<PAGE> 1
SCHEDULE 14A
(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:
/ / Preliminary proxy statement / / Confidential, for Use of
Commission Only (as permitted
by Rule 14a-6(e)(2))
/x/ 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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/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> 2
GEODYNAMICS Corporate Executive Offices
CORPORATION 21171 Western Avenue
Suite 110
Torrance, CA 90501
Phone: (310) 782-7277
Fax: (310) 781-3615
February 26, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Geodynamics Corporation (the "Company") to be held on Thursday, March 21,
1996 at 10:00 a.m., local time, at the Torrance Marriott, 3635 Fashion Way,
Torrance, California. 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 29,
1996 will be entitled to notice of and to vote at the Special Meeting.
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 primarily be a
reduction for the Company's earnout payment obligation to the former
shareholders of LaFehr & Chan Technologies, Inc. ("LCT") in connection with the
Company's acquisition of LCT and for shares and options issued since October 2,
1995, resulting in estimated final Merger consideration of approximately $10.77
per share. The Company will also pay to its shareholders concurrent with the
closing of the Merger a dividend (the "Special Dividend") equal to the net
proceeds of the Company's disposition of LCT which occurred in January 1996. The
Company estimates that the net proceeds to the shareholders of Geodynamics from
both the merger consideration and the Special Dividend will be approximately
$12.04 per share, assuming exercise of all outstanding vested Options. 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.
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,
W. Richard Ellis
Chairman
An Equal Opportunity Employer
<PAGE> 3
GEODYNAMICS CORPORATION
21171 Western Avenue, Suite 110
Torrance, California 90501
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 21, 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 21, 1996, at 10:00 a.m., local time, at the Torrance Marriott Hotel,
3635 Fashion Way, Torrance, California, for the following purposes:
1. To consider and vote upon a 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.
Such adjustments will primarily be a reduction for the Company's
earnout payment obligation to the former shareholders of LaFehr &
Chan Technologies, Inc. ("LCT") in connection with the Company's
acquisition of LCT and for shares and options issued since
October 2, 1995, resulting in estimated final Merger
consideration of approximately $10.77 per share.
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). The Company will also pay to its shareholders concurrent with the
closing of the Merger a dividend (the "Special Dividend") equal to the net
proceeds of the Company's disposition of LCT which occurred in January 1996. 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.
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 January 29, 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.
<PAGE> 4
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
February 28, 1996
2
<PAGE> 5
GEODYNAMICS CORPORATION
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
MARCH 21, 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
Thursday, March 21, 1996, at the Torrance Marriott Hotel, 3635 Fashion Way,
Torrance, California, 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 primarily be a
reduction for the Company's earnout payment obligation to the former
shareholders of LaFehr & Chan Technologies, Inc. ("LCT") in connection with the
Company's acquisition of LCT and for shares and options issued since October 2,
1995, resulting in estimated final Merger consideration within the range of
$10.76 to $10.77 per share. The Company will also pay to its shareholders
concurrent with the closing of the Merger a dividend (the "Special Dividend")
equal to the net proceeds of the Company's disposition of LCT which occurred
in January 1996. The Company estimates that the net proceeds to the
shareholders of Geodynamics from both the Merger consideration and the
Special Dividend will be within the range of $12.01 to $12.04 per share,
assuming exercise of all outstanding vested Options.
