a change in control of the Company,
including a sale or merger such as the Merger. Unless the
Company terminates Mr. Gordon's employment for cause or Mr.
Gordon terminates his employment voluntarily, he or his assignee
is entitled to be paid all sums payable under his employment
agreement. In connection with entering into the employment
agreement, Mr. Gordon also received a supplemental employee
retirement benefit equal to up to $100,000 in deferred
compensation, payable at a rate of $2,000 per month commencing
one month following termination of Mr Gordon's employment or on
April 1, 1996, if later.
56
<PAGE>
The Company has no other written employment agreements with
its employees. However, to incentivize certain employees whose
assistance and effort in the sale process was necessary, the
Board of Directors entered into employee retention agreements
with Joanne M. Dunlap, Vice President-Administrative Services and
Secretary of the Company, David P. Nelson, Vice President and
Chief Financial Officer of the Company, Paul Henrikson, a Vice
President of the Company and Carolyn Mihara, Executive Assistant
to Bruce J. Gordon. Each employee retention agreement provides
that the respective employee is entitled to receive certain
payments upon their termination or following a Change in Control
of the Company (as defined therein) if these employees'
employment is not continued for one year from the occurrence of a
change in control, or fixed bonus payment, or both. Logicon has
acknowledged that the Merger will constitute a Change in Control
of the Company for purposes of the employee retention agreements.
The total to be paid all four employees if their employment is
terminated within one year is approximately $350,000.
57
<PAGE>
Executive Compensation
Certain information with respect to Executive Compensation
is set forth in the following tables:
<TABLE>
<CAPTION>
Fiscal Other Annual All Other
Name Year Salary Bonus Comp Options/SAR Comp (3)
- ------------------------- ------ --------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bruce J. Gordon (2)
President and Chief
Executive Officer 1995 9,235 30,000 (1) 60,000 923
Robert L. Paulson (2) 1995 158,100 * 15,810
Prior President and 1994 164,300 6,000 16,430
Chief Executive Officer 1993 161,200 4,800 (4) 16,120
David P. Nelson 1995 111,777 22,994 (5) 10,000 11,177
Vice President-Finance 1994 118,195 6,000 (8) 5,000 11,211
1993 109,668 10,967
Jack Scherrer 1995 114,700 5,000 11,470
General Manager 1994 128,008 31,542 (6)(9) 2,500 9,646
Eastern Division 1993 92,456 8,930 (7) 9,246
A. Ronald Jacobsen 1995 112,211 11,221
General Manager 1994 129,789 22,199 (6)(8) 10,759
Western Division 1993 111,548 7,804 (7) 11,154
Harry Utter 1995 98,228 9,822
General Manager-GSC 1994 106,117 6,800 (8) 10,012
1993 98,228 9,823
(1) Signing bonus.
(2) Mr. Paulson served as President and Chief Executive Officer until
April 19, 1995, at which date Mr. Gordon was appointed President
and Chief Executive Officer.
(3) Employers Contribution to Money Purchase Pension Plan
(4) Leased Automobile.
(5) Relocation expense reimbursement for David P. Nelson of $22,994.
(6) Includes CFY 1994 accrued vacation cashout of $16,199 for A. Ronald
Jacobsen and $2,496 for Jack Scherrer.
(7) Includes CFY 1993 accrued vacation cashout of $8,930 for Jack
Scherrer and $7,804 for A. Ronald Jacobsen.
(8) Includes bonuses in lieu of salary increase as follows:
David P. Nelson $6,000
A. Ronald Jacobsen $6,000
Harry Utter $6,000
(9) Includes relocation reimbursement of $15,000 and relocation
expenses reimbursement of $14,046.
</TABLE>
58
<PAGE>
Option Grants in Last Fiscal Year
The following table summarizes information relating to Stock
Option Grants during CFY 1995 to the executive officers named in
the Summary Compensation Table.
<TABLE> Potential Realizable Value
<CAPTION> at Assumed Annual Rates of
Individual Grants Stock Price Appreciation (1)
------------------------------------------------------------ ----------------------------
No. of % of Total Options Exercise or
Options Granted to Base Price Expiration
Name Granted Employees in 1995 Per Share Date 5% 10%
- --------------------- ------- ------------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce J. Gordon (4) 15,000 7.2% 12.00 4/19/2000 $ 39,900 $170,000
15,000 7.2% 8.00 (2) $ 99,900 $230,100
30,000 14.4% 10.00 (3) 4/19/2005 $139,800 $400,200
Robert L. Paulson 0 --- --- --- --- ---
David P. Nelson 5,000 2.4% 3.50 2/27/2004 $ 55,800 $ 99,200
5,000 2.4% 3.00 9/19/2004 $ 58,300 $101,700
Jack F. Scherrer 5,000 2.4% 3.00 9/19/2004 $ 58,300 $101,700
A. Ronald Jacobsen 0 --- --- --- --- ---
Harry W. Utter 2,500 1.2% 3.00 9/19/2004 $ 29,150 $ 50,850
</TABLE>
(1) "Potential realizable value" is disclosed pursuant to SEC
rules which require such disclosure for illustration only. The
values disclosed are not intended to be, and should not be
interpreted by shareholders as representations or projections of
future value of the Company's stock or of the stock price. To
lend perspective to the illustrative "potential realizable
value," we consider that the Company's price increased 5% per
year for 10 years from the market price at fiscal year end and
that it increased 10% for 10 years from the market price at
fiscal year end.
(2) Options expire as follows:
3,000 shares expire on 1/2/97
3,000 shares expire on 3/31/97
3,000 shares expire on 6/30/97
3,000 shares expire on 9/30/97
3,000 shares expire on 12/31/97
(3) Exercise price increases $0.50 per share on each anniversary
date of Mr. Gordon's employment, April 19, 1995.
(4) Mr. Gordon was also granted a Director Stock Option in the
amount of 18,182 shares (of which 20%, relating to 3,636 shares,
was surrendered in connection with his employment as Chief
Executive Officer and the granting of the employee options set
forth above); however, vesting of his Director Stock Option does
not occur while Mr. Gordon is employed by Geodynamics unless
there is a change in control of the Company.
Ten Year-Option/SAR Repricing
There have been no options or stock appreciation right
repricings during the last 10 years for the Chief Executive
Officer or for any of the other four most highly compensated
officers of the Company.
59
<PAGE>
Aggregated Option/SAR Exercises
The following table shows the number of shares and the net
value realized from exercising stock options during CFY 1995 for
the Chief Executive Officers and the four most highly compensated
executive officers of the Company as of the end of the fiscal
year.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Realized
Shares (Market Price at Total Number Unexercised Value of Unexercised in the
Acquired on Exercise Less Options Held at FY-End Money Option at FY-End
Name Exercise Exercise Price ($) ($)
- ------------------ ----------- ---------------- ------------------------ ---------------------------
Vested Non-Vested Vested Non-Vested
---------- ---------- ---------- ----------
Bruce J. Gordon 0 0 15,000 45,000 0 $ 15,000
Robert L. Paulson 0 0 0 15,000 0 $105,000
David P. Nelson 0 0 21,000 14,000 $32,500 $ 55,000
Jack F. Scherrer 3,200 $8,120 10,151 0 $15,000 0
A. Ronald Jacobsen 0 0 9,651 5,500 $15,000 $ 28,500
Harry W. Utter 0 0 3,500 35,000 $12,000 $ 16,500
</TABLE>
Certain Relationships and Related Transactions
In 1988 and 1989, Dr. Thomas R. LaFehr, a director of
Geodynamics and a shareholder of LCT, made a loan to LCT, the
outstanding amount of which was $208,430 at May 31, 1995. Such
loan matures February 1, 1999 and accrues interest at 11.5% per
annum. The loan is to be paid in monthly installments of
principal and interest of $5,665 through maturity. The
outstanding balance on such loan at August 31, 1995 was $197,321.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January 2,
1996 with respect to Common Stock of the Company owned by each
person who is known by the Company to own beneficially 5% or more
of the outstanding Common Stock, by each Director of the Company,
and by all Executive Officers and Directors as a group. On
January 2, 1996 there were outstanding ______________ shares of
Company Common Stock.
60
<PAGE>
Names and Addresses
Directors and Executive Officers (2) Number of Shares (1) Percent of Class
- ------------------------------------ -------------------- ----------------
Michael E. Edleson 5,636 *
W. Richard Ellis (3) 11,136 *
Bruce J. Gordon (3) 32,000 1.2%
Donald L. Haas (3) 12,636 *
Delbert H. Jacobs (3) 17,136 *
Thomas R. LaFehr (3) 139,166 5.2%
Will Stackhouse III (3) 3,636 *
David P. Nelson (3) 24,810 *
Jack Scherrer (3) 5,651 *
A. Ronald Jacobsen (3) 36,662 1.4%
Harry Utter (3) 15,431 *
All Directors and Executive Officers
as a group (19 persons) (4) 389,903 13.7%
Names and Addresses
Beneficial Owners of 5% or greater Number of Shares (1) Percent of Class
- ------------------------------------ -------------------- ----------------
William Strong (5)
Mason Hill Asset Management, Inc.
477 Madison Avenue, 8th Floor
New York, NY 10022 227,940 8.5%
Jeffrey L. Neuman (5)
Tudor Trust
233 South Beverly Drive
Beverly Hills, CA 90212 380,500 14.1%
(1) Unless otherwise indicated, each individual holder has, to
the best of the Company's knowledge, sole voting and investment
power with respect to the indicated shares.
(2) The address of all directors and executive offices of the
Company is 21171 Western Avenue, Torrance, California 90501.
(3) Includes options exercisable within 60 days of the date
hereof as follows: Mr. Ellis - 3,636; Mr. Gordon - 30,000; Mr.
Haas - 9,636; Mr. Jacobs - 3,636; Dr. LaFehr - 3,636; Mr.
Stackhouse - 3,636; Mr. Nelson - 24,000, Mr. Scherrer; - 5,651;
Mr. Jacobsen - 12,000; Mr. Utter - 15,431.
(4) Includes 147,231 options exercisable within 60 days of the
date hereof.
(5) According to filed Schedules 13D.
61
<PAGE>
Price Range of Common Stock and Dividends
Geodynamics' Common Stock is included for quotation in the
Nasdaq National Market System ("Nasdaq") under the symbol "GDYN."
The following table sets forth, for the periods indicated, the
high and low sale prices for the Common Stock as reported by
Nasdaq.
Calendar Year High Low
- ------------- ------ ------
1993
1st Quarter $7-1/2 $6-3/8
2nd Quarter 7-1/4 6-5/8
3rd Quarter 9-1/4 6-7/8
4th Quarter 9-1/4 7-3/4
1994
1st Quarter 9-1/4 8-1/4
2nd Quarter 9-1/4 8-1/4
3rd Quarter 9-1/4 7-3/4
4th Quarter 9-1/2 7-3/4
1995
1st Quarter 8-1/4 6-1/2
2nd Quarter 8-1/4 6
3rd Quarter 9-1/4 7
4th Quarter 9-1/2 7-1/2
1996
1st Quarter 12-3/4 8-3/4
On October 17, 1995, the last trading day before the
announcement of the Merger, the closing price for the Common
stock as reported on Nasdaq was $12.25 per share. On January
___, 1996 (the last practicable date prior to the mailing of this
Proxy Statement, the closing price of the Common Stock as
reported on Nasdaq was $_____ per share.
The Company declared and paid cash dividends on the Common
Stock as set forth in the following table. The dividends set
forth in the foregoing table were the only cash dividends
declared and paid on the Common Stock since the fiscal year ended
May 31, 1991.
62
<PAGE>
Fiscal Year Ended Cash Dividends Per Share
- ----------------- ------------------------
June 2, 1995 0.28
June 3, 1994 0.28
May 28, 1993 0.28
May 29, 1992 0.28
May 31, 1991 0.25
PAYMENT TO SHAREHOLDERS
In order to receive the consideration to which shareholders
will be entitled as a result of the Merger, each shareholder will
be required to surrender the certificates evidencing the shares
of Geodynamics Common Stock to the Disbursing Agent. Promptly
after the Effective Time, the Disbursing Agent will mail or make
available to each shareholder a notice and letter of transmittal
(which shall specify that delivery shall be effected, and risk of
loss and title to the share of Geodynamics Common Stock shall
pass, only upon proper delivery of the shares to the Disbursing
Agent) advising such shareholder of the effectiveness of the
Merger and the procedures to be used in effecting the surrender
of shares for payment therefor. Promptly after surrender of such
shares,. the shareholder will receive the merger consideration.
Shareholders should surrender shares only with a letter of
transmittal. PLEASE DO NOT SEND SHARES WITH THE ENCLOSED PROXY.
If payment of the merger consideration is to be made to a
person other than a person in whose name the shares are
registered, it shall be a condition of payment that the shares so
surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the person requesting such payment
shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the
shares, or shall establish to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not
applicable.
Until surrendered and exchanged in accordance with the
Merger Agreement, after the Effective Time each share of
Geodynamics Common Stock shall represent only the right to
receive the merger consideration. At the close of business on
the day prior to the date of the effective Time, the stock
transfer books shall be closed and no further transfers shall be
made. If thereafter any shares are presented for transfer, such
shares shall be canceled and exchanged for the merger
consideration; provided, however, that from after 180 days
following the Effective Time, holders of certificates formerly
representing Geodynamics Common Stock will be entitled to look
exclusively to the Surviving Corporation and only as general
creditors thereof with respect to the merger consideration
payable upon surrender of such certificates formerly representing
Geodynamics Common Stock for any amount paid to a public official
pursuant to any applicable abandoned property, escheat or similar
law.
EXPERTS
The audited financial statements of Geodynamics Corporation
included in this Proxy Statement, to the extent and for the
periods indicated in their reports, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting
and auditing in giving such reports. Representatives of Arthur
Andersen LLP are expected to be present at the Special Meeting.
These representatives will have an opportunity to make statements
if they so desire and will be available to respond to appropriate
questions.
63
<PAGE>
PROPOSALS BY SHAREHOLDERS
Shareholder proposals intended to be presented at the 1996
Annual Meeting of Shareholders, in the event that the Merger has
not been consummated prior thereto, must be submitted in writing,
addressed to the Secretary of the Company, 21171 Western Avenue,
Suite 110, Torrance, California 90501, and must be received by
the company prior to May 15, 1996. The Company reserves the
right to exclude any proposal which does not meet all the
requirements for inclusion established by the Commission in
effect at that time.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Interim
Condensed Consolidated Balance Sheets as of
December 1, 1995 (unaudited) and June 2, 1995 F-2
Unaudited Condensed Consolidated Statements of Income
for the Six Months Ended December 1, 1995 and December 2,
1994 F-3
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended December 1, 1995 and December 2,
1994 F-4
Notes to Condensed Consolidated Financial Statements F-5
Fiscal Year
Report of Independent Public Accountants F-7
Consolidated Balance Sheets as of
June 2, 1995 and June 3, 1994 F-8
Consolidated Statements of Income for the Years Ended
June 2, 1995, June 3, 1994 and May 28, 1993 F-10
Consolidated Statements of Shareholders' Equity for the
Years Ended June 2, 1995, June 3, 1994 and May 28, 1993 F-11
Consolidated Statements of Cash Flows for the Years Ended
June 2, 1995, June 3, 1994 and May 28, 1993 F-12
Notes to Consolidated Financial Statements F-14
F-1
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 1, June 2,
1995 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 2,866,000 $ 2,310,000
Short-term investments 3,970,000 5,862,000
Contract receivables:
Billed 12,419,000 12,614,000
Unbilled 2,700,000 1,910,000
Prepaid expenses and others 1,934,000 1,354,000
----------- -----------
Total current assets 23,889,000 24,050,000
----------- -----------
Equipment and Leasehold Improvements, at cost
Equipment and leasehold improvements 28,421,000 28,098,000
Less accumulated depreciation and amortization (17,300,000) (16,615,000)
----------- -----------
Net equipment and leasehold improvements 11,121,000 11,483,000
----------- -----------
Other Assets
Noncurrent unbilled contract receivables 920,000 920,000
Investments 1,295,000 1,277,000
Goodwill, net of amortization of $113,000 at
December 1, 1995 and $75,000 at June 2, 1995 1,387,000 1,425,000
Intangible assets, net of amortization of
$1,070,000 at December 1, 1995 and $916,000
at June 2, 1995 926,000 1,080,000
Other assets 299,000 405,000
----------- -----------
Total other assets 4,827,000 5,107,000
----------- -----------
$39,837,000 $40,640,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,441,000 $ 2,907,000
Accrued expenses 3,581,000 3,229,000
Line of credit 647,000 747,000
Other current liabilities 650,000 1,429,000
----------- -----------
Total current liabilities 6,319,000 8,312,000
----------- -----------
Long-term liabilities
Long-term debt, net of current portion 138,000 163,000
Other liabilities 1,696,000 1,709,000
----------- -----------
Total long-term liabilities 1,834,000 1,872,000
----------- -----------
Shareholders' Equity
Common stock, without par value
Authorized - 10,000,000 shares
Outstanding - 2,699,000 at December 1, 1995
and 2,605,000 shares at June 2, 1995 12,552,000 11,910,000
Retained earnings 19,143,000 18,542,000
Foreign currency translation (11,000) 4,000
----------- -----------
Total shareholders' equity 31,684,000 30,456,000
----------- -----------
$39,837,000 $40,640,000
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-2
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- --------------------------
December 1, December 2, December 1, December 2,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $16,055,000 $14,619,000 $32,053,000 $27,763,000
Costs and Expenses 15,405,000 13,763,000 30,583,000 26,095,000
----------- ----------- ----------- -----------
Income from
Operations 650,000 856,000 1,470,000 1,668,000
----------- ----------- ----------- -----------
Other Income/(Expense)
Interest income 92,000 103,000 159,000 172,000
Interest expense (27,000) (22,000) (50,000) (44,000)
----------- ----------- ----------- -----------
Net other 65,000 81,000 109,000 128,000
----------- ----------- ----------- -----------
Income before
Provision for
Income Taxes 715,000 937,000 1,579,000 1,796,000
Provision for Income
Taxes 275,000 360,000 608,000 691,000
----------- ----------- ----------- -----------
Net Income $ 440,000 $ 577,000 $ 971,000 $ 1,105,000
=========== =========== =========== ===========
Earnings per Common
Share $ 0.15 $ 0.22 $ 0.33 $ 0.43
=========== =========== =========== ===========
Weighted average
number of common
shares outstanding
(Note 3) 2,947,000 2,632,000 2,905,000 2,571,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-3
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended
------------------------
December 1, December 2,
1995 1994
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 971,000 $1,105,000
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 1,523,000 1,368,000
Loss on retirement of capital assets -- 1,000
Nonqualified stock options, charged to
operations 32,000 35,000
Deferred income taxes 14,000 --
(Increase) decrease in:
Contract receivables (1,222,000) 783,000
Refundable income taxes (160,000) --
Prepaid expenses and other (420,000) 60,000
Other noncurrent assets 63,000 5,000
Increase (decrease) in:
Accounts payable (1,466,000) 211,000
Accrued expenses 352,000 (236,000)
Other current liabilities (152,000) 24,000
Other liabilities (27,000) (283,000)
---------- ----------
Net cash provided by (used in) operating
activities (492,000) 3,073,000
---------- ----------
Cash Flows from Investing Activities:
Purchases of short-term investments (3,608,000) (2,071,000)
Sales of short-term investments 5,500,000 2,445,000
Purchase of LCT, net of acquired cash of $1,319,000 -- (1,419,000)
Employee loans, net 25,000 43,000
Purchases of property and equipment (969,000) (836,000)
---------- ----------
Net cash provided by (used in) investing
activities 948,000 (1,838,000)
---------- ----------
Cash Flows from Financing Activities:
Line of credit repayments (150,000) --
Line of credit borrowings 50,000 185,000
Proceeds from exercise of common stock options and
tax benefits related to stock options 546,000 102,000
Repurchases of common stock (14,000) (103,000)
Cash dividends paid (370,000) (359,000)
Foreign currency translation (15,000) (3,000)
Long-term subordinated debt (25,000) (389,000)
Payments on notes receivable from sale of stock -- 3,000
Proceeds from employee stock purchase plan 78,000 108,000
---------- ----------
Net cash provided by (used in) financing
activities 100,000 (456,000)
---------- ----------
Net increase in cash 556,000 779,000
Cash at beginning of period 2,310,000 1,237,000
---------- ----------
Cash at end of period $2,866,000 $2,016,000
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period - income taxes $ 857,000 $ 379,000
Cash paid during the period - interest $ 50,000 $ 44,000
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-4
<PAGE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Accounting Policies
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have either been condensed or omitted pursuant
to those rules and regulations. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. The results of operations and
cash flows for the periods presented are not necessarily indicative of the
results that may be expected for the full fiscal year. For further
information, refer to the financial statements and notes thereto for the year
ended June 2, 1995 included in the Company's 1995 Annual Report on Form 10-K.
The Condensed Consolidated Balance Sheets at June 2, 1995 have been taken
from the audited financial statements at that date and condensed.
Note 2 - Investments
The Company's short-term investments are stated at market, which equals
cost, and consist of money market funds.
Note 3 - Earnings Per Common Share
The following schedule summarizes the information used to compute earnings
per common share. Fully diluted earnings per share did not vary
significantly from primary earnings per share.
<TABLE>
<CAPTION>
Three Months Ended: Six Months Ended:
------------------------ ------------------------
December 1, December 2, December 1, December 2,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $440,000 $577,000 $971,000 $1,105,000
=========== =========== =========== ===========
Weighted average common
shares outstanding 2,668,000 2,571,000 2,646,000 2,519,000
Dilutive effect of stock
options 279,000 61,000 259,000 52,000
----------- ----------- ----------- -----------
Weighted average shares
used to compute earnings
per common share 2,947,000 2,632,000 2,905,000 2,571,000
=========== =========== =========== ===========
</TABLE>
F-5
<PAGE>
Note 4 - Material Transaction
On October 18, 1995, the Company announced that a definitive agreement had
been reached with Logicon, Inc. ("Logicon") concerning the acquisition of the
Company's DoD-related business and would result in the divestiture of the
Company's remaining assets, its interest in its LaFehr & Chan Technologies,
Inc. ("LCT") subsidiary, either through a spin-off to the Company's
shareholders, through sale of the stock or assets or a combination thereof.
The transaction would result in the payment to Company shareholders of an
estimated $11.08 to $11.25 per share, depending upon the amount of certain
transaction expenses, on a fully diluted basis in cash, plus a pro rata
distribution of shares in LCT, or an estimated range of $12.08 to $12.25 if a
sale of LCT occurs. LCT would, in conjunction with the issuance of the LCT
stock in a spin-off, apply for inclusion for trading on the NASDAQ SmallCap
Market, or distribute the sales proceeds of a divestiture of the Company's
interest in LCT.
The transaction is subject to Geodynamics' shareholder approval and is
conditional on the successful divestiture of LCT. Prior to the effective
date of the proxy statement, the Company intends to continue in its efforts
to dispose of its interest in LCT, and, if successful, will distribute the
proceeds to Company shareholders in lieu of LCT shares.
A proxy statement has been submitted to the Securities and Exchange
Commission for comment. The shareholder's meeting to vote on the proposed
transaction is expected to occur in early March 1996 and the closing before
the end of March 1996.
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Geodynamics Corporation:
We have audited the accompanying consolidated balance sheets of
GEODYNAMICS CORPORATION (a California corporation) and subsidiaries
as of June 2, 1995 and June 3, 1994, and the related consolidated
statements of income, shareholders' equity and cash flows for each
of the three years in the period ended June 2, 1995. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Geodynamics Corporation and subsidiaries as of June 2, 1995
and June 3, 1994, and the results of their operations and their
cash flows for each of the three years in the period ended
June 2, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 28, 1995
F-7
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
June 2, June 3,
1995 1994
----------- -----------
ASSETS
Current Assets:
Cash $ 2,310,000 $ 1,237,000
Short-term investments 5,862,000 7,546,000
Receivables :
Contracts, including current portion of
unbilled receivables of $1,910,000 in
1995 and $3,483,000 in 1994 14,524,000 12,607,000
Current portion of employee loans 26,000 142,000
Refundable income taxes --- 430,000
Deferred income taxes 513,000 ---
Prepaid expenses and other 815,000 401,000
----------- -----------
Total current assets 24,050,000 22,363,000
----------- -----------
Equipment and Leasehold Improvements, at cost:
Computer and test equipment 20,073,000 11,511,000
Office furniture and equipment 4,367,000 3,963,000
Leasehold improvements 3,658,000 3,620,000
----------- -----------
28,098,000 19,094,000
Less accumulated depreciation and amortization (16,615,000) (14,188,000)
----------- -----------
Net equipment and leasehold improvements 11,483,000 4,906,000
----------- -----------
Other Assets:
Noncurrent unbilled contract receivables 920,000 1,041,000
Investments 1,277,000 2,812,000
Goodwill, net of amortization of $75,000 1,425,000 ---
Other intangible assets, net of amortization of
$916,000 in 1995 and $209,000 in 1994 1,080,000 750,000
Employee loans receivable, net of current
portion 171,000 175,000
Deferred income taxes --- 80,000
Other noncurrent assets 234,000 152,000
----------- -----------
Total other assets 5,107,000 5,010,000
----------- -----------
$40,640,000 $32,279,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
June 2, June 3,
1995 1994
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,907,000 $ 1,692,000
Accrued expenses :
Payroll and payroll related 1,167,000 937,000
Benefit plans 157,000 602,000
Vacation 1,905,000 1,530,000
Dividends payable 182,000 156,000
Income taxes payable 137,000 ----
Deferred income taxes ---- 469,000
Current portion of long-term debt 54,000 ----
Line of credit 747,000 ----
Deferred revenue 246,000 ----
Contract billings in excess of revenues 810,000 343,000
----------- -----------
Total current liabilities 8,312,000 5,729,000
----------- -----------
Long-Term Liabilities:
Long-term debt, net of current portion 163,000 ----
Deferred income taxes 1,570,000 ----
Deferred lease obligations and other 139,000 142,000
----------- -----------
Total long-term liabilities 1,872,000 142,000
----------- -----------
Commitments and Contingencies
Shareholders' Equity:
Common stock, without par value:
Authorized - 10,000,000 shares
Outstanding - 2,605,000 shares at
June 2, 1995 and 2,230,000 shares
at June 3, 1994 11,910,000 8,997,000
Retained earnings 18,542,000 17,414,000
Foreign currency translation 4,000 ----
Less notes receivable from sale of stock ---- (3,000)
----------- -----------
Total shareholders' equity 30,456,000 26,408,000
----------- -----------
$40,640,000 $32,279,000
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-9
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended
-----------------------------------------
June 2, June 3, May 28,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $60,770,000 $54,823,000 $57,696,000
Costs and expenses 57,937,000 53,734,000 55,017,000
----------- ----------- -----------
Income from operations 2,833,000 1,089,000 2,679,000
----------- ----------- -----------
Other income (expense):
Interest income 383,000 366,000 306,000
Interest expense (71,000) (15,000) (18,000)
----------- ----------- -----------
Net other income 312,000 351,000 288,000
----------- ----------- -----------
Income before provision for
income taxes 3,145,000 1,440,000 2,967,000
Provision for income taxes 1,227,000 555,000 1,019,000
----------- ----------- -----------
Net income $1,918,000 $885,000 $1,948,000
=========== =========== ===========
Earnings per common share $0.73 $0.38 $0.80
=========== =========== ===========
Weighted average number of
common shares outstanding 2,630,000 2,327,000 2,428,000
=========== =========== ===========
Cash dividends per common share $0.28 $0.28 $0.28
=========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-10
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Notes
Common Stock Foreign Receivable Total
------------------------ Retained Currency from Sale Shareholders'
Shares Amount Earnings Translation of Stock Equity
---------- ---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 29, 1992 2,419,000 $9,399,000 $16,982,000 $0 $(47,000) $26,334,000
Payments of notes receivable from
sale of common stock --- --- --- --- 25,000 25,000
Exercise of stock options and tax
benefits related to stock
options 4,000 25,000 --- --- --- 25,000
Nonqualified stock options charged
to operations --- 127,000 --- --- --- 127,000
Cash dividends on common stock --- --- (666,000) --- --- (666,000)
Repurchases of common stock (110,000) (443,000) (530,000) --- --- (973,000)
Net income --- --- 1,948,000 --- --- 1,948,000
---------- ---------- ----------- ----------- ---------- ------------
Balance, May 28, 1993 2,313,000 9,108,000 17,734,000 0 (22,000) 26,820,000
Payments of notes receivable from
sale of common stock --- --- --- --- 19,000 19,000
Exercise of stock options and tax
benefits related to stock
options 19,000 87,000 --- --- --- 87,000
Nonqualified stock options charged
to operations --- 157,000 --- --- --- 157,000
Cash dividends on common stock --- --- (631,000) --- --- (631,000)
Repurchases of common stock (119,000) (482,000) (574,000) --- --- (1,056,000)
Employee stock purchase shares
issued 17,000 127,000 --- --- --- 127,000
Net income --- --- 885,000 --- --- 885,000
---------- ---------- ----------- ----------- ---------- ------------
Balance, June 3, 1994 2,230,000 8,997,000 17,414,000 0 (3,000) 26,408,000
Shares issued for LCT, Inc.
acquisition 322,000 2,500,000 --- --- --- 2,500,000
Payments of notes receivable from
sale of common stock --- --- --- --- 3,000 3,000
Exercise of stock options and tax
benefits related to stock
options 32,000 177,000 --- --- --- 177,000
Nonqualified stock options charged
to operations --- 78,000 --- --- --- 78,000
Cash dividends on common stock --- --- (747,000) --- --- (747,000)
Repurchases of common stock (15,000) (63,000) (43,000) --- --- (106,000)
Employee stock purchase shares
issued 36,000 221,000 --- --- --- 221,000
Foreign currency translation --- --- --- 4,000 --- 4,000
Net income --- --- 1,918,000 --- --- 1,918,000
---------- ----------- ----------- ----------- ---------- ------------
Balance, June 2, 1995 2,605,000 $11,910,000 $18,542,000 $4,000 $0 $30,456,000
========== =========== =========== =========== ========== ============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-11
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
--------------------------------------
June 2, June 3, May 28,
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,918,000 $ 885,000 $ 1,948,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Cash effect of changes, net of the
effects from acquired company:
Depreciation and amortization 3,476,000 2,462,000 2,293,000
Loss on retirement of capital assets 39,000 188,000 ---
Nonqualified stock options charged to
operations 90,000 157,000 127,000
Deferred income taxes (1,092,000) 24,000 (89,000)
Loss on investments 31,000 --- ---
(Increase) decrease in:
Contract receivables, net (227,000) 381,000 3,257,000
Refundable income taxes 430,000 (430,000) 1,554,000
Prepaid expenses and other (351,000) (70,000) 206,000
Other noncurrent assets (56,000) 159,000 (208,000)
Increase (decrease) in:
Accounts payable (103,000) 38,000 (1,033,000)
Accrued expenses 148,000 (28,000) (88,000)
Income taxes payable 137,000 (319,000) (642,000)
Deferred lease obligations and other --- (163,000) (257,000)
---------- ----------- -----------
Net cash provided by operating activities 4,440,000 3,284,000 7,068,000
---------- ----------- -----------
Cash flows from investing activities:
Loans to LCT, Inc. --- (1,612,000) ---
Purchases of short-term investments (2,277,000) (10,392,000) (11,428,000)
Sales of short-term investments 3,961,000 10,323,000 8,708,000
Purchase of LCT, net of acquired cash of
$1,319,000 (1,419,000) --- ---
Employee loans, net 120,000 (67,000) 140,000
Purchases of equipment and leasehold
improvements (3,299,000) (1,550,000) (1,679,000)
Additions to other intangible assets (156,000) (313,000) (428,000)
Net cash used in investing activities (3,070,000) (3,611,000) (4,687,000)
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-12
<PAGE>
<TABLE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
For the Years Ended
--------------------------------------
June 2, June 3, May 28,
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Line of credit borrowings 747,000 --- ---
Proceeds from exercise of common stock
options and tax benefits related to
stock options 177,000 87,000 25,000
Repurchases of common stock (106,000) (1,056,000) (973,000)
Cash dividends paid (721,000) (637,000) (673,000)
Foreign currency translation 4,000 --- ---
Long-term debt (622,000) --- ---
Payments on notes receivable from sale
of stock 3,000 19,000 25,000
Proceeds from employee stock purchase plan 221,000 127,000 ---
---------- ----------- -----------
Net cash used in financing activities (297,000) (1,460,000) (1,596,000)
---------- ----------- -----------
Net increase (decrease) in cash 1,073,000 (1,787,000) 785,000
Cash at beginning of year 1,237,000 3,024,000 2,239,000
---------- ----------- -----------
Cash at end of year $2,310,000 $1,237,000 $3,024,000
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period - income taxes $1,704,000 $1,290,000 $659,000
Cash paid during the period - interest $89,000 $15,000 $18,000
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-13
<PAGE>
GEODYNAMICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Line of Business
Geodynamics Corporation and subsidiaries (Geodynamics or the
Company) provides information engineering services and products
for Government, commercial and international customers. The
Company provides these services to programs in several major
systems areas: command, control, communications, computers and
intelligence systems; strategic weapons systems; space systems;
and commercial products. For the year ended June 2, 1995,
approximately 89% of the Company's revenues have been derived
from contracts with intelligence and military agencies of the U.
S. Government and government prime contractors. 33.8 percent of
the Company's fiscal 1995 revenues were derived from contracts
with a U.S. Government agency, and 13.6 percent were derived
from subcontracts with a government prime contractor.
Basis of Consolidation
On June 2, 1995 and for the year then ended, the consolidated
financial statements include the accounts of the Company and the
accounts of its wholly-owned subsidiaries LaFehr and Chan
Technologies, Inc. (LCT) and Geodynamics Services Corporation
(GSC). Statements for the two fiscal years ended June 3, 1994
include only the accounts of Geodynamics Corporation. All
material intercompany accounts and transactions in fiscal 1995
have been eliminated.
Revenue Recognition
Contract revenues are recorded under the
percentage-of-completion method of accounting, primarily on the
basis of costs incurred to total estimated costs. Unbilled
contract receivables represent revenues recognized under the
percentage-of-completion method but not yet billed to customers.
Noncurrent unbilled contract receivables are not expected to be
billable during the succeeding twelve-month period, under
retainage provisions in the contracts. Contract billings in
excess of revenues represent certain contracts for which
billings exceed revenues recognized under the
percentage-of-completion method.
In the period in which it is determined that a loss will result
from the performance of a contract, the entire amount of the
estimated loss is charged to income. Other changes in contract
price and estimates of costs and profits at completion are
recognized prospectively. This method recognizes in the current
period the cumulative effect of the changes on current and prior
periods. Certain government agencies have audited the Company's
contract costs through the fiscal year ended June 3, 1988.
Subsequent years remain open for audit.
F-14
<PAGE>
Short-term Investments
Short-term investments are stated at market value, which equals
cost, and consist of money market funds. For purposes of the
statements of cash flows, the Company does not consider its
short-term investments as cash equivalents.
Non-current Investments
Non-current investments include $1,200,000 invested in ERDAS,
Inc. In September 1993, the Company converted a portion of its
loan to ERDAS to equity, raising the Company's holdings in ERDAS
common stock from 14 percent to 19.5 percent. Conversion of the
remaining loan balance of $115,000, plus exercise of an option,
would permit the Company to acquire up to a total of 25% of
ERDAS common stock through July 31, 1996.
ERDAS performed services for and paid royalties to the Company
amounting to $3,054,000 and $175,000, respectively, for the year
ended June 2, 1995. These services and royalties were not
material during the two years ended June 3, 1994.
The Company acquired 100% of the stock of LCT on June 9, 1994.
The price, payable 1/2 in stock and 1/2 in cash, was $5,000,000
plus an earn-out amount to be determined by LCT's financial
results through December 31, 1995. The purchase price has been
allocated to the assets acquired based on their estimated fair
value at the acquisition date. The portion of the purchase
price allocated to intangible assets, including goodwill, was
$2,380,000. As part of the agreement, Geodynamics' previous
$1,500,000 loan to LCT was substantially repaid. The
accompanying consolidated financial statements as of June 2, 1995,
include the results of operations of LCT since the acquisition
date. At June 3, 1994, the loan to LCT of $1,500,000 was
included in investments.
Fiscal 1994 proforma results reflect revenues of $60,502,000,
net income of $760,000, and earnings per share of $0.29. This
unaudited proforma revenue and earnings data for the year ended
June 3, 1994 reflects combined results of operations of fiscal
1994 after giving effect to certain adjustments, including
amortization of intangibles, depreciation, and reduction of
interest income and related tax effects as if the acquisition
occurred on May 29, 1993. The proforma results have been
prepared for comparative purposes only and do not purport to
indicate the results of operations which would actually have
occurred had the combination occurred on May 29, 1993 or which
may occur in the future.
Equipment and Leasehold Improvements
Depreciation of equipment is provided using primarily
accelerated methods over the estimated useful lives of the
assets, ranging from three to ten years. Residual values of 50%
of acquisition cost are assumed for gravity meters; all other
assets have none. Leasehold improvements are amortized on a
straight-line basis over the lesser of the life of the asset or
the remaining life of the related lease.
F-15
<PAGE>
The Company follows the policy of capitalizing expenditures
which materially increase asset lives and charging ordinary
maintenance and repairs to operations as incurred. Maintenance
and repairs expense totaled $497,000, $343,000, and $364,000 for
the years ended June 2, 1995, June 3, 1994, and May 28, 1993,
respectively. When assets are sold or otherwise disposed of,
the cost and related reserves are removed from the accounts and
any resulting gain or loss is included in income.
Earnings Per Common Share
Earnings per common share are computed by dividing net income
available for common shareholders by the weighted average number
of common shares and common share equivalents (consisting of
common stock options) outstanding during the periods. Fully
diluted earnings per share did not vary significantly from
primary earnings per share. The following summarizes the
information used to compute earnings per common share:
<TABLE>
Year Ended
--------------------------------------------
June 2, 1995 June 3, 1994 May 28, 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net income available for common shareholders $1,918,000 $ 885,000 $1,948,000
============ ============ ============
Weighted average common shares outstanding 2,544,000 2,267,000 2,395,000
Dilutive effect of stock options 86,000 60,000 33,000
------------ ------------ ------------
Weighted average shares used to compute
earnings per common share 2,630,000 2,327,000 2,428,000
============ ============ ============
</TABLE>
Foreign Currency Translation
The assets and liabilities for LCT's UK operations are
translated into U.S. dollars using currency exchange rates at
year-end. Income statement items are translated at average
exchange rates prevailing during the period. The resulting
translation adjustments are recorded in shareholders' equity.
During the twelve months ended June 2, 1995, the UK operations
generated revenues of approximately $705,000 and operating
income of $215,000.
Reclassifications
Certain reclassifications have been made to the prior years'
financial statements to conform to the current year presentation.
F-16
<PAGE>
2. INCOME TAXES
Effective May 29, 1993, the Company changed its method of
accounting for income taxes to comply with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109.
This change had a minimal effect on the Company's financial
statements.
Under SFAS No. 109, deferred income tax assets and liabilities
are computed based on the temporary difference between the
financial statement and income tax bases of assets and
liabilities using the statutory marginal income tax rate in
effect for the year in which the differences are expected to
reverse. Deferred income tax expenses or credits are based on
the changes in the deferred income tax assets or liabilities
from period to period.
The components of the net deferred income tax liability at June
2, 1995 and June 3, 1994 are as follows:
<TABLE>
1995 1994
----------- -----------
<S> <C> <C>
Short-term deferred income taxes:
Assets:
Accrued vacation $ 585,000 $ 471,000
Self-insurance 187,000 182,000
Leases 45,000 61,000
Net operating loss carryforward 123,000 ---
Other 61,000 38,000
----------- -----------
Total deferred assets 1,001,000 752,000
----------- -----------
Liabilities:
Prepaid rent (110,000) (96,000)
Long-term contracts (378,000) (1,125,000)
----------- -----------
(488,000) (1,221,000)
----------- -----------
Net short-term deferred tax asset (liability) $ 513,000 $ (469,000)
=========== ===========
F-17
<PAGE>
Long-term deferred income taxes:
Assets:
Depreciation $ 298,000 $ 243,000
Deferred compensation 148,000 135,000
Leases 45,000 56,000
Other 55,000 ---
----------- -----------
546,000 434,000
----------- -----------
Liabilities:
Long-term contracts (388,000) (354,000)
Goodwill (1,728,000) ---
----------- -----------
(2,116,000) (354,000)
----------- -----------
Net long-term deferred tax asset (liability) $(1,570,000) $ 80,000
=========== ===========
</TABLE>
The components of the provision for income taxes for the three
years ended June 2, 1995 are as follows:
<TABLE>
Current Deferred Total
---------- ------------ ----------
<S> <C> <C> <C>
1995:
Federal $1,907,000 $ (847,000) $1,060,000
State 417,000 (250,000) 167,000
---------- ------------ ----------
$2,324,000 $ (1,097,000) $1,227,000
========== ============ ==========
1994:
Federal $ 432,000 $ 24,000 $ 456,000
State 99,000 -- 99,000
---------- ------------ ----------
$ 531,000 $ 24,000 $ 555,000
========== ============ ==========
1993:
Federal $1,634,000 $ (761,000) $ 873,000
State 344,000 (198,000) 146,000
---------- ------------ ----------
$1,978,000 $ (959,000) $1,019,000
========== ============ ==========
</TABLE>
F-18
<PAGE>
A reconciliation of income taxes at the statutory federal income
tax rate and the provision for income taxes is as follows:
<TABLE>
Year Ended
-----------------------------------------------------------------
June 2, 1995 June 3, 1994 May 28, 1993
------------------- ----------------- -------------------
Amount % Amount % Amount %
---------- ----- -------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Expected federal tax $1,069,000 34.0 $490,000 34.0 $1,009,000 34.0
State tax, net of federal tax
benefit 110,000 3.5 59,000 4.1 96,000 3.2
Tax exempt interest and
dividend income (10,000) (.3) (4,000) (.3) (9,000) (.3)
Other items 58,000 1.8 10,000 .7 (77,000) (2.6)
---------- ----- -------- ----- ---------- -----
$1,227,000 39.0 $555,000 38.5 $1,019,000 34.3
========== ===== ======== ===== ========== =====
</TABLE>
Net operating loss carryforwards of approximately $333,000 expire in 2008.
3. LINE OF CREDIT AND LONG-TERM DEBT
Geodynamics has an $8,000,000 unsecured line of credit agreement
with a bank which expires November 1995. Borrowings under the
agreement bear interest at the bank's reference, offshore or
fixed rate. At June 2, 1995, borrowings (advances to LCT,
guaranteed by parent company) under this line were $747,000 and
the interest rate was 9.25%. The weighted average interest rate
in fiscal 1995 was 8.97%. There were no borrowings under this
line in prior years since 1991. The agreement requires the
Company to maintain certain financial ratios and a minimum
tangible net worth of $24,500,000. As of June 2, 1995, the
Company was in compliance with such covenants.