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 February 28, 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 February 28, 1996
<PAGE> 6
(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> 7
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
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...................................... 19
Merger Consideration.................................................. 21
Comparable Transaction Analysis....................................... 21
Premiums Paid Analysis................................................ 22
Comparable Company Analysis........................................... 23
Discounted Cash Flow Analysis......................................... 23
Other Considerations.................................................. 24
Terms of A.G. Edwards' Engagement..................................... 24
Interests of Certain Persons in
the Transactions......................................................... 24
Employee Retention Agreements......................................... 26
Indemnification and Insurance......................................... 27
Treatment of Options..................................................... 27
Risks of Non-Consummation................................................ 28
Expenses of the Transactions............................................. 28
THE MERGER.................................................................. 29
Form of Merger........................................................... 29
Merger Consideration..................................................... 29
Shareholder Meeting...................................................... 29
Effective Time of the Merger............................................. 30
Procedures for Exchange of Certificates.................................. 30
Financing Arrangements by Logicon........................................ 31
Regulatory Matters....................................................... 31
Dissenters' Rights....................................................... 32
The Merger Agreement..................................................... 34
Merger Consideration.................................................. 34
Merger Consideration Adjustment....................................... 34
Stock Options......................................................... 35
Representations and Warranties........................................ 35
Certain Covenants..................................................... 35
Conduct of Business Pending the Merger................................ 36
No Solicitation of Acquisition Proposals.............................. 37
Conditions to the Merger.............................................. 38
Termination........................................................... 39
Indemnifications; Insurance and
Employment Retention Agreements....................................... 40
Termination Fee and Expenses.......................................... 41
Amendment; Waiver..................................................... 42
Payments to Dissenting Shareholders................................... 42
Accounting Treatment.................................................. 42
TERMS OF THE SPECIAL DIVIDEND............................................... 42
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES............................................................ 43
DESCRIPTION OF GEODYNAMICS.................................................. 44
Business................................................................. 44
Business Areas........................................................ 44
C(4)I Systems......................................................... 44
Weapons Systems....................................................... 45
Space Systems......................................................... 45
Services.............................................................. 45
Systems Engineering................................................... 45
Applications Software................................................. 46
Gravity and Magnetic Applications..................................... 46
Customers............................................................. 46
U.S. Government Contracts............................................. 46
Backlog............................................................... 48
Marketing............................................................. 48
Government Security Clearances........................................ 48
Patents and Technical Data............................................ 48
Competition.............................................................. 48
Employees................................................................ 48
Properties............................................................... 49
Legal Proceedings........................................................ 49
Selected Historical Financial
Data of Geodynamics...................................................... 50
Management's Discussion and Analysis
of Historical Financial
Condition and Results of Operations......................................... 51
Results of Operations.................................................... 51
Liquidity and Capital Resources.......................................... 53
Effect of Inflation...................................................... 53
Recent Developments......................................................... 53
Pro Forma Financial Information
Relating to LCT Disposition ................................................ 54
Management ................................................................. 54
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C>
Director Compensation.................................................... 58
Employment Agreements.................................................... 58
Executive Compensation .................................................. 59
Option Grants in Last Fiscal Year........................................ 60
Ten Year-Option/SAR Repricing............................................ 60
Aggregated Option/SAR Exercises.......................................... 61
Certain Relationships and
Related Transactions..................................................... 61
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT............................................ 61
Price Range of Common Stock and Dividends................................ 63
PAYMENT TO SHAREHOLDERS..................................................... 64
EXPERTS..................................................................... 64
PROPOSALS BY SHAREHOLDERS................................................... 65
FINANCIAL STATEMENTS........................................................F-1
Annexes
Annex I - Merger Agreement
Annex II - A.G. Edwards Opinion
Annex III - California Corporations Code
Sections 1300 - 1304
</TABLE>
i
<PAGE> 9
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement. This summary is qualified in its entirety by the more
detailed information contained, or incorporated by reference, in this Proxy
Statement and the Annexes hereto. Shareholders are urged to read this Proxy
Statement 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.
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 (C(4)I) 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 21, 1996, at the Torrance Marriott Hotel, 3635 Fashion Way, Torrance,
California. See "The Special Meeting--General."
1
<PAGE> 10
RECORD DATE; SHARES ENTITLED TO VOTE
Shareholders of the Company at the close of business on January 29,
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 2,706,590 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. Shareholders should also be aware that the Company
will also pay to its shareholders concurrent with the closing of the Merger a
dividend (the "Special Dividend") equal to the net proceeds of the Company's
disposition of its LaFehr & Chan Technologies, Inc. ("LCT") subsidiary which
occurred in January 1996.
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 had the right to
vote approximately 7.0% of the voting power of all stock entitled to vote at the
Special Meeting. As of the Record Date, Tudor Trust, the Company's largest
shareholder, had the right to vote approximately 14.1% of the voting power of
then-outstanding stock. 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. In connection with its participation in the purchase of the
Company's LCT subsidiary, Tudor Trust, together with the other purchasers of
LCT, including Dr. LaFehr, a Director of the Company, agreed to vote their
Company Common Stock in favor 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
2
<PAGE> 11
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY. See "The Merger--Procedures
for Exchange of Certificates."
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
primarily includes adjustments for certain payments made to satisfy the
Company's earnout obligation to former shareholders of LCT (the "LCT
3
<PAGE> 12
Earnout") and for share and option issuances since October 2, 1995 (the "Merger
Consideration"). The Merger Consideration is anticipated to fall within the
range of $10.76 to $10.77 per share following such adjustments and the Company
does not anticipate any material adjustment in such amount. See
"The Merger--Merger Consideration," "--Procedures for Exchange of
Certificates" and "--The Merger Agreement--Merger Consideration--Merger
Consideration Adjustment."