Long-term debt consists of the following loans made to LCT by
its then largest shareholders prior to Geodynamics' acquisition
of LCT:
<TABLE>
June 2, 1995 June 3, 1994
------------ ------------
<S> <C> <C>
11.25% Subordinated Note Payable to shareholder, due 1999 $209,000 ---
6.0% Unsecured Note Payable to former shareholder, due 1996 7,000 ---
6.0% Subordinated Note Payable to former shareholder, due 1997 1,000 ---
------------ ------------
217,000 ---
Less current maturities (54,000) ---
------------ ------------
$163,000 ---
============ ============
</TABLE>
Long-term debt matures as follows: $54,000 in 1996, $53,000 in
1997, $58,000 in 1998, and $52,000 in 1999.
F-19
<PAGE>
4. LEASE COMMITMENTS
The Company has operating leases for facilities and equipment
expiring at various dates though September 2000, with certain
rights of extension. Certain facility leases provide initial
periods during which the Company is not required to make rent
payments. For these leases the Company has prorated the cost
over the life of the leases. The rent expense under operating
leases was approximately $2,645,000, $2,716,000, and $2,825,000
for the years ended June 2, 1995, June 3, 1994, and May 28,
1993, respectively.
Minimum annual lease payments under all noncancelable leases are
due as follows:
<TABLE>
Fiscal year:
<S> <C>
1996 $2,852,000
1997 2,159,000
1998 1,787,000
1999 1,266,000
2000 696,000
Thereafter 158,000
</TABLE>
Commitments under the facility lease agreements also extend, in
most instances, to property taxes, insurance and maintenance.
5. BENEFIT PLANS
The Company has defined contribution retirement plans which
cover substantially all of its employees. Under the terms of
the plans, contributions are made to a trust at the discretion
of the Company's Board of Directors. The Company also has a
money purchase pension plan covering substantially all of its
employees and contributes ten percent of the total qualifying
compensation of all eligible participants.
Contributions under all plans were approximately $2,435,000,
$2,650,000, and $2,581,000 for the years ended June 2, 1995,
June 3, 1994, and May 28, 1993, respectively.
In addition, the Company has an incentive compensation plan for
certain key employees, pursuant to which cash bonuses are paid
as determined by the Board of Directors. Expenses under this
plan were approximately $71,000, $85,000, and $101,000 for the
years ended June 2, 1995, June 3, 1994, and May 28, 1993,
respectively.
F-20
<PAGE>
6. CAPITAL TRANSACTIONS
Preferred Stock
The Company has two classes of preferred stock with 2,035,000
shares authorized and none outstanding as of June 2, 1995 and
June 3, 1994.
Common Stock Options
At June 2, 1995, 656,000 shares of common stock were reserved
for issuance under two incentive stock option plans for key
employees. Options outstanding under these plans are
exercisable over a period of five years and were issued at the
fair market value at the date of grant.
At June 2, 1995, 139,000 shares of common stock were reserved
under various nonqualified stock option plans. The Company has
made various grants under these plans at below the then-current
market price. Such options are generally exercisable at 20% per
year. The difference between the exercise price and the fair
market value at the grant date is amortized as compensation
expense over the vesting period.
During fiscal year 1995, the Company adopted a director stock
purchase option plan. This plan allows for options to vest in
20% increments through June 1, 1999. These director options are
included in the following table as Nonqualified Stock Options.
F-21
<PAGE>
Information relative to common stock options is as follows:
<TABLE>
Incentive Stock Options Nonqualified Stock Options
------------------------- --------------------------
Number Number
of Shares Option Price of Shares Option Price
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares under option, May 29, 1992 494,000 $8.50-16.38 94,000 $2.00- 6.00
Options granted 3,000 7.00- 7.38 32,000 5.00
Options canceled (50,000) 9.00-16.38 (1,000) 6.00
Options exercised -- -- (4,000) 2.00- 6.00
--------- ------------ --------- ------------
Shares under option, May 28, 1993 447,000 7.00-16.38 121,000 2.00- 6.00
Options granted 13,000 8.25- 9.00 60,000 6.00
Options canceled (87,000) 9.00-15.88 (14,000) 6.00
Options exercised -- -- (19,000) 2.00- 6.00
--------- ------------ --------- ------------
Shares under option, June 3, 1994 373,000 7.00-16.38 148,000 2.00- 6.00
Options granted 188,000 6.00 243,000 3.00-12.00
Options canceled (69,000) 6.00-12.88 (6,000) 6.00
Options exercised -- -- (32,000) 3.00- 6.00
--------- ------------ --------- ------------
Shares under option, June 2, 1995 492,000 $6.00-16.38 353,000 $2.00-12.00
========= ============ ========= ============
</TABLE>
As of June 2, 1995, options to purchase 428,000 common shares
were exercisable. The vesting of certain options accelerates if
the Company has a change in control.
Common Stock Purchase Plans
Under the Company's long-term stock purchase plan, the Company
sold shares of common stock to employees at fair market value.
As permitted under this plan, the purchasers paid for these
shares with notes bearing interest at 10 percent per annum,
payable in 40 equal quarterly principal installments. The
amount of the related notes receivable as of June 2, 1995 and
June 3, 1994 is shown as a reduction of shareholders' equity in
the accompanying consolidated balance sheets. No shares were
issued during the three years in the period ended June 2, 1995.
There are no additional shares available for issuance under this
plan at June 2, 1995.
In fiscal 1994, the Company initiated an Employee Stock Purchase
Plan, under which employees may elect to have cash withheld
currently from their paychecks to buy shares of Company stock at
85% of market price on predetermined quarterly purchase dates.
The plan is available to substantially all employees, and
expires 10 years from the date of adoption. As of June 2, 1995,
53,000 shares had been issued under this plan and 77,000
additional shares were available for future subscription by
employees.
F-22
<PAGE>
In February 1995, the Company adopted the 1994 Employee Stock
Bonus Plan. The plan covers all salaried employees and
officers. The Company reserved 100,000 shares of stock for this
plan and no shares had been issued at June 2, 1995.
7. SIGNIFICANT FOURTH QUARTER EVENTS
In connection with a proxy contest and related changes in
management, the Company entered into various agreements with two
former employees. The settlements included cash payments and
certain additional employee benefits, the effect of which has
been reflected in the accompanying consolidated financial
statements.
The Company also entered into a 20 month employment agreement
with its new president. This agreement provides for a minimum
guaranteed salary if the officer is terminated prior to December
31, 1996 as well as a sign-on bonus, cash distribution bonus,
operations and performance bonuses. The agreement also includes
stock options, some of which become immediately exercisable upon
a change in control. The sign-on bonus as well as the income
statement effect of the options have been reflected in the
accompanying consolidated financial statements.
8. CONTINGENCIES
The Company from time to time is involved in disputes in the
normal course of business. While the outcome of such disputes
can never be predicted with certainty, in the opinion of
management none of the open matters at June 2, 1995 will have a
material effect on its financial statements.
Subsequent to year-end the Company entered into employee
retention agreements with certain key members of management.
These agreements provide for a cash bonus upon a change in
control as well as severance pay and other employee benefits
payable upon termination related to a change in control.
In connection with the purchase of meters from a company which
is now a customer, LCT entered into an agreement to provide a
credit of 50 percent off the standard meter rental on future
business with this customer. Accruals for expected costs in
connection with this transaction have been recorded, and
approximately $726,000 in credits are outstanding which, when
utilized, will result in break-even operating margins on those
jobs.
F-23
<PAGE>
9. BUSINESS SEGMENT REPORTING
Geodynamics Corporation has two lines of business, Department of
Defense (DoD) contracting and non-DoD services. The following
table summarizes certain financial data by industry segment as
of June 2, 1995 and for the year then ended. Comparative data
for years prior to fiscal 1995 have been omitted because such
data are not meaningful. Geographic area information is omitted
because it is not significant.
<TABLE>
DoD Non-DoD Consolidated
Contracts Services Totals
------------ ----------- -------------
Segment Data :
<S> <C> <C> <C>
Revenues $54,246,000 $6,524,000 $60,770,000
Income (loss) from operations 3,491,000 (658,000) 2,833,000
Identifiable assets 27,922,000 12,718,000 40,640,000
Depreciation and amortization 2,893,000 583,000 3,476,000
Capital expenditures 964,000 2,335,000 3,299,000
</TABLE>
10. QUARTERLY FINANCIAL DATA (Unaudited)
The following table presents summarized quarterly results as
previously reported on Form 10-Q: (in thousands except for per-share data)
<TABLE>
Fiscal Year 1995
-------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $13,144 $14,619 $16,556 $16,451
Income from operations 812 856 735 430
Income before provision for income taxes 859 937 841 508
Net income $ 528 $ 577 $ 517 $ 296
Earnings per common share $ .21 $ .22 $ .20 $ .10
Fiscal Year 1994
-------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Revenues $12,568 $14,788 $14,007 $13,460
Income from operations 411 399 17 262
Income before provision for income taxes 480 488 105 367
Net income $ 298 $ 302 $ 57 $ 228
Earnings per common share $ .13 $ .13 $ .02 $ .10
</TABLE>
F-24
<PAGE>
Annex I
AGREEMENT AND PLAN OF MERGER
dated as of October 18 , 1995
by and among
LOGICON, INC.
LIN, INC.
and
GEODYNAMICS CORPORATION
I-1
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached but
is inserted for convenience only.
Page
No.
ARTICLE I
THE MERGER
1.01 The Merger. 1
1.02 Effective Time 1
1.03 Closing. 1
1.04 Articles of Incorporation and Bylaws of the
Surviving Corporation. 2
1.05 Directors and Officers of the Surviving
Corporation. 2
1.06 Effects of the Merger 2
1.07 Further Assurances 2
ARTICLE II
CONVERSION OF SHARES
2.01 Conversion of Capital Stock. 2
2.02 Delivery of Certificates; Payment. 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01 Organization and Qualification. 5
3.02 Capital Stock. 6
3.03 Authority Relative to this Agreement. 7
3.04 Non-Contravention; Approvals and Consents. 7
3.05 SEC Reports and Financial Statements. 8
3.06 Absence of Certain Changes or Events. 9
3.07 Absence of Undisclosed Liabilities. 9
3.08 Legal Proceedings. 9
3.09 Information Supplied. 10
3.10 Compliance with Laws and Orders. 10
3.11 Compliance with Agreements; Certain Agreements. 10
3.12 Taxes. 11
3.13 Employee Benefit Plans; ERISA. 12
I-2
<PAGE>
3.14 Insurance. 14
3.15 Labor Matters. 14
3.16 Environmental Matters. 15
3.17 Tangible Property and Assets. 16
3.18 Intellectual Property Rights 16
3.19 Vote Required. 16
3.20 Opinion of Financial Advisor. 17
3.21 Company Not an Interested Stockholder or an
Acquiring Person 17
3.22 Section 1203 of the CGCL Not Applicable. 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
4.01 Organization and Qualification. 17
4.02 Authority Relative to this Agreement. 17
4.03 Non-Contravention; Approvals and Consents. 18
4.04 Information Supplied. 19
4.05 Vote Required. 19
4.06 Parent Not an Interested Party or a Restricted
Owner 19
4.07 Certain Provisions Not Applicable. 19
4.08 Exon-Florio 19
ARTICLE V
COVENANTS
5.01 Covenants of the Company and Parent. 20
5.02 No Solicitations 22
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 Access to Information; Confidentiality 23
6.02 Preparation of Proxy Statement. 24
6.03 Approval of Stockholders. 24
6.04 Auditor's Letters 24
6.05 Regulatory and Other Approvals 24
6.06 Company Stock Plans 25
6.07 Directors' and Officers' Indemnification and
Insurance 26
6.08 Expenses. 27
6.09 Brokers or Finders. 27
6.10 Standstill. 27
I-3
<PAGE>
6.11 Notice and Cure 28
6.12 Fulfillment of Conditions 28
ARTICLE VII
CONDITIONS
7.01 Conditions to Each Party's Obligation to Effect
the Merger. 28
7.0 Conditions to Obligation of Parent and Sub to
Effect the Merger. 29
7.03 Conditions to Obligation of the Company to
Effect the Merger. 30
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination. 31
8.02 Effect of Termination. 32
8.03 Amendment. 33
8.04 Waiver. 33
ARTICLE IX
GENERAL PROVISIONS
9.01 Non-Survival of Representations, Warranties,
Covenants and Agreements. 33
9.02 Knowledge 34
9.03 Notices. 34
9.04 Entire Agreement. 35
9.05 Public Announcements. 35
9.06 No Third Party Beneficiary. 35
9.07 No Assignment; Binding Effect. 35
9.08 Headings. 35
9.09 Invalid Provisions 35
9.10 Governing Law 36
9.11 Counterparts. 36
I-4
<PAGE>
EXHIBITS
EXHIBIT A Pro Forma Balance Sheet
EXHIBIT B Letter of the Company's Independent Auditors
I-5
<PAGE>
GLOSSARY OF DEFINED TERMS
The following terms, when used in this Agreement, have
the meanings ascribed to them in the corresponding Sections of
this Agreement listed below:
"Acquisition Transaction" -- Section 5.02
"Antitrust Division" -- Section 6.05
"Average Price" -- Section 2.01
"CERCLA" -- Section 3.16(b)
"Certificate of Merger" -- Section 1.02
"Certificates" -- Section 2.02(b)
"CFIUS" -- Section 6.05
"CGCL" -- Section 1.01
"Closing" -- Section 1.03
"Closing Date" -- Section 1.03
"Code" -- Section 3.12(e)
"Company" -- Preamble
"Company Common Stock" -- Section 2.01(b)
"Company Disclosure Letter" -- Section 3.01
"Company Employee Benefit Plan" -- Section 3.13(c)(i)
"Company Financial Statements" -- Section 3.05
"Company Option Plans" -- Section 2.01(f)
"Company Permits" -- Section 3.10
"Company Preferred Stock" -- Section 3.02
"Company SEC Reports" -- Section 3.05
"Company Stock Option" -- Section 6.07
"Company Stockholders' Approval" -- Section 6.03
"Company Stockholders' Meeting" -- Section 6.03
"Constituent Corporations" -- Section 1.01
"Contracts" -- Section 3.04(a)
"Conversion Amount" -- Section 2.01(c)
"Conversion Number" -- Section 2.01(f)
"Dissenting Share" -- Section 2.01(d)
"Earnout Payment" -- Section 2.01(e)
"Earnout Shares" -- Section 2.01(e)
"Effective Time" -- Section 1.02
"Environmental Law" -- Section 3.16(e)(i)
"Environmental Permits" -- Section 3.16(a)
"ERISA" -- Section 3.13(a)(i)
"Exchange Act" -- Section 3.04(b)
"Exchange Agent" -- Section 2.02(a)
"Exchange Fund" -- Section 2.02(a)
"Exon-Florio Amendment" -- Section 4.08
"FTC" -- Section 6.05
"GAAP" -- Section 3.12
"Governmental or Regulatory Authority" -- Section 3.04(a)
"Hazardous Material" -- Section 3.16(e)(ii)
"HSR Act" -- Section 3.04(b)
"Indemnified Liabilities" -- Section 6.08(a)
I-6
<PAGE>
"Indemnified Parties" -- Section 6.08(a)
"Indemnifying Party" -- Section 6.08(a)
"Intellectual Property" -- Section 3.18
"Laws" -- Section 3.04(a)
"LCT" -- Section 2.01(e)
"Lien" -- Section 3.02(b)
"material" -- Section 3.01
"material adverse effect" -- Section 3.01
"materially adverse" -- Section 3.01
"Merger" -- Preamble
"Options" -- Section 3.02
"Orders" -- Section 3.04(a)
"Original Conversion Amount" -- Section 2.01(c)
"Original Total Conversion Amount" -- Section 2.01(e)
"Parent" -- Preamble
"Parent Common Stock" -- Section 2.01(f)
"Parent Disclosure Letter" -- Section 4.01
"PBGC" -- Section 3.13(a)(iii)
"Plan" -- Section 3.13(c)(ii)
"Potential Acquiror" -- Section 5.02
"LCT Pro Forma Balance Sheet" -- Section 5.01(b)(I)
"Proxy Statement" -- Section 3.09
"qualified stock options" -- Section 6.07
"Representative" -- Section 5.02
"SEC" -- Section 3.04(b)
"Secretary of State" -- Section 1.02
"Securities Act" -- Section 3.05
"Significant Subsidiary" -- Section 5.02
"Sub" -- Preamble
"Sub Common Stock" -- Section 2.01(a)
"Subsidiary" -- Section 2.01(b)
"Surviving Corporation" -- Section 1.01
"Surviving Corporation Common Stock" -- Section 2.01(a)
"Tax Returns" -- Section 3.12
"Taxes" -- Section 3.12
"Trading Day" -- Section 2.01
I-7
<PAGE>
This AGREEMENT AND PLAN OF MERGER dated as of October
18, 1995 is made and entered into by and among Logicon, Inc., a
Delaware corporation ("Parent"), LIN, Inc., a Delaware
corporation wholly owned by Parent ("Sub"), and Geodynamics
Corporation, a California corporation (the "Company").
Whereas, the Boards of Directors of Parent, Sub and the
Company have each determined that it is advisable and in the best
interests of their respective stockholders to consummate, and
have approved, the business combination transaction provided for
herein in which Sub would merge with and into the Company and the
Company would become a wholly-owned subsidiary of Parent (the
"Merger"); and
Whereas, Parent, Sub and the Company desire to make
certain representations, warranties and agreements in connection
with the Merger and also to prescribe various conditions to the
Merger.
Now, Therefore, in consideration of the mutual
covenants and agreements set forth in this Agreement, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. At the Effective Time (as defined in
Section 1.02), upon the terms and subject to the conditions of
this Agreement, Sub shall be merged with and into the Company in
accordance with the General Corporation Law of the State of
California (the "CGCL"). The Company shall be the surviving
corporation in the Merger (the "Surviving Corporation"). Sub and
the Company are sometimes referred to herein as the "Constituent
Corporations". As a result of the Merger, the outstanding shares
of capital stock of the Constituent Corporations shall be
converted or canceled in the manner provided in Article II.
1.02 Effective Time. At the Closing (as defined in
Section 1.03), a certificate of merger (the "Certificate of
Merger") shall be duly prepared and executed by the Surviving
Corporation and thereafter delivered to the Secretary of State of
the State of California (the "Secretary of State") for filing, as
provided in Section 1103 of the CGCL, on, or as soon as
practicable after, the Closing Date (as defined in Section 1.03).
The Merger shall become effective at the time of the filing of
the Certificate of Merger with the Secretary of State (the date
and time of such filing being referred to herein as the
"Effective Time").
1.03 Closing. The closing of the Merger (the
"Closing") will take place at the offices of Geodynamics
Corporation, 21171 Western Avenue, Suite 110, Torrance,
California 90501, or at such other place as the parties hereto
mutually agree, on a date and at a time to be specified by the
parties, which shall in no event be later than 10:00 a.m., local
time, on the fifth business day following satisfaction of the
condition set forth in Section 7.01(a), provided that the other
closing conditions set forth in Article VII have been satisfied
or, if permissible, waived in accordance with this Agreement, or
on such other date as the parties hereto mutually agree (the
"Closing Date"). At the Closing there shall be delivered to
Parent, Sub and the Company the certificates and other documents
and instruments required to be delivered under Article VII.
I-8
<PAGE>
1.04 Articles of Incorporation and Bylaws of the
Surviving Corporation. At the Effective Time, (i) the Articles
of Incorporation of the Company as in effect immediately prior to
the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended as provided by law
and such Articles of Incorporation, and (ii) the Bylaws of
Company as in effect immediately prior to the Effective Time
shall be the Bylaws of the Surviving Corporation until thereafter
amended as provided by law, the Articles of Incorporation of the
Surviving Corporation and such Bylaws.
1.05 Directors and Officers of the Surviving
Corporation. The directors of the Sub and the officers of the
Sub immediately prior to the Effective Time shall, from and after
the Effective Time, be the directors and officers, respectively,
of the Surviving Corporation until their successors shall have
been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the
Surviving Corporation's Articles of Incorporation and Bylaws.
1.06 Effects of the Merger. Subject to the foregoing,
the effects of the Merger shall be as provided in the applicable
provisions of the CGCL.
1.07 Further Assurances. Each party hereto will
execute such further documents and instruments and take such
further actions as may reasonably be requested by one or more of
the others to consummate the Merger, to vest the Surviving
Corporation with full title to all assets, properties, rights,
approvals, immunities and franchises of either of the Constituent
Corporations and to effect the other purposes of this Agreement.
ARTICLE II
CONVERSION OF SHARES
2.01 Conversion of Capital Stock. At the Effective
Time, by virtue of the Merger and without any action on the part
of the holder thereof:
(a) Capital Stock of Sub. Each issued and outstanding
share of the common stock of Sub ("Sub Common Stock") shall be
converted into and become one fully paid and nonassessable share
of common stock of the Surviving Corporation ("Surviving
Corporation Common Stock").
(b) Cancellation of Treasury Stock and Stock Owned by
Parent and Subsidiaries. All shares of common stock, no par
value, of the Company ("Company Common Stock") that are owned by
the Company as treasury stock and any shares of Company Common
Stock owned by Parent, Sub or any other wholly-owned Subsidiary
(as hereinafter defined) of Parent shall be canceled and retired
and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor. As used
in this Agreement, "Subsidiary" means, with respect to any party,
any corporation or other organization, whether incorporated or
unincorporated, of which more than fifty percent (50%) of either
the equity interests in, or the voting control of, such
corporation or other organization is, directly or indirectly
through Subsidiaries or otherwise, beneficially owned by such
party.
(c) Company Common Stock. Each issued and outstanding
share of Company Common Stock (other than shares to be canceled
in accordance with Section 2.01(b) and other than Dissenting
Shares (as defined in Section 2.01(d)) shall be converted into
the right to receive the "Conversion Amount" net to the holder in
cash. The "Conversion Amount" shall be $11.25 (the "Original
Conversion Amount") as adjusted pursuant to Section 2.01(e). All
such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with
I-9
<PAGE>
respect thereto, except the right to receive the Conversion
Amount in cash to be paid in consideration therefor, upon the
surrender of such certificate in accordance with Section 2.02,
without interest.
(d) Dissenting Shares.
(i) Notwithstanding any provision of this Agreement to
the contrary, each outstanding share of Company Common Stock the
holder of which has not voted in favor of the Merger, has
perfected such holder's right to an appraisal of such holder's
shares in accordance with the applicable provisions of the CGCL
and has not effectively withdrawn or lost such right to appraisal
(a "Dissenting Share"), shall not be converted into or represent
a right to receive the Conversion Amount in cash pursuant to
Section 2.01(c), but the holder thereof shall be entitled only to
such rights as are granted by the applicable provisions of the
CGCL; provided, however, that any Dissenting Share held by a
person at the Effective Time who shall, after the Effective Time,
withdraw the demand for appraisal or lose the right of appraisal,
in either case pursuant to the CGCL, shall be deemed to be
converted into, as of the Effective Time, the right to receive
the Conversion Amount in cash pursuant to Section 2.01(c).
(ii) The Company shall give Parent (x) prompt notice
of any written demands for appraisal, withdrawals of demands for
appraisal and any other instruments served pursuant to the
applicable provisions of the CGCL relating to the appraisal
process received by the Company and (y) the opportunity to direct
all negotiations and proceedings with respect to demands for
appraisal under the CGCL. The Company will not voluntarily make
any payment with respect to any demands for appraisal and will
not, except with the prior written consent of Parent, settle or
offer to settle any such demands.
(e) LaFehr and Chan Technologies, Inc. ("LCT") Earnout
Payment. The Company shall use reasonable diligence and timely
efforts to negotiate prior to the Closing Date a liquidated
payment, part in cash and part in Company Common Stock, to
discharge all obligations of the Company to pay the purchase
price for the shares of stock of LCT purchased from LCT's former
shareholders (the "Earnout Payment"). The Earnout Payment shall
be payable to LCT's former shareholders at or prior to the
Closing. For purposes of this Section 2.01(e) the cash portion
of the Earnout Payment shall be deemed to be reduced by any cash
repaid by LCT to the Company after the date hereof. The Original
Conversion Amount shall be reduced to an amount equal to the
quotient obtained by dividing (a) the Original Total Conversion
Amount, reduced by the cash portion of the Earnout Payment, by
(b) the sum of (i) the number of shares outstanding on the date
hereof, (ii) the number of shares underlying Options to acquire
Company Common Stock outstanding on date hereof, and (iii) the
number of shares of Company Common stock issued to former
shareholders of LCT in the Earnout Payment. The "Original Total
Conversion Amount" means the Original Conversion Amount set forth
in Section 2.01(c) multiplied by the sum of (i) the number of
shares outstanding on the date hereof, and (ii) the number of
shares underlying Options to acquire Company Common Stock
outstanding on the date hereof.
(f) Stock Option Plans. Subject to the terms and
conditions of the Company's stock option plans described in
Section 3.02 of the Company Disclosure Letter (as hereinafter
defined) (the "Company Option Plans") and the stock option
agreements executed pursuant thereto, the Company Option Plans
and each unexercised option to purchase Company Common Stock
granted thereunder that is outstanding at the Effective Time
shall be assumed by Parent and continued in accordance with their
respective terms and each such option shall become a right to
purchase shares of the fully paid and nonassessable shares of
common stock, par value $.10 per share, of Parent ("Parent Common
Stock") equal to the product of (i) a fraction (the "Conversion
Number"), (A) the numerator of which is the Conversion Amount as
adjusted pursuant to Section 2.01(e) and (B) the denominator of
which is the Average Price (as hereinafter defined) of Parent
Common Stock and (ii) the number of shares of Company Common
Stock subject to such option immediately prior to the Effective
Time, as more fully described in Section 6.06. The Company will
I-10
<PAGE>
use reasonable diligence and timely efforts to cause all vested
options to be exercised prior to the Closing.
The "Average Price" shall be equal to the arithmetic
average of the Sales Price (as hereinafter defined) on each of
the last 20 Trading Days (as hereinafter defined) preceding the
third day before the Closing Date. The term "Sales Price" shall
mean, on any Trading Day, the average of the high and low sales
prices of Parent Common Stock reported on the NYSE Composite Tape
on such day. The term "Trading Day" shall mean any day on which
securities are traded on a national securities exchange.
2.02 Delivery of Certificates; Payment.
(a) Exchange Agent. At the Effective Time, Parent
shall deposit with Bank of America N.T. & S.A. or such other bank
or trust company designated before the Effective Date by the
Company and reasonably acceptable to Parent (the "Exchange
Agent"), an amount of cash equal to the aggregate amount payable
in accordance with Section 2.01(c), to be held for the benefit of
and distributed to the holders of Company Common Stock in
accordance with this Section. The Exchange Agent shall agree to
hold such funds (such funds, together with earnings thereon,
being referred to herein as the "Exchange Fund") for delivery as
contemplated by this Section and upon such additional terms as
may be agreed upon by the Exchange Agent, the Company and Parent
before the Effective Time. If for any reason (including losses)
the amount of cash in the Exchange Fund is inadequate to pay the
cash amounts to which holders of shares of Company Common Stock
shall be entitled pursuant to Section 2.01(c), Parent shall make
available to the Exchange Agent additional funds for the payment
thereof.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Surviving Corporation
shall cause the Exchange Agent to mail to each holder of record
of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Common
Stock (the "Certificates") whose shares are converted pursuant to
Section 2.01(c) into the right to receive cash (i) a letter of
transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall
be in such form and have such other provisions as the Surviving
Corporation may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for
cash in pursuant to Section 2.01(c). Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with
such letter of transmittal duly executed and completed in
accordance with its terms, the holder of such Certificate shall
be entitled to receive in exchange for the cash amount payable in
accordance with Section 2.01(c), which such holder has the right
to receive pursuant to the provisions of this Article II, and the
Certificate so surrendered shall forthwith be canceled. In no
event shall the holder of any Certificate be entitled to receive
interest on any funds to be received in the Merger. In the event
of a transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, the cash
amount payable in accordance with Section 2.01(c), may be issued
to a transferee if the Certificate representing such Company
Common Stock is presented to the Exchange Agent accompanied by
all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.02(b),
each Certificate shall be deemed at any time after the Effective
Time for all corporate purposes of the Surviving Corporation,
except for rights to receive cash pursuant to Section 2.01(c),
rights to receive declared but unpaid dividends pursuant to
Section 5.01(b)(ii)(B) or rights existing as contemplated in
Section 2.01(d), to be canceled and not outstanding.
(c) Distributions with Respect to Unexchanged Shares.
No cash payment shall be paid to any holder of Company Common
Stock with respect to any Certificate that has not been
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surrendered pursuant to this Section until the holder of record
of such Certificate shall surrender such Certificate in
accordance with this Section.
(d) No Further Ownership Rights in Company Common
Stock. All cash paid pursuant to this Article II upon surrender
for exchange of Certificates in accordance with the terms hereof
shall be deemed to have been paid at the Effective Time in full
satisfaction of all rights pertaining to the shares of Company
Common Stock represented thereby, subject, however, to the
Surviving Corporation's obligation to pay any dividends which may
have been declared by the Company on such shares of Company
Common Stock in accordance with the terms of this Agreement and
which remained unpaid at the Effective Time. From and after the
Effective Time, the stock transfer books of the Company shall be
closed and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this
Section.
(e) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the stockholders of
the Company for one hundred eighty (180) days after the Effective
Time shall be delivered to Parent, upon demand, and any
stockholders of the Company who have not theretofore complied
with this Article II shall thereafter look only to Parent
(subject to abandoned property, escheat and other similar laws)
as general creditors for payment of their claim for any cash
payable pursuant to Section 2.01 and this Section.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub
as follows:
3.01 Organization and Qualification. Each of the
Company and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and
authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties,
except (in the case of any Subsidiary) for such failures to be so
organized, existing and in good standing or to have such power
and authority which, individually or in the aggregate, are not
having and could not be reasonably expected to have a material
adverse effect on the Company and its Subsidiaries taken as a
whole. Each of the Company and its Subsidiaries is duly
qualified, licensed or admitted to do business and is in good
standing in each jurisdiction in which the ownership, use or
leasing of its assets and properties, or the conduct or nature of
its business, makes such qualification, licensing or admission
necessary, except for such failures to be so qualified, licensed
or admitted and in good standing which, individually or in the
aggregate, are not having and could not be reasonably expected to
have a material adverse effect on the Company and its
Subsidiaries taken as a whole. As used in this Agreement, any
reference to any event, change or effect being "material" or
"materially adverse" or having a "material adverse effect" on or
with respect to an entity (or group of entities taken as a whole)
means such event, change or effect is material or materially
adverse, as the case may be, to the business, condition
(financial or otherwise), properties, assets (including
intangible assets), liabilities (including contingent
liabilities), prospects or results of operations of such entity
(or, if with respect thereto, of such group of entities taken as
a whole). Section 3.01 of the letter dated the date hereof and
delivered to Parent and Sub by the Company concurrently with the
execution and delivery of this Agreement (the "Company Disclosure
Letter") sets forth the name and jurisdiction of incorporation of
each Subsidiary of the Company. Except as disclosed in
Section 3.01 of the Company Disclosure Letter, the Company does
not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable
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for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or
entity.
3.02 Capital Stock. (a) The authorized capital stock
of the Company consists solely of 10,000,000 shares of Company
Common Stock and 2,035,000 shares of preferred stock (the
"Company Preferred Stock"). As of October 2, 1995, 2,662,414
shares of Company Common Stock were issued and outstanding and
1,367,750 shares of Company Common Stock were reserved for
issuance pursuant to the Company Option Plans, of which 912,488
are covered by outstanding options or outstanding commitments.
There has been no change in the number of issued and outstanding
shares of Company Common Stock or shares of Company Common Stock
held in treasury or reserved for issuance since such date other
than pursuant to the establishment or maintenance of the Company
Option Plans and there has been no increase in the number or
shares covered by outstanding options or outstanding commitments.
As of the date hereof, no shares of Company Preferred Stock are
issued and outstanding. All of the issued and outstanding shares
of Company Common Stock are, and all shares reserved for issuance
will be, upon issuance in accordance with the terms specified in
the instruments or agreements pursuant to which they are
issuable, duly authorized, validly issued, fully paid and
nonassessable. Except pursuant to this Agreement and except as
set forth in Section 3.02 of the Company Disclosure Letter, there
are no outstanding subscriptions, options, warrants, rights
(including "phantom" stock rights), preemptive rights or other
contracts, commitments, understandings or arrangements, including
any right of conversion or exchange under any outstanding
security, instrument or agreement (together, "Options"),
obligating the Company or any of its Subsidiaries to issue or
sell any shares of capital stock of the Company or to grant,
extend or enter into any Option with respect thereto.
(b) Except as disclosed in Section 3.02 of the Company
Disclosure Letter, all of the outstanding shares of capital stock
of each Subsidiary of the Company are duly authorized, validly
issued, fully paid and nonassessable and are owned, beneficially
and of record, by the Company or a Subsidiary wholly owned,
directly or indirectly, by the Company, free and clear of any
liens, claims, mortgages, encumbrances, pledges, security
interests, equities and charges of any kind (each a "Lien").
Except as disclosed in Section 3.02 of the Company Disclosure
Letter, there are no (i) outstanding Options obligating the
Company or any of its Subsidiaries to issue or sell any shares of
capital stock of any Subsidiary of the Company or to grant,
extend or enter into any such Option or (ii) voting trusts,
proxies or other commitments, understandings, restrictions or
arrangements in favor of any person other than the Company or a
Subsidiary wholly owned, directly or indirectly, by the Company
with respect to the voting of or the right to participate in
dividends or other earnings on any capital stock of any
Subsidiary of the Company.
(c) Except as disclosed in Section 3.02 of the Company
Disclosure Letter, there are no outstanding contractual
obligations of the Company or any Subsidiary of the Company to
repurchase, redeem or otherwise acquire any shares of Company
Common Stock or any capital stock of any Subsidiary of the
Company or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any
Subsidiary of the Company or any other person.
3.03 Authority Relative to this Agreement. The
Company has full corporate power and authority to enter into this
Agreement and, subject to obtaining the Company Stockholders'
Approval (as defined in Section 6.03), to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly approved by the
Board of Directors of the Company, the Board of Directors of the
Company has recommended adoption of this Agreement by the
stockholders of the Company and directed that this Agreement be
submitted to the stockholders of the Company for their
consideration, and no other corporate proceedings on the part of
the Company or its stockholders are necessary to authorize the
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execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby, other than obtaining the Company
Stockholders' Approval. This Agreement has been duly and validly
executed and delivered by the Company and, subject to the
obtaining of the Company Stockholders' Approval, constitutes a
legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
3.04 Non-Contravention; Approvals and Consents.
(a) The execution and delivery of this Agreement by
the Company do not, and the performance by the Company of its
obligations hereunder and the consummation of the transactions
contemplated hereby will not, conflict with, result in a
violation or breach of, constitute (with or without notice or
lapse of time or both) a default under, result in or give to any
person any right of payment or reimbursement, termination,
cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or
properties of the Company or any of its Subsidiaries under, any
of the terms, conditions or provisions of (i) the certificates or
articles of incorporation or bylaws (or other comparable charter
documents) of the Company or any of its Subsidiaries, or (ii)
subject to the obtaining of the Company Stockholders' Approval
and the taking of the actions described in paragraph (b) of this
Section, (x) any statute, law, rule, regulation or ordinance
(together, "Laws"), or any judgment, decree, order, writ, permit
or license (together, "Orders"), of any court, tribunal,
arbitrator, authority, agency, commission, official or other
instrumentality of the United States or any state, county, city
or other political subdivision (a "Governmental or Regulatory
Authority"), applicable to the Company or any of its Subsidiaries
or any of their respective assets or properties, or (y) any note,
bond, mortgage, security agreement, indenture, license,
franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind (together,
"Contracts") 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 assets or properties is bound, excluding from
the foregoing clauses (x) and (y) conflicts, violations,
breaches, defaults, terminations, modifications, accelerations
and creations and impositions of Liens which, individually or in
the aggregate, could not be reasonably expected to have a
material adverse effect on the Company and its Subsidiaries taken
as a whole or on the ability of the Company to consummate the
transactions contemplated by this Agreement.
(b) Except (i) for the filing of a pre-merger
notification report by the Company under Section 7A of the
Clayton Act (Title II of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976), as amended, and the rules and
regulations thereunder (the "HSR Act"), (ii) for the filing of
the Proxy Statement (as that term is defined in Section 4.08)
with the Securities and Exchange Commission (the "SEC") pursuant
to the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder (the "Exchange Act") and (iii) for the
filing of the Certificate of Merger and other appropriate merger
documents required by the CGCL with the Secretary of State and
appropriate documents with the relevant authorities of other
states in which the Constituent Corporations are qualified to do
business and (iv) as disclosed in Section 3.04 of the Company
Disclosure Letter, no consent, approval or action of, filing with
or notice to any Governmental or Regulatory Authority or other
public or private third party is necessary or required under any
of the terms, conditions or provisions of any Law or Order of any
Governmental or Regulatory Authority or 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
assets or properties is bound for the execution and delivery of
this Agreement by the Company, the performance by the Company of
its obligations hereunder or the consummation of the transactions
contemplated hereby, other than such consents, approvals,
actions, filings and notices which the failure to make or obtain,
as the case may be, individually or in the aggregate, could not
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be reasonably expected to have a material adverse effect on the
Company and its Subsidiaries taken as a whole or on the ability
of the Company to consummate the transactions contemplated by
this Agreement.
3.05 SEC Reports and Financial Statements. The
Company delivered to Parent prior to the execution of this
Agreement a true and complete copy of each form, report,
schedule, registration statement, definitive proxy statement and
other document (together with all amendments thereof and
supplements thereto) filed by the Company or any of its
Subsidiaries with the SEC since May 31, 1991 (as such documents
have since the time of their filing been amended or supplemented,
the "Company SEC Reports"), which are all the documents (other
than preliminary material) that the Company and its Subsidiaries
were required to file with the SEC since such date. As of their
respective dates, the Company SEC Reports (i) complied as to form
in all material respects with the requirements of the Securities
Act of 1933, as amended, and the rules and regulations thereunder
(the "Securities Act") or the Exchange Act, as the case may be,
and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
The audited consolidated financial statements and unaudited
interim consolidated financial statements (including, in each
case, the notes, if any, thereto) included in the Company SEC
Reports (the "Company Financial Statements") complied as to form
in all material respects with the published rules and regulations
of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated
therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and
fairly present (subject, in the case of the unaudited interim
financial statements, to normal, recurring year-end audit
adjustments) the consolidated financial position of the Company
and its consolidated subsidiaries as at the respective dates
thereof and the consolidated results of their operations and cash
flows for the respective periods then ended. Except as set forth
in Section 3.05 of the Company Disclosure Letter, each Subsidiary
of the Company is treated as a consolidated subsidiary of the
Company in the Company Financial Statements for all periods
covered thereby.
3.06 Absence of Certain Changes or Events. Except as
disclosed in the Company SEC Reports filed prior to the date of
this Agreement, (a) since June 2, 1995 there have not been any
changes, events or developments which collectively have a
material adverse effect on the Company and its Subsidiaries taken
as a whole, and after taking into effect any positive
developments which have occurred, other than those occurring as a
result of general economic or financial conditions , and (b)
except as disclosed in Section 3.06 of the Company Disclosure
Letter, between such date and the date hereof (i) the Company and
its Subsidiaries have conducted their respective businesses only
in the ordinary course consistent with past practice and (ii)
neither the Company nor any of its Subsidiaries has taken any
action which, if taken after the date hereof, would constitute a
breach of any provision of clause (ii) of Section 5.01(b).
3.07 Absence of Undisclosed Liabilities. Except for
matters reflected or reserved against in the balance sheet for
the period ended June 2, 1995 included in the Company Financial
Statements or as disclosed in Section 3.07 of the Company
Disclosure Letter, neither the Company nor any of its
Subsidiaries had at such date, or has incurred since that date,
any liabilities or obligations (whether absolute, accrued,
contingent, fixed or otherwise, or whether due or to become due)
of any nature that would be required by generally accepted
accounting principles to be reflected on a consolidated balance
sheet of the Company and its consolidated subsidiaries (including
the notes thereto), except liabilities or obligations (i) which
were incurred in the ordinary course of business consistent with
past practice and (ii) which have not been, and could not be
reasonably expected to be, individually or in the aggregate,
materially adverse to the Company and its Subsidiaries taken as a
whole.
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3.08 Legal Proceedings. Except as disclosed in the
Company SEC Reports filed prior to the date of this Agreement or
in Section 3.08 of the Company Disclosure Letter, (i) there are
no actions, suits, arbitrations or proceedings pending or, to the
knowledge of the Company and its Subsidiaries, threatened
against, relating to or affecting, nor to the knowledge of the
Company and its Subsidiaries are there any Governmental or
Regulatory Authority investigations or audits pending or
threatened against, relating to or affecting, the Company or any
of its Subsidiaries or any of their respective assets and
properties which, if determined adversely to the Company or any
of its Subsidiaries, individually or in the aggregate, could be
reasonably expected to have a material adverse effect on the
Company and its Subsidiaries taken as a whole or on the ability
of the Company to consummate the transactions contemplated by
this Agreement, and there are no facts or circumstances known to
the Company or any of its Subsidiaries that could be reasonably
expected to give rise to any such action, suit, arbitration,
proceeding, investigation or audit, and (ii) neither the Company
nor any of its Subsidiaries is subject to any Order of any
Governmental or Regulatory Authority which, individually or in
the aggregate, is having or could be reasonably expected to have
a material adverse effect on the Company and its Subsidiaries
taken as a whole or on the ability of the Company to consummate
the transactions contemplated by this Agreement.
3.09 Information Supplied. The proxy statement
relating to the Company Stockholders' Meeting (as defined in
Section 6.03), as amended or supplemented from time to time (as
so amended and supplemented, the "Proxy Statement"), and any
other documents to be filed by the Company with the SEC or any
other Governmental or Regulatory Authority in connection with the
Merger and the other transactions contemplated hereby will (in
the case of the Proxy Statement and any such other documents
filed with the SEC under the Exchange Act or the Securities Act)
comply as to form in all material respects with the requirements
of the Exchange Act and the Securities Act, respectively, and
will not, on the date of its filing or, in the case of the Proxy
Statement, at the date it is mailed to stockholders of the
Company and at the time of the Company Stockholders' Meeting,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except
that no representation is made by the Company with respect to
information supplied in writing by or on behalf of Parent or Sub
expressly for inclusion therein and information incorporated by
reference therein from documents filed by Parent or any of its
Subsidiaries with the SEC.
3.10 Compliance with Laws and Orders. The Company and
its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental and
Regulatory Authorities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except for
failures to hold such permits, licenses, variances, exemptions,
orders and approvals which, individually or in the aggregate, are
not having and could not be reasonably expected to have a
material adverse effect on the Company and its Subsidiaries taken
as a whole. The Company and its Subsidiaries are in compliance
with the terms of the Company Permits, except failures so to
comply which, individually or in the aggregate, are not having
and could not be reasonably expected to have a material adverse
effect on the Company and its Subsidiaries taken as a whole.
Except as disclosed in the Company SEC Reports filed prior to the
date of this Agreement, the Company and its Subsidiaries are not
in violation of or default under any Law or Order of any
Governmental or Regulatory Authority, except for violations
which, individually or in the aggregate, are not having and could
not be reasonably expected to have a material adverse effect on
the Company and its Subsidiaries taken as a whole.