DISTRIBUTION TO BE RECEIVED IN THE SPECIAL DIVIDEND
Immediately prior to the Merger, the Company will effect the Special
Dividend, payable to holders of Geodynamics Common Stock as of the close of
business on the day immediately preceding the Merger (the "Special Dividend
Record Date"), equal to the net proceeds to the Company of the sale of its LCT
subsidiary. The Company estimates that the Special Dividend will be between
$1.25 and $1.27 per share of Common Stock. See "Disposition of LCT; Special
Dividend" below and "Terms of the Special Dividend."
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 Time, each such Option shall become an option to acquire Logicon
common stock, $.10 par value ("Parent Common Stock"). 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." 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." Holders of vested Options that are exercised prior to the Special
Dividend Record Date will participate in the Special Dividend. Holders of
Options that are not or can not be exercised prior to the Special Dividend
Record Date will not participate in the Special Dividend with respect to the
shares of Company Common Stock underlying such Options. No part of the Special
Dividend will be paid on account of Options. See "Certain Considerations
Relating to the Transactions--Treatment of Options" and "Terms of the Special
Dividend."
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 the per share Merger Consideration and the
4
<PAGE> 13
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 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. The waiting period thereunder
expired January 19, 1996. See "The Merger--The Merger Agreement--Conditions to
the Merger" and "--Regulatory Matters."
DISPOSITION OF LCT; SPECIAL DIVIDEND
On January 17, 1996, the Company sold its LCT subsidiary 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 persons. See "Description of Geodynamics--Recent
Developments" and "--Pro Forma Financial Information Relating to LCT
Disposition."
A special committee composed of disinterested Directors of the Company
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 14.1% of Geodynamics' outstanding Common Stock.
After payment of the transaction expenses and the payment of the LCT
Earnout payment, net proceeds to the Company are estimated to equal between
$3,668,153 and $3,726,843 or $1.25 and $1.27 per share of Company Common
Stock, assuming exercise of all vested Options. Immediately prior to the
Merger, the Company will effect the Special Dividend, payable to holders of
Geodynamics Common Stock on the Special Dividend Record Date, equal to such
net proceeds. The amount distributable per share of Geodynamics Common Stock
is not presently determinable and will vary, depending upon the final
calculation of such net proceeds and the number of shares of Geodynamics
Common Stock outstanding on the Special Dividend Record Date, which will be
affected by how many Options are exercised prior to such date. This amount
will increase to the extent Options are not exercised and may only be
decreased if the Company incurs greater than anticipated expenses. See
"Treatment of Stock Options" above and "Terms of the Special Dividend." However,
because it appears to be in the economic best interest of most Option holders to
exercise Options to receive the Merger Consideration and participate in the
Special Dividend, the Company anticipates that substantially all vested
5
<PAGE> 14
Options will be exercised and the amount of the Special Dividend will not
materially vary from the estimated midpoint of $1.26. Shareholders may contact
the Company prior to voting on the Proposal for any changes in such estimates.
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. The Special Dividend will also be taxable to shareholders.
Shareholders are urged to consult their own tax advisors as to the particular
tax consequences to them resulting from the Merger and the Special Dividend,
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 and are only available if shareholders holding at least
5% of the outstanding Common Stock demand their dissenters' rights. In order
to exercise such rights, a shareholder must comply 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. It will use as its agent bank Bank of America N.T. & S.A. See "Payment
to Shareholders."
6
<PAGE> 15
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 balance sheet and other data 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 STATEMENT May 31, May 29, May 28, June 3, June 2, December 2, December 1,
DATA: (in thousands, 1991 1992 1993 1994 1995 1994 1995
except per-share data) (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 $ .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
- ------------------------------
</TABLE>
(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.
7
<PAGE> 16
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 Thursday, March 21, 1996, at the Torrance Marriott
Hotel, 3635 Fashion Way, Torrance, California, 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 unified proposal (the "Proposal"), the principal component of which is
the merger of MergerCo and a direct subsidiary of Logicon with and into the
Company and the other transactions set forth in the Merger Agreement pursuant to
which shareholders of the Company will receive, for each share of Geodynamics
Common Stock $11.25, as adjusted pursuant to the Merger Agreement. Such
adjustments will primarily be a reduction for the LCT Earnout payment and for
shares and options issued since October 2, 1995, resulting in estimated final
Merger Consideration within the range of $10.76 to $10.77 per share. The
Company anticipates there will be no material changes in such Merger
Consideration. The Company will also pay to its shareholders concurrent with
the closing of the Merger a Special Dividend equal to the net proceeds of the
Company's disposition of its LCT subsidiary which occurred in January 1996.