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3.11 Compliance with Agreements; Certain Agreements.
(a) Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement, neither the Company
nor any of its Subsidiaries nor to the knowledge of the Company
and its Subsidiaries any other party thereto is in breach or
violation of, or in default in the performance or observance of
any term or provision of, and no event has occurred which, with
notice or lapse of time or both, could be reasonably expected to
result in a default under, (i) the certificates of incorporation
or bylaws (or other comparable charter documents) of the Company
or any of its Subsidiaries or (ii) 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
assets or properties is bound, except in the case of clause (ii)
for breaches, violations and defaults which, individually or in
the aggregate, are not having and could not be reasonably
expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
(b) Except as disclosed in Section 3.11 of the Company
Disclosure Letter or in the Company SEC Reports filed prior to
the date of this Agreement or as provided for in this Agreement,
as of the date hereof, neither the Company nor any of its
Subsidiaries is a party to any oral or written (i) consulting
agreement not terminable on 30 days' or less notice involving the
payment of more than $25,000 per annum or $250,000 per annum in
the aggregate for all such agreements, (ii) union or collective
bargaining agreement, (iii) agreement with any executive officer
or other key employee of the Company or any of its Subsidiaries
the benefits of which are contingent or vest, or the terms of
which are materially altered, upon the occurrence of a
transaction involving the Company or any of its Subsidiaries of
the nature contemplated by this Agreement, (iv) agreement with
respect to any executive officer or other key employee of the
Company or any of its Subsidiaries providing any term of
employment or compensation guarantee or (v) except as disclosed
in the Company's Disclosure Letter, agreement or plan, including
any stock option, stock appreciation right, restricted stock or
stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement. Except as disclosed
in Section 3.11 of the Company Disclosure Letter, as of the date
hereof, neither the Company nor any of its Subsidiaries is party
to any written employment agreement.
3.12 Taxes. Except as disclosed in the SEC Reports or
in Section 3.12 of the Company Disclosure Letter (with paragraph
references corresponding to those set forth below):
(a) All material Tax Returns required to be filed with
respect to the Company and its Subsidiaries have been duly and
timely filed, and all such Tax Returns are true and complete in
all material respects. The Company and each of its Subsidiaries
have duly and timely paid all Taxes that are shown as due, or
claimed or asserted by any taxing authority to be due, from it
for the periods covered by such Tax Returns and have made all
required estimated payments of Taxes sufficient to avoid any
penalties for underpayment, or have duly provided for all such
Taxes in the financial statements included in the SEC Reports.
There are no Liens with respect to Taxes (except for Liens for
Taxes not yet due) upon any of the assets or properties of the
Company or any of its Subsidiaries.
(b) With respect to any period for which Tax Returns
have not yet been filed, or for which Taxes are not yet due or
owing, the Company and its Subsidiaries have made sufficient
current accruals for such Taxes in accordance with GAAP, and such
current accruals through June 2, 1995 are duly provided for in
the financial statements included in the SEC Reports.
(c) The material Tax Returns of the Company and its
Subsidiaries have not been audited or examined by the United
States Internal Revenue Service (the "IRS") and the statute of
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limitations for all periods through 1990 has expired. There are
no outstanding agreements, waivers or arrangements extending the
statutory period of limitation applicable to any claim for, or
the period for the collection or assessment of, Taxes due from
the Company or any of its Subsidiaries for any taxable period.
The Company has previously delivered to Parent true and complete
copies of each of the United States federal, state, local and
foreign income Tax Returns, for each of the last three taxable
years, filed by the Company or any of its Subsidiaries.
(d) No audit or other proceeding by any court,
governmental or regulatory authority, or similar entity is
pending or, to the knowledge of the Company, threatened with
respect to any material Taxes due from the Company or any of its
Subsidiaries or any material Tax Return filed by or relating to
the Company or any of its Subsidiaries. To the knowledge of the
Company, no assessment of Tax is proposed or, based on existing
facts and circumstances, is threatened against the Company or any
of its Subsidiaries or any of their respective assets or
properties.
(e) No election under any of Section 108, 338 or 4977
of the Internal Revenue Code of 1986, as amended and the rules
and regulations thereunder (the "Code") (or any predecessor
provisions) has been made or filed by or with respect to the
Company or any of its Subsidiaries or any of their assets or
properties. No consent to the application of Section 341(f)(2)
of the Code (or any predecessor provision) has been made or filed
by or with respect to the Company or any of its Subsidiaries or
any of their assets or properties.
(f) Neither the Company nor any of its Subsidiaries
has agreed to or is required to make any adjustment pursuant to
Section 481(a) of the Code (or any predecessor provision) by
reason of any change in any accounting method or has any
application pending with any taxing authority requesting
permission for any changes in any accounting method of any of
them, and the IRS has not proposed any such adjustment or change
in accounting method.
(g) Neither the Company nor any of its Subsidiaries
has been or is in violation (or with notice or lapse of time or
both, would be in violation) of any applicable Law relating to
the payment or withholding of any material Taxes. The Company
and its Subsidiaries have duly and timely withheld from employee
salaries, wages and other compensation and paid over to the
appropriate taxing authorities all material amounts required to
be so withheld and paid over for all periods under all applicable
Laws based upon information provided by such employees to the
Company and its Subsidiaries.
"GAAP" shall mean generally accepted accounting
principles, consistently applied throughout the specified period
and in the immediately prior comparable period, except as
disclosed in the notes to the Company's financial statements.
"Taxes" shall mean all taxes, charges, fees, levies or
other similar assessments or liabilities, including without
limitation, income, gross receipts, ad valorem, premium, excise,
real property, personal property, windfall profit, sales, use,
transfer, licensing, withholding, employment, payroll and
franchise taxes imposed by the United States or any state, local
or foreign Governmental or Regulatory Authority; and such term
shall include any interest, fines, penalties, assessments or
additions to tax resulting from, attributable to or incurred in
connection with any such tax or any contest or dispute thereof.
"Tax Returns" shall mean any report, return or other
information required to be supplied to a taxing authority in
connection with Taxes.
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3.13 Employee Benefit Plans; ERISA.
(a) Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement or as set forth in
Section 3.13 of the Company Disclosure Letter:
(i) to the knowledge of the Company and its
Subsidiaries, no prohibited transaction within the meaning
of Section 406 or 407 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975
of the Code with respect to any Company Employee Benefit
Plan (as defined below) has occurred during the five-year
period preceding the date of this Agreement;
(ii) there is no outstanding liability (except for
premiums due) under Title IV of ERISA with respect to any
Company Employee Benefit Plan;
(iii) neither the Pension Benefit Guaranty Corporation
(the "PBGC"), the Company nor any of its Subsidiaries has
instituted proceedings to terminate any Company Employee
Benefit Plan;
(iv) full payment has been made of all amounts which
the Company or any of its Subsidiaries were required to have
paid as a contribution to the Company Employee Benefit Plans
as of the last day of the most recent fiscal year of each of
the Company Employee Benefit Plans ended prior to the date
of this Agreement, and none of the Company Employee Benefit
Plans has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, as of the last day of the most
recent fiscal year of each such Company Employee Benefit
Plan ended prior to the date of this Agreement;
(v) the value on a termination basis of accrued
benefits under each of the Company Employee Benefit Plans
which is subject to Title IV of ERISA, based upon the
actuarial assumptions used for funding purposes in the most
recent actuarial report prepared by such Company Employee
Benefit Plan's actuary with respect to each such Company
Employee Benefit Plan, did not, as of its latest valuation
date, exceed the then current value of the assets of such
Company Employee Benefit Plan;
(vi) each of the Company Employee Benefit Plans which
is intended to be "qualified" within the meaning of
Section 401(a) of the Code has been determined by the IRS to
be so qualified and such determination has not been
modified, revoked or limited;
(vii) each of the Company Employee Benefit Plans is,
and its administration is and has been during the five-year
period preceding the date of this Agreement in all material
respects in compliance with, and none of the Company nor any
of its Subsidiaries has received any claim or notice that
any such Company Employee Benefit Plan is not in compliance
with, all applicable laws and orders and prohibited
transaction exemptions, including, without limitation, the
requirements of ERISA;
(viii) to the knowledge of the Company and its
Subsidiaries, there are no material pending, threatened or
anticipated claims involving any of the Company Employee
Benefit Plans;
(ix) to the knowledge of the Company and its
Subsidiaries, during the five-year period preceding the date
of this Agreement, none of the Company or any of its
Subsidiaries has entered into any transaction which could
subject such entity to liability under Section 302(c)(ii),
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4062, 4063, 4064, or 4069 of ERISA and no "reportable event"
within the meaning of Section 4043 of ERISA has occurred
with respect to any Company Employee Benefit Plan;
(x) none of the Company or any of its Subsidiaries is
in default in performing any of its contractual obligations
under any of the Company Employee Benefit Plans or any
related trust agreement or insurance contract;
(xi) there are no material outstanding liabilities of
any Company Employee Benefit Plan other than liabilities for
benefits to be paid to participants in such Company Employee
Benefit Plan and their beneficiaries in accordance with the
terms of such Company Employee Benefit Plan; and
(xii) none of the Company or any of its Subsidiaries
maintains or is obligated to provide benefits under any
life, medical or health plan which provides benefits to
retirees or other terminated employees other than benefit
continuation rights under the Consolidated Omnibus
Reconciliation Act of 1985, as amended.
(b) Except as set forth in Section 3.13 of the Company
Disclosure Letter, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby constitutes a change in control or has or will accelerate
benefits under any Company Employee Benefit Plan.
(c) As used herein:
(i) "Company Employee Benefit Plan" means any Plan
entered into, established, maintained, contributed to or
required to be contributed to by the Company or any of its
Subsidiaries and existing on the date of this Agreement or
at any time subsequent thereto and on or prior to the
Effective Time and, in the case of a Plan which is subject
to Part 3 of Title I of ERISA, Section 412 of the Code or
Title IV of ERISA, at any time during the five-year period
preceding the date of this Agreement; and
(ii) "Plan" means any employment, bonus, incentive
compensation, deferred compensation, pension, profit
sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave
of absence, layoff, vacation, day or dependent care, legal
services, cafeteria, life, health, medical, accident,
disability, workmen's compensation or other insurance,
severance, separation, termination, change of control or
other benefit plan, agreement, practice, policy or
arrangement of any kind, whether written or oral, including,
but not limited to any "employee benefit plan" within the
meaning of Section 3(3) of ERISA.
3.14 Insurance. The Company delivered to Parent prior
to the execution of this Agreement a true and complete list of
all liability, property, workers' compensation, directors' and
officers' liability and other insurance policies currently in
effect that insure the business, operations, properties, assets
or employees of the Company or any of its Subsidiaries. Such
insurance policies are placed with financially sound and
reputable insurers and, in light of the respective business,
operations, assets and properties of the Company and its
Subsidiaries, are in amounts and have coverages that are
reasonable and customary for persons engaged in such businesses
and operations and having such assets and properties.
3.15 Labor Matters. Except as disclosed in the
Company SEC Reports filed prior to the date of this Agreement or
in Section 3.15 of the Company Disclosure Letter, there are no
material controversies pending or, to the knowledge of the
Company and its Subsidiaries, threatened between the Company or
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any of its Subsidiaries and any representatives of its employees,
and, to the knowledge of the Company and its Subsidiaries, there
are no material organizational efforts presently being made
involving any of the now unorganized employees of the Company or
any of its Subsidiaries. Since June 3, 1995, there has been no
work stoppage, strike or other concerted action by employees of
the Company or any of its Subsidiaries.
3.16 Environmental Matters. (a) Each of the Company
and its Subsidiaries has obtained all licenses, permits,
authorizations, approvals and consents from Governmental or
Regulatory Authorities which are required under any applicable
Environmental Law (as defined below) in respect of its business
or operations ("Environmental Permits"), except for such failures
to have Environmental Permits which, individually or in the
aggregate, could not reasonably be expected to have a material
adverse effect on the Company and its Subsidiaries taken as a
whole. Each of such Environmental Permits is in full force and
effect and each of the Company and its Subsidiaries is in
compliance in all material respects with the terms and conditions
of all such Environmental Permits and with any applicable
Environmental Law, except for such failures to be in compliance
which, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
(b) No oral or written notification of a "release" (as
defined in 42 U.S.C. SECTION 9601(22)) of a Hazardous Material has been
filed by or on behalf of the Company or any of its Subsidiaries
and no site or facility now or previously owned, operated or
leased by the Company or any of its Subsidiaries is listed or
proposed for listing on the National Priorities List promulgated
pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the rules
and regulations promulgated thereunder ("CERCLA") or on any
similar state or local list of sites requiring investigation or
clean-up.
(c) No Liens have arisen under or pursuant to any
Environmental Law on any site or facility owned, operated or
leased by the Company or any of its Subsidiaries, other than any
such real property not individually or in the aggregate material
to the Company and its Subsidiaries taken as a whole, and no
action of any Governmental or Regulatory Authority has been taken
or, to the knowledge of the Company and its Subsidiaries, is in
process which could subject any of such properties to such Liens,
and neither the Company nor any of its Subsidiaries would be
required to place any notice or restriction relating to the
presence of Hazardous Materials at any such site or facility
owned by it in any deed to the real property on which such site
or facility is located.
(d) There have been no environmental investigations,
studies, audits, tests, reviews or other analyses conducted by,
or which are in the possession of, the Company or any of its
Subsidiaries in relation to any site or facility now or
previously owned, operated or leased by the Company or any of its
Subsidiaries which have not been delivered to Parent prior to the
execution of this Agreement.
(e) As used herein:
(i) "Environmental Law" means any Law or Order of any
Governmental or Regulatory Authority relating to the
regulation or protection of human health, safety or the
environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes into
the environment (including, without limitation, ambient air,
soil, surface water, ground water, wetlands, land or
subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous
substances or wastes; and
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(ii) "Hazardous Material" means (A) any petroleum or
petroleum products, flammable explosives, radioactive
materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation and transformers
or other equipment that contain dielectric fluid containing
levels of polychlorinated biphenyls (PCBs); (B) any
chemicals or other materials or substances which are now or
hereafter become defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants" or
words of similar import under any Environmental Law; and (C)
any other chemical or other material or substance, exposure
to which is now or hereafter prohibited, limited or
regulated by any Governmental or Regulatory Authority under
any Environmental Law.
3.17 Tangible Property and Assets. Except as
disclosed in the Company SEC Reports filed prior to the date of
this Agreement, the Company and its Subsidiaries have good and
marketable title to, or have valid leasehold interests in or
valid rights under contract to use, all tangible property and
assets used in and, individually or in the aggregate, material to
the conduct of the businesses of the Company and its Subsidiaries
taken as a whole (including all tangible property and assets
reflected on the latest audited balance sheet included in such
Company SEC Reports or acquired since such date, other than
property or assets disposed of since such date or held subject to
a lease or other contract permitted to expire in accordance with
its terms since such date, in either case in the ordinary course
of business), free and clear of all Liens other than (i) any
statutory Lien arising in the ordinary course of business by
operation of law with respect to a liability that is not yet due
or delinquent and (ii) any minor imperfection of title or similar
Lien which individually or in the aggregate with other such Liens
does not materially impair the value of the property or asset
subject to such Lien or the use of such property or asset in the
conduct of the business of the Company or any such Subsidiary.
All such property and assets are, in all material respects, in
good working order and condition, ordinary wear and tear
excepted, and adequate and suitable for the purposes for which
they are presently being used.
3.18 Intellectual Property Rights. The Company and
its Subsidiaries have all right, title and interest in, or a
valid and binding license to use, all Intellectual Property (as
defined below) individually or in the aggregate material to the
conduct of the businesses of the Company and its Subsidiaries
taken as a whole. Neither the Company nor any Subsidiary of the
Company is in default (or with the giving of notice or lapse of
time or both, would be in default) in any material respect under
any license to use such Intellectual Property, such Intellectual
Property is not being infringed by any third party, and neither
the Company nor any Subsidiary of the Company is infringing any
Intellectual Property of any third party, except for such
defaults and infringements which, individually or in the
aggregate, are not having and could not be reasonably expected to
have a material adverse effect on the Company and its
Subsidiaries taken as a whole. For purposes of this Agreement,
"Intellectual Property" means patents and patent rights,
trademarks and trademark rights, trade names and trade name
rights, service marks and service mark rights, service names and
service name rights, copyrights and copyright rights, software
and other proprietary intellectual property rights and all
pending applications for and registrations of any of the
foregoing.
3.19 Vote Required. Assuming the accuracy of the
representation and warranty contained in Section 4.05, the
affirmative vote of the holders of record of at least a majority
of the outstanding shares of Company Common Stock with respect to
the adoption of this Agreement is the only vote of the holders of
any class or series of the capital stock of the Company required
to adopt this Agreement and approve the Merger and the other
transactions contemplated hereby.
3.20 Opinion of Financial Advisor. The Company has
received the opinion of A.G. Edwards & Sons, Inc., dated the date
hereof, to the effect that, as of the date hereof, the
consideration to be received in the Merger by the stockholders of
the Company is fair from a financial point of view to the
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stockholders of the Company, and a true and complete copy of such
opinion has been delivered to Parent prior to the execution of
this Agreement. Such opinion will be updated prior to the filing
of the Proxy Statement.
3.21 Company Not an Interested Stockholder or an
Acquiring Person. Neither the Company nor any of its affiliates
or associates is an "interested person" (as such term is defined
in Section 1203 of the CGCL), or an owner, directly or
indirectly, of shares of Parent or the Sub representing more than
50 percent of the voting power of Parent or the Sub within the
meaning of Section 1101 of the CGCL.
3.22 Section 1203 of the CGCL Not Applicable. The
provisions of Section 1203 of the CGCL will not, before the
termination of this Agreement, assuming the accuracy of the
representation and warranty contained in Section 4.05, apply to
this Agreement, the Merger or the other transactions contemplated
hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as
follows:
4.01 Organization and Qualification. Each of Parent
and its Subsidiaries (including Sub) is a corporation duly
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has full corporate power
and authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties,
except (in the case of any Subsidiary) for such failures to be so
organized, existing and in good standing or to have such power
and authority which, individually or in the aggregate, are not
having and could not be reasonably expected to have a material
adverse effect on Parent and its Subsidiaries taken as a whole.
Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, has engaged in no
other business activities and has conducted its operations only
as contemplated hereby. Each of Parent and its Subsidiaries is
duly qualified, licensed or admitted to do business and is in
good standing in each jurisdiction in which the ownership, use or
leasing of its assets and properties, or the conduct or nature of
its business, makes such qualification, licensing or admission
necessary, except for such failures to be so qualified, licensed
or admitted and in good standing which, individually or in the
aggregate, are not having and could not be reasonably expected to
have a material adverse effect on Parent and its Subsidiaries
taken as a whole. Section 4.01 of the letter dated the date
hereof and delivered by Parent and Sub to the Company
concurrently with the execution and delivery of this Agreement
(the "Parent Disclosure Letter") sets forth the name and
jurisdiction of incorporation of each Subsidiary of Parent.
4.02 Authority Relative to this Agreement. Each of
Parent and Sub has full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by each of
Parent and Sub and the consummation by each of Parent and Sub of
the transactions contemplated hereby have been duly and validly
approved by its Board of Directors and by Parent in its capacity
as the sole stockholder of Sub, and no other corporate
proceedings on the part of either of Parent or Sub or their
stockholders are necessary to authorize the execution, delivery
and performance of this Agreement by Parent and Sub and the
consummation by Parent and Sub of the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by each of Parent and Sub and constitutes a legal,
valid and binding obligations of each of Parent and Sub
enforceable against each of Parent and Sub in accordance with its
terms, except as enforceability may be limited by bankruptcy,
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insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
4.03 Non-Contravention; Approvals and Consents.
(a) The execution and delivery of this Agreement by
each of Parent and Sub do not, and the performance by each of
Parent and Sub of its obligations hereunder and the consummation
of the transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or
give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or
result in the creation or imposition of any Lien upon any of the
assets or properties of Parent or any of its Subsidiaries under,
any of the terms, conditions or provisions of (i) the
certificates or articles of incorporation or bylaws (or other
comparable charter documents) of Parent or any of its
Subsidiaries, or (ii) subject to the taking of the actions
described in paragraph (b) of this Section, (x) any Laws or
Orders of any Governmental or Regulatory Authority applicable to
Parent or any of its Subsidiaries or any of their respective
assets or properties, or (y) any Contracts to which Parent or any
of its Subsidiaries is a party or by which Parent or any of its
Subsidiaries or any of their respective assets or properties is
bound, excluding from the foregoing clauses (x) and (y)
conflicts, violations, breaches, defaults, terminations,
modifications, accelerations and creations and impositions of
Liens which, individually or in the aggregate, could not be
reasonably expected to have a material adverse effect on Parent
and its Subsidiaries taken as a whole or on the ability of Parent
and Sub to consummate the transactions contemplated by this
Agreement.
(b) Except (i) for the filing of a pre-merger
notification report by Parent under the HSR Act, (ii) for the
filing of the Certificate of Merger and other appropriate merger
documents required by the CGCL with the Secretary of State and
appropriate documents with the relevant authorities of other
states in which the Constituent Corporations are qualified to do
business and (iii) as disclosed in Section 4.03 of the Parent
Disclosure Letter, no consent, approval or action of, filing with
or notice to any Governmental or Regulatory Authority or other
public or private third party is necessary or required under any
of the terms, conditions or provisions of any Law or Order of any
Governmental or Regulatory Authority or any Contract to which
Parent or any of its Subsidiaries is a party or by which Parent
or any of its Subsidiaries or any of their respective assets or
properties is bound for the execution and delivery of this
Agreement by each of Parent and Sub, the performance by each of
Parent and Sub of its obligations hereunder or the consummation
of the transactions contemplated hereby, other than such
consents, approvals, actions, filings and notices which the
failure to make or obtain, as the case may be, individually or in
the aggregate, could not be reasonably expected to have a
material adverse effect on Parent and its Subsidiaries taken as a
whole or on the ability of Parent and Sub to consummate the
transactions contemplated by this Agreement.
(c) Except as disclosed in Parent SEC Reports filed
prior to the date of this Agreement (i) there are no actions,
suits, arbitrations or proceedings pending or, to the knowledge
of Parent and its Subsidiaries, threatened against, relating to
or affecting, nor to the knowledge of Parent and its Subsidiaries
are there any Governmental or Regulatory Authority investigations
or audits pending or threatened against, relating to or
affecting, Parent or any of its Subsidiaries or any of their
respective assets and properties which, if determined adversely
to Parent or any of its Subsidiaries, individually or in the
aggregate, could be reasonably expected to have a material
adverse effect on Parent and its Subsidiaries taken as a whole or
on the ability of Parent to consummate the transactions
contemplated by this Agreement, and there are no facts or
circumstances known to Parent or any of its Subsidiaries that
could be reasonably expected to give rise to any such action,
suit, arbitration, proceeding, investigation or audit, and (ii)
neither Parent nor any of its Subsidiaries is subject to any
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Order of any Governmental or Regulatory Authority which,
individually or in the aggregate, is having or could be
reasonably expected to have a material adverse effect on Parent
and its Subsidiaries taken as a whole or on the ability of Parent
to consummate the transactions contemplated by this Agreement.
4.04 Information Supplied. Any documents filed or to
be filed by Parent, or supplied by Parent for filing with the SEC
or any other Governmental or Regulatory Authority in connection
with the Merger and the other transactions contemplated hereby
will (in the case of any documents filed with the SEC under the
Securities Act or the Exchange Act) comply as to form in all
material respects with the requirements of the Exchange Act and
the Securities Act, respectively, and will not, on the date of
its filing or at the time it becomes effective under the
Securities Act, at the date the Proxy Statement is mailed to
stockholders of the Company, at the time of the Company
Stockholders' Meeting and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which
they are made, not misleading, except that no representation is
made by Parent or Sub with respect to information supplied in
writing by or on behalf of the Company expressly for inclusion
therein and information incorporated by reference therein from
documents filed by Parent or any of its Subsidiaries with the
SEC.
4.05 Vote Required. Assuming the accuracy of the
representation and warranty contained in Section 3.21, the
affirmative vote of Parent as sole stockholder of the Sub is the
only vote of the holders of any class or series of the capital
stock of Parent or Sub required to approve the Merger and the
other transactions contemplated hereby.
4.06 Parent Not an Interested Party or a Restricted
Owner. Neither Parent nor any of its affiliates or associates
(including Sub) is an "interested person" (as such term is
defined in Section 1203 of the CGCL), or an owner, directly or
indirectly, of shares of the Company representing more than 50
percent of the voting power of the Company within the meaning of
Section 1101 of the CGCL.
4.07 Certain Provisions Not Applicable. None of the
provisions of Parent's Certificate of Incorporation, Section
1203 or the Final Two Sentences of Section 1103 of the CGCL or
the provisions of Section 203 of the DGCL will, before the
termination of this Agreement, assuming the accuracy of the
representation and warranty contained in Section 3.21, apply to
this Agreement, the Merger or the other transactions contemplated
hereby.
4.08 Exon-Florio Amendment. Parent is not a "foreign
person" for purposes of Section 721 of the Defense Production Act
of 1950, as amended, and any successor thereto and the
regulations issued pursuant thereto or in consequence thereof
(the "Exon-Florio Amendment").
4.09 Financing. Parent has available to it sufficient
funds to fulfill its obligations under this Agreement.
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ARTICLE V
COVENANTS
5.01 Covenants of the Company and Parent. At all
times from and after the date hereof until the Effective Time,
the Company and Parent each covenants and agrees as to itself and
its Subsidiaries that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the other
party shall otherwise consent in writing, which consent shall not
be unreasonably withheld):
(a) Ordinary Course. Subject to paragraph (b) of this
Section, each party and each of its Subsidiaries shall conduct
their respective businesses only in, and none of the Company,
Parent and such Subsidiaries shall take any action except in, the
ordinary course consistent with past practice.
(b) Without limiting the generality of paragraph (a)
of this Section, (i) each party and its Subsidiaries shall use
all commercially reasonable efforts to preserve intact in all
material respects their present business organizations and
reputation, to keep available the services of their key officers
and employees, to maintain their assets and properties in good
working order and condition, ordinary wear and tear excepted, to
maintain insurance on their tangible assets and businesses in
such amounts and against such risks and losses as are currently
in effect, to preserve their relationships with customers and
suppliers and others having significant business dealings with
them and to comply in all material respects with all Laws and
Orders of all Governmental or Regulatory Authorities applicable
to them, and (ii) the Company shall not, nor shall it permit any
of its Subsidiaries to:
(A) amend or propose to amend its certificate or
articles of incorporation or bylaws (or other comparable
corporate charter documents);
(B) declare, set aside or pay any dividends on or
make other distributions in respect of any of its capital
stock, except that the Company may continue the declaration
and payment of regular quarterly cash dividends on Company
Common Stock with usual record and payment dates for such
dividends in accordance with past dividend practice, except
that the Company may declare and pay a special dividend
equal to the proceeds of a disposition of LCT, or may effect
a spin-off of its interest in LCT to the Company's
shareholders, in either case subject to the limitations set
for in subparagraph (I) below, and except for the
declaration and payment of dividends by a wholly owned
Subsidiary solely to its parent corporation, (x) split,
combine, reclassify or take similar action with respect to
any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, (y)
adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or
a dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (z) directly or
indirectly redeem, repurchase or otherwise acquire any
shares of its capital stock or any Option with respect
thereto; provided, however, that the foregoing shall not
restrict the ability of the Company to enter into any
transaction referenced in subparagraph (I) below;
(C) issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital
stock or any Option with respect thereto (other than (w) the
issuance of shares of Company Common Stock upon exercise of
presently outstanding Options pursuant to plans disclosed in
Section 3.02 of the Company Disclosure Letter, (x) the
issuance by a wholly-owned Subsidiary of its capital stock
to its parent corporation, or modify or amend any right of
any holder of outstanding shares of capital stock or Options
with respect thereto, (y) issuances of Company Common Stock
in connection with the Earnout Payment and (z) issuances of
LCT stock in connection with the transactions referred to in
subparagraph (I) below);
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(D) acquire (by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner) any
business or any corporation, partnership, association or
other business organization or division thereof or otherwise
acquire or agree to acquire any assets other than in the
ordinary course of its business consistent with past
practice;
(E) other than dispositions in the ordinary course of
its business consistent with past practice or a disposition
of the Company's interest in LCT, sell, lease, grant any
security interest in or otherwise dispose of or encumber any
of its assets or properties;
(F) except to the extent required by applicable law,
(x) permit any material change in (A) any pricing,
marketing, purchasing, investment, accounting, financial
reporting, inventory, credit, allowance or tax practice or
policy or (B) any method of calculating any bad debt,
contingency or other reserve for accounting, financial
reporting or tax purposes or (y) make any material tax
election or settle or compromise any material income tax
liability with any Governmental or Regulatory Authority;
(G) (x) incur (which shall not be deemed to include
entering into credit agreements, lines of credit or similar
arrangements until borrowings are made under such
arrangements) any indebtedness for borrowed money or
guarantee any such indebtedness other than in the ordinary
course of its business consistent with past practice in an
aggregate principal amount exceeding $1,000 (net of any
amounts of any such indebtedness discharged during such
period), or (y) voluntarily purchase, cancel, prepay or
otherwise provide for a complete or partial discharge in
advance of a scheduled repayment date with respect to, or
waive any right under, any indebtedness for borrowed money
other than in the ordinary course of its business consistent
with past practice in an aggregate principal amount
exceeding $1,000;
(H) enter into, adopt, amend in any material respect
(except as may be required by applicable law) or terminate
any Company Employee Benefit Plan or other agreement,
arrangement, plan or policy between such party or one of its
Subsidiaries and one or more of its directors, officers or
employees, or, except for normal increases in the ordinary
course of business consistent with past practice that, in
the aggregate, do not result in a material increase in
benefits or compensation expense to such party and its
Subsidiaries taken as a whole, increase in any manner the
compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any plan or
arrangement in effect as of the date hereof;
(I) enter into any contract or amend or modify any
existing contract, or engage in any new transaction outside
the ordinary course of business consistent with past
practice or not on an arm's length basis, with any affiliate
of such party or any of its Subsidiaries, provided, however,
that the Company is expressly permitted to dispose of its
interest in LCT as reflected by the "Pro Forma Balance
Sheet" dated as of September 1, 1995 attached to the
Disclosure Letter but not to exceed an aggregate
shareholders equity (disregarding the effect of any earnout
payment) of $8,915,000 increased by net earnings, or
decreased by net losses or asset write downs, and with no
advances by the Company to LCT or intercompany obligations
of LCT to the Company in excess of the amounts shown on the
LCT Proforma Balance Sheet, whether by spin-off to the
Company's shareholders, disposition to third parties or
otherwise and the Company may distribute the proceeds of any
such disposition to its shareholders provided that any such
distribution to Company shareholders shall be net of all
transaction costs including taxes in excess of $1,458,000
arising from the disposition; and provided further that if
the transaction costs including taxes in excess of
$1,458,000 arising from the disposition exceed the proceeds
of such disposition then such excess shall be deemed to be a
cash amount paid in respect of the Earnout Payment and shall
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cause an adjustment of the Conversion Amount as provided in
section 2.01(e). Any expenses in addition to transaction
costs incurred by LCT from September 1, 1995 to Closing paid
or required to be paid by the Company on behalf of LCT and
not paid by LCT to the Company prior to Closing shall be
deemed to be a transaction cost and shall be adjusted as
provided in Section 2.01(e). For purposes of the foregoing,
(i) any liability of LCT transferred to or assumed by the
Company in excess of $597,000 reflected as an adjustment in
the LCT Pro Forma Balance Sheet shall be deemed to be a
transaction cost, and (ii) any transaction costs (including
without limitation legal and accounting fees, investment
bankers' fees, costs of soliciting proxies, SEC filing fees,
and related expenses) arising from the negotiation and
implementation of this Agreement and the sale or disposition
of LCT, to the extent the aggregate of such transaction
costs exceeds $600,000, shall be deemed to be transaction
costs arising from the sale or disposition of LCT.
In estimating the tax liability above, each party recognizes
that a significant block of LCT stock may be sold to a third
party at a price which may reflect a control premium, this
purchase price may, therefore, not proportionately reflect
the fair market value of 100% of LCT.
The parties further agree that the estimate of the Parent's
tax liability per this Section 5.01(I) will be prepared in a
manner consistent with the estimates and methods to be used
in the filing of Geodynamics' tax return actually reflecting
the gain.
(J) make any capital expenditures or commitments for
additions to plant, property or equipment constituting
capital assets except in the ordinary course of business
consistent with past practice in an aggregate amount not
exceeding $100,000;
(K) make any change in the lines of business in which
it participates or is engaged other than such changes
effected in connection with any disposition of LCT;
(L) without the prior written consent of Parent, which
consent shall not unreasonably be withheld, do any of the
following: enter into any fixed price contracts in excess of
$50,000; enter into any new lease agreements; invest any excess
cash in instruments with a maturity date beyond ninety days;
appoint any additional officers of the Company; effect any
changes to the management structure of the Company other then
those changes disclosed to Parent prior to the execution of this
Agreement; make any capital expenditure or commitment to make a
capital expenditure towards the purchase of a management
information system; increase the salary of any officer or
employee in a manner inconsistent with past practice but in no
event shall any increase exceed eight percent (8%); or grant to
any officer or employee any bonus payment, provided however the
Company may make spot awards which collectively shall not exceed
$25,000. Subject to the foregoing, the Company and Parent will
establish an interim working committee chaired by the Company's
Chief Executive Officer and an individual chosen by the Chief
Executive Officer of Parent to facilitate the transition and
management of the Company in anticipation of the closing of this
transaction. In addition, the Chief Financial Officer of the
Company and of Parent shall participate as members of the interim
working committee; or
(M) enter into any contract, agreement, commitment or
arrangement to do or engage in any of the foregoing.
(c) Advice of Changes. Each party shall confer on a
regular and frequent basis with the other with respect to its
business and operations and other matters relevant to the Merger,
and shall promptly advise the other, orally and in writing, of
any change or event, including, without limitation, any
complaint, investigation or hearing by any Governmental or
Regulatory Authority (or communication indicating the same may be
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contemplated) or the institution or threat of litigation
including any shareholder litigation, having, or which, insofar
as can be reasonably foreseen, could have, a material adverse
effect on the Company and its Subsidiaries taken as a whole or on
the ability of the Company or Parent, as the case may be, to
consummate the transactions contemplated hereby.
5.02 No Solicitations. No party shall, nor shall it
permit any of its Subsidiaries to, nor shall it authorize or
permit any officer, director, employee, investment banker,
financial advisor, attorney, accountant or other agent or
representative (each, a "Representative") retained by or acting
for or on behalf of it or any of its Subsidiaries to, directly or
indirectly, initiate, solicit, encourage, or, unless the Board of
Directors believes, on the basis of advice furnished by
independent legal counsel, that the failure to take such actions
would constitute a breach of applicable fiduciary duties,
participate in any negotiations regarding, furnish any
confidential information in connection with, endorse or otherwise
cooperate with, assist, participate in or facilitate the making
of any proposal or offer for, or which may reasonably be expected
to lead to, an Acquisition Transaction (as defined below), by any
person, corporation, partnership or other entity or group (a
"Potential Acquiror"); provided, however, that nothing contained
in this Section shall prohibit the Company or its Board of
Directors from taking and disclosing to its stockholders a
position with respect to a tender offer by a Potential Acquiror
pursuant to Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act or from making such disclosure to its stockholders
which, in the judgment of the Board of Directors based upon the
opinion of independent counsel, may be required under applicable
law; provided, however, that (i) the Company may furnish or cause
to be furnished information concerning the Company and its
businesses, properties or assets to a Potential Acquiror (on
terms, including confidentiality terms, substantially similar to
those set forth in the confidentiality letter dated August 8,
1995 between Parent and the Company), (ii) the Company may engage
in discussions or negotiations with a Potential Acquiror, (iii)
following receipt of a proposal or offer for an Acquisition
Transaction, the Company may take and disclose to its
stockholders a position contemplated by Rules 14d-9 and 14e-2(a)
under the Exchange Act or otherwise make disclosure to the
Company's stockholders and (iv) following receipt of a proposal
or offer for an Acquisition Transaction the Board of Directors
may withdraw or modify its recommendation referred to in
Section 3.03, but in each case referred to in the foregoing
clauses (i) through (iv) only to the extent that the Board of
Directors of the Company shall conclude in good faith on the
basis of advice from independent counsel that such action is
necessary or appropriate in order for such Board of Directors to
act in a manner which is consistent with its fiduciary
obligations under applicable law. The Company will immediately
cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore
with respect to any Acquisition Transaction. As used in this
Agreement, "Acquisition Transaction" means any merger,
consolidation or other business combination involving the Company
or any of its Significant Subsidiaries (as defined below) other
than LCT, or any acquisition in any manner of all or a
substantial portion of the equity of, or all or a substantial
portion of the assets of, the Company and its Subsidiaries taken
as a whole (without regard to LCT), whether for cash, securities
or any other consideration or combination thereof other than
pursuant to the transactions contemplated by this Agreement; and
"Significant Subsidiary" means any Subsidiary of the Company that
would constitute a Significant Subsidiary of the Company within
the meaning of Rule 1-02 of Regulation S-X of the SEC.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 Access to Information; Confidentiality. (a) The
Company and its Subsidiaries shall, throughout the period from
the date hereof to the Effective Time, (i) provide Parent and its
Representatives with full access, upon reasonable prior notice
and during normal business hours, to all officers, employees,
agents and accountants of the Company and its Subsidiaries and
their respective assets, properties, books and records, but only
to the extent that such access does not unreasonably interfere
with the business and operations of the Company and its
Subsidiaries, and (ii) furnish promptly to such persons (x) a
copy of each report, statement, schedule and other document filed
or received by the Company or any of its Subsidiaries pursuant to
the requirements of federal or state securities laws or filed
with any other Governmental or Regulatory Authority, and (y) all
other information and data (including, without limitation, copies
of Contracts, Company Employee Benefit Plans or Parent Employee
Benefit Plans, as the case may be, and other books and records)
concerning the business and operations of the Company or Parent,
as the case may be, and its Subsidiaries as the other party or
any of such other persons reasonably may request. All such
access shall be limited to the extent necessary to comply with
restrictions of the United States applicable to any such
information. No investigation pursuant to this paragraph or
otherwise shall affect any representation or warranty contained
in this Agreement or any condition to the obligations of the
parties hereto.
(b) Each party will hold, and will use its best
efforts to cause its Representatives to hold, in strict
confidence, unless (i) compelled to disclose by judicial or
administrative process or by other requirements of applicable
Laws of Governmental or Regulatory Authorities (including,
without limitation, in connection with obtaining the necessary
approvals of this Agreement or the transactions contemplated
hereby of Governmental or Regulatory Authorities), or (ii)
disclosed in an action or proceeding brought by a party hereto in
pursuit of its rights or in the exercise of its remedies
hereunder, all documents and information concerning the other
party and its Subsidiaries furnished to it by such other party or
its Representatives in connection with this Agreement or the
transactions contemplated hereby, except to the extent that such
documents or information can be shown to have been (x) previously
known by the Company or Parent, as the case may be, or its
Representatives, (y) in the public domain (either prior to or
after the furnishing of such documents or information hereunder)
through no fault of the Company or Parent, as the case may be,
and its Representatives or (z) later acquired by the Company or
Parent, as the case may be, or its Representatives from another
source if the recipient is not aware that such source is under an
obligation to the Company or Parent, as the case may be, to keep
such documents and information confidential. In the event that
this Agreement is terminated without the transactions
contemplated hereby having been consummated, upon the request of
the Company or Parent, as the case may be, the other party will,
and will cause its Representatives to, promptly (and in no event
later than five (5) days after such request) redeliver or cause
to be redelivered all copies of documents and information
furnished by the Company or Parent, as the case may be, or its
Representatives to such party and its Representatives in
connection with this Agreement or the transactions contemplated
hereby and destroy or cause to be destroyed all notes, memoranda,
summaries, analyses, compilations and other writings related
thereto or based thereon prepared by the Company or Parent, as
the case may be, or its Representatives.
6.02 Preparation of Proxy Statement. The Company
shall prepare and file with the SEC as soon as reasonably
practicable after the date hereof the Proxy Statement. Parent,
Sub and the Company shall cooperate with each other in the
preparation of the Proxy Statement and any other such documents
and any amendments or supplements thereto, and each shall notify
the other of the receipt of any comments of the SEC with respect
to the Proxy Statement and of any requests by the SEC or any
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other person or entity for any amendments or supplements thereto
or for additional information, and shall provide to the other
promptly copies of all correspondence between Parent or the
Company, as the case may be, or any of its representatives with
respect to the Proxy Statement or any other such documents. Each
of the Company, Parent and Sub agrees to use its best efforts,
after consultation with the other parties hereto, to respond
promptly to all such comments of and requests by the SEC, and to
cause the Proxy Statement to be mailed to the holders of Company
Common Stock entitled to vote at the meeting of the stockholders
of the Company at the earliest practicable time.
6.03 Approval of Stockholders.
(a) The Company shall, through its Board of Directors,
duly call, give notice of, convene and hold a meeting of its
stockholders (the "Company Stockholders' Meeting") for the
purpose of voting on the adoption of this Agreement (the "Company
Stockholders' Approval") as soon as reasonably practicable after
the date hereof. Subject to the exercise of fiduciary
obligations under applicable law as advised by independent
counsel, the Company shall, through its Board of Directors,
include in the Proxy Statement the recommendation of the Board of
Directors of the Company that the stockholders of the Company
adopt this Agreement, and shall use its best efforts to obtain
such adoption. At such meeting, Parent shall, and shall cause
its Subsidiaries to, cause all shares of Company Common Stock
then owned by Parent or any such Subsidiary to be voted in favor
of the adoption of this Agreement.
(b) Parent and the Company shall use their reasonable
best efforts to cause the Company Stockholders' Meeting to be
held as soon as practicable after the date hereof.
6.04 Auditor's Letters. The Company shall cause to be
delivered to Parent and Sub a letter of Arthur Andersen & Co.
L.L.P., the Company's independent auditors, dated the Closing
Date, substantially in the form and to the effect of Exhibit B
hereto.
6.05 Regulatory and Other Approvals. Subject to the
terms and conditions of this Agreement and without limiting the
provisions of Sections 6.02 and 6.03, each of the Company and
Parent will proceed diligently and in good faith and will use all
commercially reasonable efforts to do, or cause to be done, all
things necessary, proper or advisable to, as promptly as
practicable, (a) obtain all consents, approvals or actions of,
make all filings with and give all notices to Governmental or
Regulatory Authorities or any other public or private third
parties required of Parent, the Company or any of their
Subsidiaries to consummate the Merger and the other matters
contemplated hereby, and (b) provide such other information and
communications to such Governmental or Regulatory Authorities or
other public or private third parties as the other party or such
Governmental or Regulatory Authorities or other public or private
third parties may reasonably request in connection therewith. In
addition to and not in limitation of the foregoing, (i) each of
the parties will (x) take promptly all actions necessary to make
the filings required of Parent and the Company or their
affiliates under the HSR Act, (y) comply at the earliest
practicable date with any request for additional information
received by such party or its affiliates from the Federal Trade
Commission (the "FTC") or the Antitrust Division of the
Department of Justice (the "Antitrust Division") pursuant to the
HSR Act, and (z) cooperate with the other party in connection
with such party's filings under the HSR Act and in connection
with resolving any investigation or other inquiry concerning the
Merger or the other matters contemplated by this Agreement
commenced by either the FTC or the Antitrust Division or state
attorneys general.