The Company estimates that the net proceeds to the shareholders of Geodynamics
from both the Merger Consideration and the Special Dividend will be within the
range of $12.01 to $12.04 per share, assuming the exercise of all vested
Options. The Company similarly anticipates that there will be no material
adjustment in the amount of the Special Dividend. See "Terms of the Special
Dividend."
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 29,
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 2,706,590 shares of Common Stock (excluding any shares held in
treasury which are not entitled to vote) held by approximately 302 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
8
<PAGE> 17
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, 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 had the right to vote
approximately 7.0% 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 later 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
9
<PAGE> 18
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.
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. The Company has also retained Georgeson &
Company to solicit proxies. Pursuant to its contract with Georgeson, the
Company will pay Georgeson a fee of $7,000. The Company will also reimburse
Georgeson for any out-of-pocket expenses Georgeson may incur in connection with
the solicitation of proxies. The Company anticipates that approximately 20
employees of Georgeson will solicit shareholders on behalf of the Company.
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, Dr. Stackhouse and Mr. Gordon.
10
<PAGE> 19
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 informal 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 informal indication of interest was inadequate. The
Board determined not to take immediate action on these inquiries, including the
informal indication of interest, pending the outcome of the proxy contest. After
the director election, the Company contacted all six parties who had made
inquiry, including the party who had made an informal indication of interest in
acquiring the Company, as part of the Company's efforts described below. In each
case this included an invitation to participate in the process established by
the Company.
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 a meeting of the Board 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. As part of this report, A.G. Edwards presented to the Board
its determination of a range of values for the Company's Common Stock of between
$12.00 to $14.00 per share, based on the then-outstanding 2,582,126 shares of
Common Stock (later reduced to approximately $11.30 to $13.10 per share after
adjustment for additional outstanding options). At the meeting, A.G. Edwards
explained to the Board its methodology for determining this range of values,
which methodology employed the application of the same Comparable Transaction,
Premiums Paid, Comparable Companies and Discounted Cash Flow analyses that would
be utilized in the preparation of a fairness opinion if A.G. Edwards were
requested to deliver such an opinion with respect to any particular transaction.
These analyses are discussed under the caption "Financial Advisor; Fairness
Opinion" below, although A.G. Edwards' valuation range presented at the April
19, 1995 Board meeting was based upon information available at such date.
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 inquiries 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 inquiries would be considered.
At a June 7, 1995 meeting of the Board of Directors, the Board
discussed the matters and analyses 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
11
<PAGE> 20
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 presently desire to
undertake such a significant new investment.
Subsequent to the June 8, 1995 press release, the party who had given
the Company an informal 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 and vague nature
of the proposal, the lack of the party's diligence to date (particularly no
diligence regarding the Company's outstanding options), and the significant
potential for a public announcement of such an arrangement to deter other
interested 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
12
<PAGE> 21
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, based upon contacts
with participants as well as financial intermediaries representing or seeking to
represent other potential participants, they had reason to believe that
substantially all defense-related companies of a size and scale necessary to
acquire or merge with the Company and with a known interest in acquiring
defense-related software applications or engineering service companies similar
to the Company had learned of the opportunity 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. Members of
the Board or representatives of A.G. Edwards contacted each party who had
indicated any interest in the Company, inviting each to visit with the Company
and its advisors in pursuit of a possible transaction at the meeting. 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 transaction. Each of the potential
acquirors visited Geodynamics' data room and conducted additional interviews
with the Company's 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 valuation analysis presented in the
April 19, 1995 and subsequent presentations and discussing the possible
acquisition of Geodynamics by any of the four remaining interested parties and
the strategic alternatives
13
<PAGE> 22
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 (and A.G. Edwards' update included
reference to) (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. With respect to the Logicon offer, the Board determined that it was
not acceptable because of its conditional nature, which did not assure the
Company that the transaction would proceed, the continued need for Logicon due
diligence regarding the Company's TENCAP contract and material differences over
the value attributable to the Company's LCT subsidiary. The Board determined
that the competing offer was unacceptable as submitted because it was also
highly conditional and did not include any response to the Company's form of
agreement and plan of merger and because the price was inadequate and placed no
value on the Company's LCT subsidiary. The Board determined 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 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,
based on discussions with the potential buyers, it expected the Company 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, based on discussions
with the potential buyers, it expected the Company 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.
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
14
<PAGE> 23
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 the other
remaining issues described above that had 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 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 which had at that point reached a second impasse,
with the difference between the parties having widened to more than $500,000.
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.
15
<PAGE> 24
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, a tentative LCT Earnout, the sale of a part of
LCT to LCT management and a spin-off of the balance 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.
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 was anticipated to be substantially equal to the amount of
the LCT Earnout payment.
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.
16
<PAGE> 25
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 (who had been encouraged by the Board to facilitate such an offer)
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"). The Tudor Trust is the largest
shareholder of LCT, and Drs. LaFehr and Chan and Mr. Bain each own less than
20% of LCT. 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 Board of Directors accepted the offer,
in part, in consideration of the material risks in ensuring a realization of
fair value to Geodynamics shareholders through the most likely alternative, the
spin-off of LCT as a public company. Throughout the period that the Company was
seeking a purchaser of LCT, the Company was also preparing for a potential
spin-off of LCT to Geodynamics shareholders. However, through those efforts,
the Company determined that the risks in a spun-off LCT not achieving
significant market value for its shareholders were significant. These
difficulties stemmed in significant part from the relative small size of LCT
and the difficulty in listing such a company on an exchange or inter-dealer
quotation system where the Company would receive adequate market making or
analyst coverage.
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 $1.27 per share to Geodynamics shareholders. On
January 11, 1996, after consultation 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 was distributed 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 his shares of Geodynamics Common Stock in favor of the
Proposal.
17
<PAGE> 26
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. The Board
considered that the financial terms of the Merger were within the price
range initially recommended to the Board by A.G. Edwards in April 1995,
as updated in subsequent presentations by A.G. Edwards by subsequent
events at the Company, such as loss of the Air Force TENCAP contract in
competitive bidding. In addition, Logicon had agreed in the Merger
Agreement to absorb 100% of the dilution to be effected by outstanding
Options.
(ii) The terms of the Merger Agreement and the other
documents executed or to be executed in connection with the Merger.
Logicon had largely accepted, without modification, the terms proposed
in the Company's proposed form of agreement and plan of 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. As described above
under "Background of the Transactions," the Board had encouraged
management to present the countervailing option of the Company
remaining independent or pursuing alternative courses. Nonetheless, the
Board determined that the shareholders would receive greater value
pursuant to the Merger and Transactions.
(iv) The current and prospective economic and
competitive environment facing the Company. The Board was cognizant of
the changing defense environment only with increasing emphasis upon
size and consolidation. The Board determined that this environment
presented material uncertainties for the Company's business prospects
as an independent 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) and the Special Dividend. The Board
considered the price of Geodynamics Common Stock over the preceding
years and prior to announcement of the Company's investigation of
strategic alternatives. These trading values were far below what the
Merger provides and the Board was also advised by A.G. Edwards that it
was likely that the Company's Common Stock would return to similar low
trading ranges if the Merger was not pursued.
(vi) The substantial number of outstanding options to
acquire Company Common Stock. Through discussions with parties
inquiring about or actively interested in acquiring or merging with the
Company, it had become apparent that such parties, and perhaps the
trading market at large, had not adequately accounted for the
outstanding Options equalling approximately 40% of the then-outstanding
shares of Common Stock. While Logicon was willing to absorb the
dilution represented by these Options, other parties who had expressed
an interest in the Company had materially modified their indicated
range of interest (well below the Merger Consideration) in light of
such Options.
(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. The Board had evaluated over a
period of approximately six months A.G. Edwards' advice as to values,
including the factors considered by A.G. Edwards and the methodology
employed. The Board was aware of A.G. Edwards' lengthy involvement with
and knowledge of Geodynamics and placed significant weight upon A.G.
Edwards' determination that the consideration to be received by
shareholders was fair from a financial point of view.
(viii) The Board of Directors' evaluation of the
risks to consummation of the Transactions, including the risks
associated with obtaining all necessary regulatory approvals.
Management and the Board considered it very important that the Company
not undertake a change in course, as
18
<PAGE> 27
necessitated by a merger or acquisition agreement, unless such an
agreement had the maximum reasonable likelihood of success. The
Merger Agreement, as finally negotiated, contains few conditions to
closing, fewer of which are outside the control of the Company.
Conditions that the Company did not find acceptable, and which the
Merger Agreement does not contain, include financing contingencies.
(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 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. The Board considered their "fiduciary out" an imperative
condition to proceeding with the Merger and Logicon accepted this
condition.
(x) The Board of Directors' review of the possible
alternatives to the Transactions. As indicated above, the Board
actively considered alternatives to a merger of the Company from its
election in February 1995 up to the October 1995 execution of the
Merger Agreement. After pursuing these alternatives, the principal
viable alternative to the Company was to remain independent at least in
the short-term. After determining that this alternative did not provide
the same value to shareholders as the Transactions, the Board approved
the Merger.