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6.06 Company Stock Plans.
(a) The Company will use reasonable diligence and
timely efforts to cause vested stock options to be exercised
prior to the Closing;
(b) At the Effective Time, each unexercised option to
purchase shares of Company Common Stock (a "Company Stock
Option") under the Company Option Plans shall be deemed to
constitute an option to acquire, on the same terms and conditions
as were applicable under such Company Stock Option, a number of
shares of Parent Common Stock equal to the product (rounded up to
the nearest whole share) of (i) the Conversion Number and (ii)
the number of shares of the Company Common Stock issuable upon
exercise of the option immediately prior to the Effective Time;
and the option exercise price per share of Parent Common Stock at
which such option is exercisable shall be the amount (rounded
down to the nearest whole cent) obtained by dividing (iii) the
option exercise price per share of Company Common Stock at which
such option is exercisable immediately prior to the Effective
Time by (iv) the Conversion Number; provided, however, that,
the option price, the number of shares purchasable pursuant to
such option and the terms and conditions of exercise of such
option shall be determined in order to comply with Section
424(b) of the Code.
(c) As soon as practicable after the Effective Time,
Parent shall deliver to the participants in the Company Option
Plans appropriate notices setting forth such participants' rights
pursuant thereto and the grants pursuant to the Company Option
Plans shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section after giving
effect to the Merger). Parent shall comply with the terms of the
Company Option Plans and ensure, to the extent required by, and
subject to the provisions of, the Company Option Plans, that the
Company Stock Options which qualified as qualified stock options
prior to the Effective Time continue to qualify as qualified
stock options after the Effective Time.
(d) Parent shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery under the Company Option Plans as
adjusted in accordance with this Section. As soon as practicable
after the Effective Time, Parent shall file a registration
statement on Form S-8 promulgated by the SEC under the Securities
Act (or any successor or other appropriate form) with respect to
the Parent Common Stock subject to such options and shall use its
best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for
so long as such options remain outstanding. With respect to
those individuals who subsequent to the Merger will be subject to
the reporting requirements under Section 16(a) of the Exchange
Act, where applicable, Parent shall administer the Company Option
Plans in a manner that complies with Rule 16b-3 promulgated under
the Exchange Act.
6.07 Directors' and Officers' Indemnification and
Insurance. (a) The Company, and from and after the Effective
Time Parent and the Surviving Corporation (each, an "Indemnifying
Party"), shall indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof or
who becomes prior to the Effective Time, a director, officer,
employee or agent of the Company or any of its Subsidiaries (the
"Indemnified Parties") against (i) all losses, claims, damages,
costs and expenses (including attorneys' fees), liabilities,
judgments and settlement amounts that are paid or incurred in
connection with any claim, action, suit, proceeding or
investigation (whether civil, criminal, administrative or
investigative and whether asserted or claimed prior to, at or
after the Effective Time) that is based in whole or in part on,
or arises in whole or in part out of, the fact that such
Indemnified Party is or was a director, officer, employee or
agent of the Company or any of its Subsidiaries and relates to or
arises out of any action or omission occurring at or prior to the
Effective Time ("Indemnified Liabilities"), to the extent the
Company would have been permitted under applicable law to
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indemnify its own directors, officers, employees or agents, as
the case may be, without giving effect to any limitations imposed
in Section 317(c) of the California Corporations Code, and (ii)
all Indemnified Liabilities based in substantial part on, or
arising in substantial part out of, or pertaining to this
Agreement or the transactions contemplated hereby, in each case
to the full extent a corporation is permitted, without giving
effect to any limitations imposed in Section 317(c) of the
California Corporations Code, under applicable law to indemnify
its own directors, officers, employees or agents, as the case may
be; provided that no Indemnifying Party shall be liable for any
settlement of any claim effected without its written consent,
which consent shall not be unreasonably withheld. Without
limiting the foregoing, in the event that any such claim, action,
suit, proceeding or investigation is brought against any
Indemnified Party (whether arising prior to or after the
Effective Time), (w) the Indemnifying Parties will pay expenses
in advance of the final disposition of any such claim, action
suit, proceeding or investigation to each Indemnified Party to
the full extent permitted by applicable law provided that the
person to whom expenses are advanced provides an undertaking to
repay such advance if it is ultimately determined that such
person is not entitled to indemnification; (x) the Indemnified
Parties shall retain counsel reasonably satisfactory to the
Indemnifying Parties; (y) the Indemnifying Parties shall pay all
reasonable fees and expenses of such counsel for the Indemnified
Parties (subject to the final sentence of this paragraph)
promptly as statements therefor are received; and (z) the
Indemnifying Parties shall use all commercially reasonable
efforts to assist in the vigorous defense of any such matter.
Any Indemnified Party wishing to claim indemnification under this
Section, upon learning of any such claim, action, suit,
proceeding or investigation, shall notify the Indemnifying
Parties, but the failure so to notify an Indemnifying Party shall
not relieve it from any liability which it may have under this
paragraph except to the extent such failure irreparably
prejudices such party. The Indemnified Parties as a group may
retain only one law firm to represent them with respect to each
such matter unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties.
(b) Parent and the Surviving Corporation shall, until
the first anniversary of the Effective Time, cause coverage to be
continued under, to the extent available, on commercially
reasonable terms, the policies of directors' and officers'
liability insurance maintained by the Company and its
Subsidiaries as of the date hereof with respect to claims arising
from facts or events within the coverage of such policies that
occurred on or prior to the Effective Time; provided that in no
event shall Parent or the Surviving Corporation be obligated to
expend in order to maintain or procure insurance coverage
pursuant to this paragraph any amount per annum in excess of one
hundred percent (100%) of the aggregate premiums paid by the
Company and its Subsidiaries in 1995 (on an annualized basis) for
such purpose; Parent and Surviving Corporation may, in lieu of
continuing such current policies or coverage, cause comparable
coverage to be provided under another policy or policies so long
as the material terms or coverage thereof are no less
advantageous than such existing policies.
(c) The provisions of this Section are intended to be
for the benefit of, and shall be enforceable by, each Indemnified
Party and each party entitled to insurance coverage under
paragraph (b) above, respectively, and his or her heirs and legal
representatives, and shall be in addition to any other rights an
Indemnified Party may have under the certificate or articles of
incorporation or bylaws of the Surviving Corporation or any of
its Subsidiaries, under the CGCL or otherwise.
(d) In the event the Company, Parent or the Surviving
Corporation or any of their respective successors or assigns (i)
consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each
such case, proper provision shall be made so that the successors
and assigns of the Company, Parent or the Surviving Corporation,
as the case may be, or at Parent's option, Parent, shall assume
the obligations set forth in paragraphs (a) and (b) of this
Section.
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6.08 Expenses. Except as set forth in Section 8.02,
whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
cost or expense.
6.09 Brokers or Finders. Each of Parent and the
Company represents, as to itself and its affiliates, that no
agent, broker, investment banker, financial advisor or other firm
or person is or will be entitled to any broker's or finder's fee
or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement except A.G.
Edwards & Sons, Inc., whose fees and expenses will be paid by the
Company in accordance with the Company's agreement with such
firm, and each of Parent and the Company shall indemnify and hold
the other harmless from and against any and all claims,
liabilities or obligations with respect to any other such fee or
commission or expenses related thereto asserted by any person on
the basis of any act or statement alleged to have been made by
such party or its affiliate.
6.10 Standstill. Parent agrees that until the
expiration of three years from the date of termination of this
Agreement, without the prior written consent of the Company, it
will not (a) in any manner acquire, agree to acquire or make any
proposal to acquire, directly or indirectly (i) a substantial
portion of the assets of the Company and its Subsidiaries taken
as a whole or (ii) five percent (5%) or more of the issued and
outstanding shares of Company Common Stock, (b) make or in any
way participate, directly or indirectly, in any "solicitation" of
"proxies" (as such terms are used in the proxy rules of the SEC)
to vote, or seek to advise or influence any person with respect
to the voting of, any voting securities of the Company or any of
its Subsidiaries or (c) form, join or in any way participate in a
"group" (within the meaning of Section 13(d) of the Exchange Act)
with respect to any voting securities of the Company or any of
its Subsidiaries.
6.11 Notice and Cure. Each of Parent and the Company
will notify the other in writing of, and contemporaneously will
provide the other with true and complete copies of any and all
information or documents relating to, and will use all
commercially reasonable efforts to cure before the Closing, any
event, transaction or circumstance, as soon as practical after it
becomes known to such party, occurring after the date of this
Agreement that causes or will cause any covenant or agreement of
Parent or the Company, as the case may be, under this Agreement
to be breached or that renders or will render untrue any
representation or warranty of Parent or the Company, as the case
may be, contained in this Agreement as if the same were made on
or as of the date of such event, transaction or circumstance.
Each of Parent and the Company also will notify the other in
writing of, and will use all commercially reasonable efforts to
cure, before the Closing, any violation or breach, as soon as
practical after it becomes known to such party, of any
representation, warranty, covenant or agreement made by Parent or
the Company, as the case may be, in this Agreement, whether
occurring or arising prior to, on or after the date of this
Agreement. No notice given pursuant to this Section shall have
any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein.
6.12 Fulfillment of Conditions. Subject to the terms
and conditions of this Agreement, each of Parent and the Company
will take or cause to be taken all commercially reasonable steps
necessary or desirable and proceed diligently and in good faith
to satisfy each condition to the other's obligations contained in
this Agreement and to consummate and make effective the
transactions contemplated by this Agreement, and neither Parent
nor the Company will, nor will it permit any of its Subsidiaries
to, take or fail to take any action that could be reasonably
expected to result in the nonfulfillment of any such condition.
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ARTICLE VII
CONDITIONS
7.01 Conditions to Each Party's Obligation to Effect
the Merger. The respective obligation of each party to effect
the Merger is subject to the fulfillment, at or prior to the
Closing, of each of the following conditions:
(a) Stockholder Approval. This Agreement shall have
been adopted by the requisite vote of the stockholders of the
Company under the CGCL and the Company's Articles of
Incorporation. This Agreement shall have been adopted by the
requisite vote of Parent as the sole stockholder of Sub.
(b) Exon-Florio Amendment. Parent shall have received
written notice from CFIUS of its determination pursuant to the
Exon-Florio Amendment not to undertake an investigation of the
transactions contemplated by this Agreement.
(c) HSR Act. Any waiting period (and any extension
thereof) applicable to the consummation of the Merger under the
HSR Act shall have expired or been terminated.
(d) No Injunctions or Restraints. No court of
competent jurisdiction or other competent Governmental or
Regulatory Authority shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary,
preliminary or permanent) which is then in effect and has the
effect of making illegal or otherwise restricting, preventing or
prohibiting consummation of the Merger or the other transactions
contemplated by this Agreement.
(e) Governmental and Regulatory Consents and
Approvals. Other than the filing provided for by Section 1.02,
all consents, approvals and actions of, filings with and notices
to any Governmental or Regulatory Authority or any other public
or private third parties required of Parent, the Company or any
of their Subsidiaries to consummate the Merger and the other
matters contemplated hereby, the failure of which to be obtained
or taken could be reasonably expected to have a material adverse
effect on Parent and its Subsidiaries or the Surviving
Corporation and its Subsidiaries, in each case taken as a whole,
or on the ability of Parent and the Company to consummate the
transactions contemplated hereby shall have been obtained, all in
form and substance reasonably satisfactory to Parent and the
Company and no such consent, approval or action shall contain any
term or condition which could be reasonably expected to result in
a material diminution of the benefits of the Merger to Parent or
to the stockholders of the Company.
(f) LCT Disposition. The Company shall have disposed
(or shall concurrently with the Closing dispose) of its interest
in LCT or the Company shall have effected (or shall concurrently
with the Closing effect) the spin-off of its interest in LCT to
the Company's shareholders.
7.02 Conditions to Obligation of Parent and Sub to
Effect the Merger. The obligation of Parent and Sub to effect
the Merger is further subject to the fulfillment, at or prior to
the Closing, of each of the following additional conditions (all
or any of which may be waived in whole or in part by Parent and
Sub in their sole discretion):
(a) Representations and Warranties. Each of the
representations and warranties made by the Company in this
Agreement and including those contained in the Company's
Disclosure Letter shall be true and correct as of the Closing
Date as though the Closing Date was substituted for the date of
this Agreement throughout such representations and warranties,
in all respects material to the validity and enforceability of
this Agreement and to the Company and its Subsidiaries taken as a
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whole, except as affected by the transactions contemplated by
this Agreement, and the Company shall have delivered to Parent a
certificate, dated the Closing Date and executed on behalf of the
Company by its Chairman of the Board, President or any Vice
President, to such effect.
(b) Performance of Obligations. The Company shall
have performed and complied with, in all material respects, each
agreement, covenant and obligation required by this Agreement to
be so performed or complied with by the Company at or prior to
the Closing, and the Company shall have delivered to Parent a
certificate, dated the Closing Date and executed on behalf of the
Company by its Chairman of the Board, President or any Vice
President, to such effect.
(c) Orders and Laws. There shall not have been
issued, enacted, promulgated or deemed applicable to Parent, the
Surviving Corporation, any of their respective Subsidiaries or
the transactions contemplated by this Agreement any Order or Law
of any Governmental or Regulatory Authority which is then in
effect and which could be reasonably expected to result in a
material diminution of the benefits of the Merger to Parent, and
there shall not be pending or threatened on the Closing Date any
action, suit or proceeding in, before or by any Governmental or
Regulatory Authority which could be reasonably expected to result
in any such issuance, enactment, promulgation or deemed
applicability of any such Order or Law or of any Order or Law
referred to in Section 7.01(e).
(d) Governmental and Regulatory Consents and
Approvals. Other than the filing provided for by Section 1.02,
all consents, approvals and actions of, filings with and notices
to any Governmental or Regulatory Authority, the failure of which
to be obtained or taken could be reasonably expected to have a
material adverse effect on Parent and its Subsidiaries or the
Surviving Corporation and its Subsidiaries, in each case taken as
a whole, or on the ability of Parent and the Company to
consummate the transactions contemplated hereby shall have been
obtained.
(e) Contractual Consents. The Company and its
Subsidiaries shall have received all consents (or in lieu thereof
waivers) from parties to each Contract disclosed pursuant to
Section 3.04(b).
(f) Opinion of Counsel. Parent and Sub shall have
received the opinion of Nida & Maloney, counsel to the Company,
dated the Closing Date, in form and substance reasonably
satisfactory to Parent.
(g) Auditors' Letter. Parent and Sub shall have
received the letters of Arthur Andersen & Co. L.L.P., the
Company's independent auditors, to be delivered in accordance
with Section 6.04.
(h) Dissenting Shares. The aggregate number of
Dissenting Shares shall not exceed 9.99% of the total number of
shares of Company Common Stock outstanding on the Closing Date.
(i) Proceedings. All proceedings to be taken on the
part of the Company in connection with the transactions
contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Parent,
and Parent shall have received copies of all such documents and
other evidences as Parent may reasonably request in order to
establish the consummation of such transactions and the taking of
all proceedings in connection therewith.
(j) Certain Options. The options held by Directors of
the Company shall have been exercised or canceled.
7.03 Conditions to Obligation of the Company to Effect
the Merger. The obligation of the Company to effect the Merger
is further subject to the fulfillment, at or prior to the
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Closing, of each of the following additional conditions (all or
any of which may be waived in whole or in part by the Company in
its sole discretion):
(a) Representations and Warranties. Each of the
representations and warranties made by Parent and Sub in this
Agreement shall be true and correct as of the Closing Date as
though made on and as of the Closing Date or, in the case of
representations and warranties made as of a specified date
earlier than the Closing Date, on and as of such earlier date, in
all respects material to the validity and enforceability of this
Agreement and to Parent its Subsidiaries taken as a whole, and
Parent and Sub shall each have delivered to the Company a
certificate, dated the Closing Date and executed on behalf of
Parent by its Chairman of the Board, President or any Vice
President and on behalf of Sub by its Chairman of the Board,
President or any Vice President, to such effect.
(b) Performance of Obligations. Parent and Sub shall
have performed and complied with, in all material respects, each
agreement, covenant and obligation required by this Agreement to
be so performed or complied with by Parent or Sub at or prior to
the Closing, and Parent and Sub shall each have delivered to the
Company a certificate, dated the Closing Date and executed on
behalf of Parent by its Chairman of the Board, President or any
Vice President and on behalf of Sub by its Chairman of the Board,
President or any Vice President, to such effect.
(c) Opinion of Counsel. The Company shall have
received the opinion of Ben Mitchell, Esq., counsel to Parent and
Sub, dated the Closing Date, substantially in form and substance
reasonably satisfactory to the Company.
(d) Financial Advisor Opinion. The letter from A.G.
Edwards & Sons, Inc. referred to in Section 3.20 shall not have
been withdrawn.
(e) Proceedings. All proceedings to be taken on the
part of Parent and Sub in connection with the transactions
contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the
Company, and the Company shall have received copies of all such
documents and other evidences as the Company may reasonably
request in order to establish the consummation of such
transactions and the taking of all proceedings in connection
therewith.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination. This Agreement may be terminated,
and the transactions contemplated hereby may be abandoned, at any
time prior to the Effective Time, whether prior to or after the
Company Stockholders' Approval:
(a) by mutual written agreement of the parties hereto
duly authorized by action taken by or on behalf of their
respective Boards of Directors;
(b) by either the Company or Parent upon notification
to the non-terminating party by the terminating party:
(i) at any time after March 29, 1996
if the Merger shall not have been consummated on
or prior to such date and such failure to
consummate the Merger is not caused by a breach
of this Agreement by the terminating party;
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(ii) if the Company Stockholders'
Approval shall not be obtained by reason of the
failure to obtain the requisite vote upon a
motion to so approve at a meeting of such
stockholders, or any adjournment thereof, called
therefor;
(iii) if any Governmental or Regulatory
Authority, the taking of action by which is a
condition to the obligations of either the
Company or Parent to consummate the transactions
contemplated hereby, shall have determined not to
take such action and all appeals of such
determination shall have been taken and have been
unsuccessful;
(iv) if there has been a material
breach of any representation, warranty, covenant
or agreement on the part of the non-terminating
party set forth in this Agreement which breach
has not been cured within ten (10) business days
following receipt by the non-terminating party of
notice of such breach from the terminating party
or assurance of such cure reasonably satisfactory
to the terminating party shall not have been
given by or on behalf of the non-terminating
party within such ten (10) business day period;
or
(v) if any court of competent
jurisdiction or other competent Governmental or
Regulatory Authority shall have issued an Order
making illegal or otherwise restricting,
preventing or prohibiting the Merger and such
Order shall have become final and nonappealable;
(c) by either the Company or Parent if the Company or
its stockholders receive a proposal or offer for an Acquisition
Transaction in connection with which the Board of Directors of
the Company exercises the right specified in clause (iv) of
Section 5.02; or
(d) by either the Company or Parent if the condition
specified in Section 7.03(d) shall not be either satisfied or
waived.
8.02 Effect of Termination.
(a) If this Agreement is validly terminated by either
the Company or Parent pursuant to Section 8.01, this Agreement
will forthwith become null and void and there will be no
liability or obligation on the part of either the Company or
Parent (or any of their respective Representatives or
affiliates), except (i) that the provisions of Sections 6.01(b),
6.08, 6.09 and 6.10 will continue to apply following any such
termination, provided, however, that the provisions of Section
6.10 shall not apply following a termination pursuant to Section
8.01(c), (ii) that nothing contained herein shall relieve any
party hereto from liability for breach of its representations,
warranties, covenants or agreements contained in this Agreement
and (iii) as provided in paragraph (b) below.
(b) In the event that (i) either Parent or the Company
terminates this Agreement pursuant to Section 8.01(b)(iv), (c),
or (d); or (ii) either Parent or the Company terminates this
Agreement pursuant to Section 8.01(b)(ii) following a failure of
the stockholders of the Company to approve this Agreement (unless
in any case described in clauses (i) or (ii) due to a breach of
this Agreement by Parent) and, before the Company Stockholders'
Meeting there shall have been (A) a Trigger Event (as defined
below) or (B) a proposal or offer for an Acquisition Transaction
which at the time of the Company Stockholders' Meeting shall not
have been (I) rejected by the Company and (II) withdrawn by the
Potential Acquiror, then the Company shall, within ten (10)
business days after receipt of a request from Parent, pay to
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Parent in cash (x) a termination fee of five percent (5%) of the
amount equal to the product of the Conversion Amount and the
number of outstanding shares of Company Common Stock as provided
in Section 3.02(a) and (y) an amount equal to all documented out-
of-pocket expenses and fees incurred by Parent in connection with
this Agreement and the transactions contemplated hereby
(including, without limitation, fees and expenses payable to all
banks, investment banking firms and other financial institutions
and persons and their respective agents and counsel for acting as
Parent's financial advisor with respect to, or arranging or
committing to provide or providing any financing for, the
Merger), provided that in no event shall the amount of such
reimbursable fees and expenses exceed $250,000 in the aggregate.
A "Trigger Event" shall have occurred if (i) any person acquires
securities representing beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) of ten percent (10%) or
more, in addition to shares presently held by such person, or
commences a tender or exchange offer following which the offeror
and its affiliates would beneficially own securities representing
twenty-five percent (25%) or more, of the voting power of the
Company.
(c) In the event the condition specified in Section
7.01(f) shall not be either satisfied or waived by the close of
business on March 29, 1996, the Company shall pay to Parent the
termination fee provided for in the foregoing Section 8.02(b)
without regard to whether or not any Trigger Event or proposal or
offer shall have occurred.
8.03 Amendment. This Agreement may be amended,
supplemented or modified by action taken by or on behalf of the
respective Boards of Directors of the parties hereto at any time
prior to the Effective Time, whether prior to or after adoption
of this Agreement at the Company Stockholders' Meeting, but after
such adoption and approval only to the extent permitted by
applicable law. No such amendment, supplement or modification
shall be effective unless set forth in a written instrument duly
executed by or on behalf of each party hereto.
8.04 Waiver. At any time prior to the Effective Time
any party hereto, by action taken by or on behalf of its Board of
Directors, may to the extent permitted by applicable law
(i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of the other
parties hereto contained herein or in any document delivered
pursuant hereto or (iii) waive compliance with any of the
covenants, agreements or conditions of the other parties hereto
contained herein. No such extension or waiver shall be effective
unless set forth in a written instrument duly executed by or on
behalf of the party extending the time of performance or waiving
any such inaccuracy or non-compliance. No waiver by any party of
any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the
same or any other term or condition of this Agreement on any
future occasion.
ARTICLE IX
GENERAL PROVISIONS
9.01 Non-Survival of Representations, Warranties,
Covenants and Agreements. The representations, warranties,
covenants and agreements contained in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive
the Merger but shall terminate at the Effective Time, except for
the agreements contained in Article II and in Sections 6.01(b),
6.06, 6.07, 6.08 and 6.09, which shall survive the Effective
Time.
9.02 Knowledge. With respect to any representations
or warranties contained herein which are made to the knowledge of
the Company or Parent or any of their respective Subsidiaries, as
the case may be, the knowledge of the officers and directors of
the Company or Parent, as the case may be, and of the officers
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<PAGE>
and directors of its respective Subsidiaries, shall be imputed to
the Company or Parent, as the case may be, and such Subsidiaries.
9.03 Notices. All notices, requests and other
communications hereunder must be in writing and will be deemed to
have been duly given only if delivered personally or by facsimile
transmission or mailed (first class postage prepaid) to the
parties at the following addresses or facsimile numbers:
If to Parent or Sub, to:
Logicon, Inc.
3701 Skypark Drive
Torrance, CA 90505
Facsimile No.: 310-373-0844
Attn: Ben Mitchell, Esq.
If to the Company, to:
Geodynamics Corporation
21171 Western Avenue
Suite 110
Torrance, California 90501
Facsimile No.: 310-781-3681
Attn: President
with a copy to:
Nida & Maloney
801 Garden Street
Santa Barbara, California 93101
Facsimile No.: 805-568-1955
Attn: Joseph E. Nida, Esq.
All such notices, requests and other communications will (i) if
delivered personally to the address as provided in this Section,
be deemed given upon delivery, (ii) if delivered by facsimile
transmission to the facsimile number as provided in this Section,
be deemed given upon receipt, and (iii) if delivered by mail in
the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of
whether such notice, request or other communication is received
by any other person to whom a copy of such notice, request or
other communication is to be delivered pursuant to this Section).
Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that
party by giving notice specifying such change to the other
parties hereto.
9.04 Entire Agreement. This Agreement supersedes all
prior discussions and agreements among the parties hereto with
respect to the subject matter hereof, including, without
limitation, that certain confidentiality agreement between the
Company and Parent dated August 8, 1995, and contains the sole
and entire agreement among the parties hereto with respect to the
subject matter hereof.
9.05 Public Announcements. Except as otherwise
required by law or the rules of any applicable securities
exchange or national market system, so long as this Agreement is
in effect, Parent and the Company will not, and will not permit
any of their respective Representatives to, issue or cause the
publication of any press release or make any other public
announcement with respect to the transactions contemplated by
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this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld. Parent and the
Company will cooperate with each other in the development and
distribution of all press releases and other public announcements
with respect to this Agreement and the transactions contemplated
hereby, and will furnish the other with drafts of any such
releases and announcements as far in advance as practicable.
9.06 No Third Party Beneficiary. The terms and
provisions of this Agreement are intended solely for the benefit
of each party hereto and their respective successors or permitted
assigns, and except as provided in Sections 6.06, 6.07 and 6.08
(which are intended to be for the benefit of the persons entitled
to therein, and may be enforced by any of such persons), it is
not the intention of the parties to confer third-party
beneficiary rights upon any other person.
9.07 No Assignment; Binding Effect. Neither this
Agreement nor any right, interest or obligation hereunder may be
assigned by any party hereto without the prior written consent of
the other parties hereto and any attempt to do so will be void,
except that Sub may assign any or all of its rights, interests
and obligations hereunder to another direct or indirect wholly-
owned Subsidiary of Parent, provided that any such Subsidiary
agrees in writing to be bound by all of the terms, conditions and
provisions contained herein. Subject to the preceding sentence,
this Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors
and assigns.
9.08 Headings. The headings used in this Agreement
have been inserted for convenience of reference only and do not
define or limit the provisions hereof.
9.09 Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under
any present or future law, and if the rights or obligations of
any party hereto under this Agreement will not be materially and
adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as
if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (iii) the remaining provisions of this
Agreement will remain in full force and effect and will not be
affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as
a part of this Agreement a legal, valid and enforceable provision
as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
9.10 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
California applicable to a contract executed and performed in
such State, without giving effect to the conflicts of laws
principles thereof.
9.11 Counterparts. This Agreement may be executed in
any number of counterparts, each of which will be deemed an
original, but all of which together will constitute one and the
same instrument.
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IN WITNESS WHEREOF, each party hereto has caused this
Agreement to be signed by its officer thereunto duly authorized
as of the date first above written.
Attest: LOGICON, INC.
/s/ E. Benjamin Mitchell By: /s/ John R. Woodhull
Secretary Name: John R. Woodhull
Title: Chief Executive Officer
Attest: LIN, INC.
/s/ E. Benjamin Mitchell By: /s/ John R. Woodhull
Secretary Name: John R. Woodhull
Title: Chief Executive Officer
Attest: GEODYNAMICS CORPORATION
/s/ David P. Nelson By: /s/ Bruce J. Gordon
Chief Financial Officer Name: Bruce J. Gordon
Title: Chief Executive Officer
I-42
<PAGE>
AMENDMENT NO. 1
to the
AGREEMENT AND PLAN OF MERGER
dated as of October 18, 1995
by and among
LOGICON, INC., LIN, INC.,
and
GEODYNAMICS CORPORATION (the "Agreement")
WHEREAS, the above-referenced parties acknowledge that several
events have occurred since the execution of the Agreement in
respect to the LaFehr and Chan Technologies, Inc. Earnout Payment
and in respect to the disposition of LaFehr and Chan
Technologies, Inc., and therefore hereby agree to the following
modifications pursuant to Section 8.03 of the Agreement:
1. Section 2.01(e) of Article II is hereby amended to read as
follows:
2.01(e) LaFehr and Chan Technologies, Inc. ("LCT")
Earnout Payment. The Company shall use reasonable diligence and
timely efforts to negotiate prior to the Closing Date a
liquidated payment, part in cash and part in Company Common
Stock, to discharge all obligations of the Company to pay the
purchase price for the shares of stock of LCT purchased from
LCT's former shareholders (the "Earnout Payment"). The Earnout
Payment shall be payable to LCT's former shareholders at or prior
to the Closing. The Original Conversion Amount shall be adjusted
to an amount equal to the quotient obtained by dividing (a) the
sum of the Original Total Conversion Amount, and the net of all
cash received in connection with the LCT Earnout Payment and the
sale of LCT by (b) the sum of (i) the number of shares
outstanding on the Closing Date hereof, and (ii) the number of
shares underlying options to acquire Company Common Stock
outstanding on October 18, 1995, reduced by the number of options
exercised between October 18, 1995 and the Closing Date. The
"Original Total Conversion Amount" means the Original Conversion
Amount set forth in Section 2.01(c) multiplied by the sum of (i)
the number of shares outstanding on October 18, 1995, and (ii)
the number of shares underlying options to acquire Company Common
Stock outstanding on October 18, 1995.
2. The parties agree and acknowledge that the contemplated
redemptions of Company Common Stock to the extent necessary to
effect the proposed sale of LCT are not in contravention of the
Agreement, including Section 5.01(b)(ii)(A) provided, however,
Logicon's agreement and acknowledgment to this amendment is
expressly conditioned upon the following:
a) the sale of LCT is completed prior to the Closing Date;
and
b) immediately upon receipt by the former shareholders of
LCT of the Earnout Payment as agreed to in the January
17 letter agreement between Geodynamics and the former
LCT shareholders, a release of Geodynamics for any
additional amounts due relating to the Earnout Payment
will be executed by the parties.
3. All other terms and conditions of the Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, each party hereto has caused this Amendment
No. 1 to be signed by its officer thereunto duly authorized and
executed this 17th day of January, 1996.
Attest: LOGICON, INC.
__________________________ By:_______________________________
Secretary Name: John R. Woodhull
Title: Chief Executive Officer
Attest: LIN, INC.
__________________________ By:_______________________________
Secretary Name: John R. Woodhull
Title: Chief Executive Officer
Attest: GEODYNAMICS CORPORATION
__________________________ By:_______________________________
Chief Financial Officer Name: Bruce J. Gordon
Title: Chief Executive Officer
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<PAGE>
Annex II
October 18, 1995
Board of Directors
Geodynamics Corporation
21171 Western Avenue, Suite 110
Torrance, CA 90501-1704
Members of the Board:
You have requested our opinion as to the fairness, from a
financial point of view, to the shareholders of the common
stock, without par value (the "Shares"), of Geodynamics
Corporation ("Geodynamics"), of the Merger Consideration (as
hereinafter defined) to be received by the shareholders of
Geodynamics in the proposed merger (the "Merger") of
Geodynamics with and into a wholly owned subsidiary of
Logicon, Inc. ("Logicon"), pursuant to the Definitive
Agreement and Exhibits attached thereto (the "Definitive
Agreement"), dated October 13, 1995.
Pursuant to the Definitive Agreement, the Shares will be
converted into the right to receive approximately $11.08 per
share plus the proceeds from the sale of Geodynamics' wholly-
owned subsidiary, LaFehr and Chan Technologies, Inc. ("LCT,
Inc."), less any amounts paid to former LCT shareholders
with respect to the earnout agreement (collectively, the
"Merger Consideration"). Additionally, Logicon has agreed to
convert Geodynamics stock options into options of Logicon;
and Geodynamics has agreed to use its best efforts to assure
that its outstanding vested options will be exercised prior
to consummation of the Merger.
A.G. Edwards & Sons, Inc. ("Edwards"), as part of its
investment banking business, is regularly engaged in the
valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for
estate, corporate and other purposes. We are familiar with
Geodynamics through prior financial advisory engagements as
well as having acted as financial advisor in connection
with, and having participated in, certain of the
negotiations leading to the Definitive Agreement, and will
receive a fee for our services, a significant portion of
which is contingent upon the consummation of the Merger. We
are not aware of any present or contemplated relationship
between Edwards, Logicon, Geodynamics, its directors and
officers or its shareholders which, in our opinion, would
affect our ability to render a fair and independent opinion
in this matter.
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Geodynamics Corporation
October 18, 1995
Page 2
In connection with this opinion, we have among other things:
(i) reviewed the Definitive Agreement, as well as
the Agreement with respect to the acquisition by the
employees of LaFehr & Chan Technologies, Inc. of a
partial ownership therein;
(ii) reviewed Annual Reports to Stockholders and
Annual Reports on Form 10-K of Geodynamics for the
five fiscal years ending June 2, 1995;
(iii) reviewed recent news articles and research
analysts' reports related to Geodynamics and reviewed
certain interim reports to Geodynamics shareholders
and Quarterly Reports on Form 10-Q of Geodynamics;
(iv) reviewed certain other internal financial
analyses and forecasts for Geodynamics and for LCT as
prepared by management of Geodynamics;
(v) held discussions with members of the management
of Geodynamics regarding the past and current
business operations, financial condition and future
prospects of Geodynamics and of LCT;
(vi) reviewed the reported price and trading activity
for Geodynamics' common stock;
(vii) reviewed schedules prepared by Geodynamics
management detailing the number of outstanding
options to acquire Company Common Stock;
(viii) compared certain financial and stock market
information for Geodynamics and for LCT with similar
information for certain other companies the
securities of which are publicly traded;
(ix) reviewed the financial terms of certain recent
business combinations in software and systems
engineering and Department of Defense related
industries specifically and in other industries
generally;
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<PAGE>
Geodynamics Corporation
October 18, 1995
Page 3
(x) reviewed the audited financial statements of LCT
for the twelve months ended May 31, 1994 and the
unaudited financial statements for the twelve month
periods ending December 31, 1993 and June 2, 1995;
(xi) reviewed certain other communications and
certain internal financial analyses and forecasts for
LCT, as prepared by management of Geodynamics;
(xii) reviewed unaudited interim internal
financial reports for Geodynamics and LCT for the
three month period ending September 1, 1995 including
an estimated pro forma balance sheet as of September
1, 1995;
(xiii) reviewed a list of estimated transaction
costs prepared by Geodynamics management to be
incurred by Geodynamics in the Merger, and calculated
their impact on the Merger consideration to be
received by Geodynamics shareholders;
(xiv) participated in discussions with the
Geodynamics legal and tax advisors regarding the
potential for adverse tax ramifications to
Geodynamics, its shareholders and/or LCT of the
Merger; and
(xv) performed such other studies and analysis as we
considered appropriate.
In preparing our opinion, we have relied on the accuracy and
completeness of all financial and other information that was
supplied or otherwise made available to us by Geodynamics
and LCT. Due to the highly classified nature of many of the
Geodynamics' contracts, Edwards' access to documents and
information regarding these contracts was limited in
accordance with applicable security regulations. We have
not been engaged to, and therefore we have not verified, the
accuracy or completeness of any such information. We have
assumed that financial forecasts reflected the best
currently available estimates and judgments of the
management of Geodynamics as to the expected future
financial performance of Geodynamics and of LCT, and we have
not independently verified such information or assumptions.
We have not made any independent valuation or appraisal of
the assets or the liabilities of Geodynamics or LCT, nor
have we been furnished with any such appraisals.
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<PAGE>
Geodynamics Corporation
October 18, 1995
Page 4
Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made
available to us as of, the date hereof. Our opinion as
expressed herein, in any event, is limited to the fairness,
from a financial point of view, to the shareholders of the
terms of the Agreement and does not constitute a
recommendation to any shareholder of Geodynamics as to how
such shareholder should vote at the Shareholder's meeting
held in connection with the Merger.
It is understood that this letter is for the information of
the Board of Directors of Geodynamics only and may not be
relied upon or used for any other purpose without our prior
written consent, except that this opinion may be included in
its entirety in any filing made by Geodynamics or Logicon
with the Securities and Exchange Commission with respect to
the Merger and the transactions related thereto. This
opinion may not, however, be summarized, excerpted from or
otherwise publicly referred to without our prior written
consent.
Based upon and subject to the foregoing, it is our opinion
that, as of the date hereof, the Merger Consideration is
fair, from a financial point of view, to the shareholders of
Geodynamics.
Very truly yours,
A.G. EDWARDS & SONS, INC.
By: /s/ Douglas E. Reynolds
------------------------
Douglas E. Reynolds
Vice President
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<PAGE>
ANNEX III
Section 1300. Reorganization or short-form merger; dissenting shares;
corporate purchase at fair market value; definitions
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions
(a) and (b) or subdivision (e) or (f) of Section 1201, each
shareholder of the corporation entitled to vote on the transaction
and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation
in which the shareholders holds shares to purchase for cash at their
fair market value the shares owned by the shareholder which are
dissenting shares as defined in subdivision (b). The fair market
value shall be determined as of the day before the first announcement
of the terms of the proposed reorganization or short-form merger,
excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock
split or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities
exchange certified by the Commissioner of Corporations under
subdivision (o) of Section 25100 or (B) listed on the list of OTC
margin stocks issued by the Board of Governors of the Federal
Reserve System, and the notice of meeting of shareholders to act
upon the reorganization summarizes this section and Sections
1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists
any restriction on transfer imposed by the corporation or by
any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment are filed with
respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were
not voted in favor of the reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1) (without regard to the
provisos in that paragraph), were voted against the
reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A)
rather than subparagraph (B) of this paragraph applies in any
case where the approval required by Section 1201 is sought by
written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance
with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of
record.
Section 1301. Notice to holders of dissenting shares in reorganization;
demand for purchase; time; contents
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, to require
the corporation to purchase their shares for cash, such corporation
shall mail to each such shareholder a notice of the approval of the
reorganization by its outstanding shares (Section 152) within 10
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<PAGE>
days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of
the procedure to be followed if the shareholder desires to exercise
the shareholder's right under such sections. The statement of
price constitutes an offer by the corporation to purchase at the
price stated any dissenting shares as defined in subdivision (b) of
Section 1300, unless they lose their status as dissenting shares
under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300,
subject to compliance with paragraphs (3) and (4) of subdivision
(b) thereof, and who desires the corporation to purchase such
shares shall make written demand upon the corporation for the
purchase of such shares and payment to the shareholder in cash
of their fair market value. The demand is not in effective for
any purpose unless it is received by the corporation or any
transfer agent thereof (1) in the case of shares described in
clause (A) or (B) of paragraph (1) of subdivision (b) of Section
1300 (without regard to the provisos in that paragraph), not
later than the date of the shareholders' meeting to vote upon the
reorganization, or (2) in any other case within 30 days after the
date on which the notice of the approval by the outstanding shares
pursuant to subdivision (a) or the notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the
corporation purchase and shall contain a statement of what such
shareholder claims to be the fair market value of those shares as of
the day before the announcement of the proposed reorganization or
short-form merger. The statement of fair market value constitutes an
offer by the shareholder to sell the shares at such price.
Section 1302. Submission of share certificates for endorsement;
uncertificated securities
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder, the shareholder shall
submit to the corporation at its principal office or at the office of
any transfer agent thereof, (a) if the shares are certificated
securities, the shareholder's certificates representing any shares
which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting
shares or to be exchanged for certificates of appropriate denomination
so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the
shareholder demands that the corporation purchase. Upon subsequent
transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other
written statements issued therefor shall bear a like statement,
together with the name of the original dissenting holder of the
shares.
Section 1303. Payment of agreed price with interest; agreement fixing
fair market value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the
dissenting shareholder is entitled to the agreed price with
interest thereon at the legal rate on judgments from the date of
the agreement. Any agreements fixing the fair market value of
any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days
after the amount thereof has been agreed or within 30 days after
any statutory or contractual conditions to the reorganization are
satisfied, whichever is later, and in the case of certificated
securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
III-2
<PAGE>
Section 1304. Action to determine whether shares are dissenting shares
or fair market value; limitation; joinder; consolidation;
determination of issues; appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the
fair market value of the shares, then the shareholder demanding
purchase of such shares as dissenting shares or any interested
corporation, within six months after the date on which notice of
the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the
superior court of the proper county praying the court to
determine whether the shares are dissenting shares or the fair
market value of the dissenting shares or both or may intervene
in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or
be joined as defendants in any such action and two or more such
actions may be consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the
court shall first determine that issue. If the fair market value
of the dissenting shares is in issue, the court shall determine,
or shall appoint one or more impartial appraisers to determine,
the fair market value of the shares.
III-3
<PAGE>
GEODYNAMICS CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING ______, 1996
Geodynamics Corporation
21171 Western Avenue
Torrance, California 90501
The undersigned hereby appoints Bruce J. Gordon and David P. Nelson,
and each of them, proxies, each with full power of substitution, to vote
all stock of the undersigned at the Special Meeting of shareholders of
Geodynamics Corporation (the "Company") to be held _____________ at
_:00 _.m. at ____________________, California, and/or at any adjournment
of the Special Meeting, in the manner indicated on the reverse side, all
in accordance with and as more fully described in the Notice of Special
Meeting and accompanying Proxy Statement for the meeting, receipt of which
is hereby acknowledged.
(Continued on reverse side)
- ---------------------------------------------------------------------------
FOLD AND DETACH HERE
__________ [X] Please mark your votes like this
COMMON
THE SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED AS INDICATED BELOW:
1. To approve the unified proposal (the "Proposal") as set
forth in the Proxy Statement, the principal components of which are
(i) the merger of LIN, Inc., a Delaware corporation ("MergerCo") and
a direct subsidiary of Logicon, Inc., a Delaware corporation ("Logicon"),
with and into the Company, and the other transactions set forth in the
Agreement and Plan of Merger dated as of October 18, 1995 (the "Merger
Agreement"), among the Company, Logicon and MergerCo, pursuant to which
shareholders of the Company will receive, for each share of common
stock, no par value of the Company, $11.25, as adjusted pursuant to the
Merger Agreement and (ii) a spin-off of the Company's non-Department
of Defense and related U.S. Government business operated through its
LaFehr & Chan Technologies, Inc. subsidiary.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To vote in their discretion on such other business as may
properly come before the Special Meeting or any adjournment thereof.
IF YOU DO NOT SPECIFY A CHOICE AS TO ANY OF THE FOREGOING PROPOSAL OR
IF ANY OTHER BUSINESS IS PRESENTED, THIS PROXY SHALL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT.
Please mark, date and sign as your name appears to the left and
return in the enclosed envelope. If acting as executor, administrator,
trustee or guardian, state you full title and authority when signing.
If the signer is a corporation, please sign the full corporate name,
by a duly authorized officer. If shares are held jointly, each
shareholder named should sign.
Date___________________________________
Signature(s)___________________________________________
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE
- -------------------------------------------------------------------------
FOLD AND DETACH HERE
[LOGO] Geodynamics Corporation
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE