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; (iv) various
alternatives relating to the disposition of the Company's interest in LCT; and
(v) 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
19
<PAGE> 28
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;
(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 years ended May 31, 1994 and 1995 and the
unaudited financial statements of LCT for the year
ended December 31, 1993;
20
<PAGE> 29
(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 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 $10.77 in cash per share of common stock of Geodynamics after
deducting the LCT Earnout. Pursuant to the disposition of LCT to the LCT
Purchasers, the shareholders of Geodynamics are estimated to receive a
Special Dividend of approximately $1.27 per share of Geodynamics Common Stock.
In aggregate, Geodynamics shareholders are expected to receive approximately
$40.9 million or $12.04 per share of Geodynamics Common Stock, based on
approximately 2.6 million shares outstanding and assuming all vested Options as
of October 2, 1995 are exercised for cash 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
21
<PAGE> 30
the book value of debt and preferred stock less cash) 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 0.23x to 1.06x, with a median of 0.41x as compared to
0.44x 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 4.6x 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 10.9x 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 21.6x for the proposed Merger. In summary, the Comparable
Transactions analysis indicated that the multiples based upon the estimated
consideration to be received by shareholders of the Company was, in all
multiple calculations, within the range of multiples paid in previous
transactions and in three of the four multiple calculations was higher than the
median of the multiples paid in previous transactions of a similar nature.
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. The multiples observed in these transactions were generally consistent
with the multiples based upon the estimated consideration to be received by
Geodynamics shareholders.
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 MergerStat(R) 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 $10.77 per share, together with the
Special Dividend of $1.27, represents a 33.8% 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 43.8% premium
over the stock price on April 18, 1995, one day prior to the change in senior
management of the Company and a 60.5% premium over the stock price on March 3,
1995, one day prior to the announcement of the final results of Geodynamics'
proxy fight, respectively.
22
<PAGE> 31
In summary, the premiums paid analysis indicated that the premium to
be received by Geodynamics shareholders over the "unaffected" Geodynamics stock
price in the Merger is within the ranges of premiums observed in transactions
of a similar nature, as well as in the market in general.
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 less cash) 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 0.27x to 1.44x, with a median
of 0.60x as compared to 0.44x 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 4.6x 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 10.9x
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 21.6x for the proposed Merger.
The population of companies used in the Comparable Company analysis
were chosen based upon their similarity to the Company's primary DoD service
business. However, no Comparable Company used in the above analysis is
identical to Geodynamics. This population contains a number of companies (i.e.,
Logicon, Inc., Nichols Research Corporation and CACI International, Inc.) which
are of greater size, liquidity, have better historic financial performance
and/or are perceived by the market to have better growth prospects than the
Company. Additionally, over this period, Intermetrics, Inc. was subject to
takeover by Apollo Holdings Inc. which significantly increased its public
trading multiples. Given these factors, as well as the fact that the Comparable
Company analysis reflects securities trading in the public market place and
does not reflect results of previously executed merger transactions, this
analysis was given less weight and was used to confirm the results in the
previously mentioned analyses. Taken as a whole, the results of this analysis
confirms the results obtained in the Comparable Transactions and Premiums Paid
analyses.
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).
In summary, the estimated consideration to be received by the
Geodynamics shareholders ($12.04) falls within the range of value determined
under this analysis, thereby providing additional confirmation of the results
obtained under the Comparable Transactions and Premiums Paid analyses.
23
<PAGE> 32
Other Considerations
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. The summary of the A.G. Edwards report set
forth above does not purport to be a complete description of the analyses
performed, or the matters 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 would create an incomplete view of the process underlying the
analyses set forth in the A.G. Edwards report and its fairness opinion. 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.
In performing its analysis, based upon discussion with Geodynamics
management, A.G. Edwards assumed a relatively stable DoD contracting
environment, a stable rate of inflation, no significant deterioration of
Geodynamics' customer base and no significant contribution (positive or
negative) from Geodynamics' commercial product development activities. 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 as a
part of A.G. Edwards' advisory engagement, as well 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 over the course of A.G. Edwards' engagement
and updated 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 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. If the Merger is not
consummated, A.G. Edwards will not receive such fee, but will be entitled to
receive fees equalling approximately $100,000. In addition, LCT 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 has 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
24
<PAGE> 33
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 from the
Company. 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 (including Mr. Gordon in
his capacity as Chief Executive Officer), 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 options to acquire 101,822 shares of Geodynamics Common Stock will be
accelerated.
25
<PAGE> 34
<TABLE>
<CAPTION>
ESTIMATED CASH ESTIMATED CASH
NUMBER UPON OPTION UPON OPTION
NAME OF BENEFICIAL OF CONVERSION CONVERSION
OWNER SHARES NUMBER OF OPTIONS AT $10.77 (1) AT $12.04 (1)
- ----- ------ ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Michael E. Edleson ........ 5,636 14,546 at 5.00 $ 89,930 $102,404
W. Richard Ellis........... 7,500 18,182 at 5.00 104,910 128,001
Bruce J. Gordon (2) ....... 2,000 15,000 at 12.00 0 600
15,000 at 8.00 41,550 60,600
30,000 at 10.00 23,100 61,200
14,546 at 5.00 89,930 102,404
Donald L. Haas ............ 3,000 18,182 at 5.00 104,910 128,001
6,000 at 5.00 34,620 42,240
Delbert H. Jacobs.......... 1,000 18,182 at 5.00 104,910 128,001
5,000 at 5.00 28,850 35,200
4,500 at 6.00 21,465 27,180
3,000 at 6.00 14,310 18,120
Will Stackhouse, III....... -0- 18,182 at 5.00 104,910 128,001
Thomas R. LaFehr........... 135,530 18,182 at 5.00 104,910 128,001
- --------------------------
</TABLE>
(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) $10.77 or $12.04, as applicable, times (ii) the number
of shares of Common Stock covered by such option, before personal
income taxes.
(2) Includes options granted to hire Mr. Gordon as an employee. The
initial twenty percent (20%) of Mr. Gordon's 18,182 in Director's
options were not vested because Mr. Gordon was an employee.
It is anticipated that the Directors will exercise their Director
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 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
26
<PAGE> 35
employee retention agreements. The 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 101,822 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. Of the Options held by
Mr. Gordon in his capacity as Chief Executive Officer, 15,000 are exercisable at
an exercise price of $12.00 per share. Mr. Gordon has indicated that he will
likely exchange such Options for Logicon options, rather than exercise them. See
"Interests of Certain Persons in the Transactions" above.
Holders of vested Options that are exercised prior to the Special
Dividend Record Date will participate in the Special Dividend. 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." Holders of Options that are not or can not be
exercised prior to the Special Dividend Record Date will not participate in the
Special Dividend with respect to the shares of Company Common Stock underlying
such Options. No part of the
27
<PAGE> 36
Special Dividend will be paid on account of Options. See "Terms of the Special
Dividend." Holders of Options may exercise such Options either through the
payment of the exercise price, in cash or Company Common Stock, or through a
cashless exercise. In a cashless exercise the holder of the Option will
generally receive a number of shares of Common Stock upon exercise equal to
the number of shares underlying the Option reduced by the aggregate exercise
price of the Option divided by the market price of a share of Common Stock
on the date of exercise. Thus, in a cashless exercise, as in an exercise where
the exercise price is paid for with Common Stock, an Option holder will
receive the benefit of not paying cash for such exercise but will receive
(or retain) proportionately fewer shares of Common Stock upon exercise.
Because an Option holder electing a cashless exercise (or an exercise where the
exercise price is paid for with Common Stock) will receive (or retain) fewer
shares, such holder will receive the Merger Consideration and the Special
Dividend with respect to fewer shares, resulting in a lower aggregate payments
to such holder. Similarly, if an Option holder surrenders Common Stock in
payment of an Option's exercise price, such holder will hold a smaller number of
shares of Common Stock following such exercise than if such holder paid cash for
such exercise. Each holder of an Option must decide whether or not to exercise
an Option and by what means to exercise such Option.
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 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 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). Pursuant to the Merger Agreement, the net
proceeds of the disposition of LCT distributable in the Special Dividend will
be reduced, on a pro rata basis, by (i) transaction expenses in excess of
$600,000 (plus an additional agreed $69,000), (ii) LCT debt assumed by
Geodynamics and contributed to LCT's capital in excess of $597,000 and
inter-company advances and (iii) 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" and "Terms of the Special
Dividend." 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.
28
<PAGE> 37
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.
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. The Company estimates that shareholders of Geodynamics will
receive $10.77 per share in Merger Consideration. See "--The Merger
Agreement--Merger Consideration" and "--Merger Consideration Adjustment" below
and "Terms of the Special Dividend." 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 Time.
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
29
<PAGE> 38
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."
PROCEDURES FOR EXCHANGE OF CERTIFICATES
At the Effective Time, MergerCo will deposit with Bank of America, N.T.
& S.A. as 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
30
<PAGE> 39
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.
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 supplemental information from
Logicon and the Company, which request did not constitute a request for
additional information under the HSR Act or extend the waiting period.
Logicon and the Company provided the requested information on and before
January 19, 1996. The required waiting period expired on January 19, 1996.
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.
31
<PAGE> 40
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 and provided that demands for payment are filed with respect to five
percent or more of the outstanding shares of Common Stock.
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:
(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
32
<PAGE> 41
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.
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
33
<PAGE> 42
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.
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
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. The Company estimates that
shareholders of Geodynamics will receive $10.77 per share in Merger
Consideration.
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 Original Total Conversion
Amount, reduced by the cash portion of the LCT Earnout payment and increased by
the cash received by the Company in the sale of shares pursuant to the
Geodynamics Corporation 1993 Stock Purchase Plan between October 2, 1995 and the
closing date of the Merger, by (b) the sum of (i) the number of shares
outstanding on October 2, 1995 (2,662,414 shares), (ii) the number of
shares (912,488 shares) underlying Options to acquire Company Common Stock
outstanding on October 2, 1995, reduced by the number of Options canceled,
terminated or lapsed between October 2, 1995 and the closing date under the
Merger Agreement, (iii) the number of shares of Company Common Stock issued to
former shareholders of LCT in the LCT Earnout Payment (66,667 shares), (iv) any
shares issued subsequent to October 2, 1995 for reasons other than the exercise
of stock Options and (v) Options outstanding on the closing date under the
Merger Agreement that were not disclosed as outstanding Options on October 2,
1995 in Exhibit 3.02(b) to the Company Disclosure Letter dated October 18, 1995.
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 October 2, 1995 (2,662,414) as represented in Section 3.02 of the
Merger Agreement and (ii) the number of shares (912,488) underlying Options to
acquire Company Common Stock outstanding on October 2, 1995 reduced by the
number of Options canceled, terminated or lapsed between October 2, 1995 and the
closing date under the Merger Agreement. The Company presently anticipates that
following all such adjustments the Merger Consideration will be within the
range of $10.76 to $10.77 per share. Shareholders will not be apprised of the
final adjusted Merger Consideration prior to the vote on the Transactions.
Because this estimate is based upon an assumption that 100% of all vested
Options will be exercised, and the Company believes that it has conservatively
estimated expenses, the Company estimates that the final Merger Consideration
may be slightly in excess of $10.77 per share. Shareholders may contact the
Company prior to voting on the Proposal for any changes in such estimates.
34
<PAGE> 43
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 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.
35
<PAGE> 44
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 the Special Dividend, 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
36
<PAGE> 45
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 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
37
<PAGE> 46
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.
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
38
<PAGE> 47
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 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
39
<PAGE> 48
stockholders 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 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.
40
<PAGE> 49
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
$2,716,000, then such excess shall cause an adjustment of the amount
distributable to shareholders in the Special Dividend. 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" and "Terms of the Special Dividend."
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 $10.77 per share, the Termination Fee
would be $1,433,710. The Merger Agreement also provided that, had the Company
failed to effect the disposition of LCT prior to the close of business on March
29, 1996, then the Company would 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.
41
<PAGE> 50
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.
TERMS OF THE SPECIAL DIVIDEND
Immediately prior to the Effective Time, the Company will effect the
Special Dividend by distributing to the shareholders of Geodynamics, as of the
Special Dividend Record Date (the close of business on the day prior to the date
of the Effective Time) the aggregate net proceeds to the Company of the sale of
LCT. The amount of cash to be distributed to holders of Geodynamics Common Stock
on the Special Record Date can not be definitively determined at this time but
is estimated to be between $3,668,153 and $3,726,843 in aggregate or between
$1.25 and $1.27 per share of Geodynamics Common Stock, assuming all vested
Options are exercised for cash prior to the Special Record Date. 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 cause a reduction in the proceeds of the sale of
LCT distributable to Geodynamics shareholders in the Special Dividend.
If fewer than all vested Options are exercised, then the Special Dividend
payable per share of Common Stock will increase at a rate of approximately
$.01 for each 30,000 Option shares not issued. However, because it appears
to be in the economic best interest of most Option holders to exercise
Options to receive the Merger Consideration and participate in the Special
Dividend, the Company anticipates that substantially all vested Options will be
exercised and the amount of the Special Dividend will not materially vary from
the estimated $1.26 midpoint. Shareholders may contact the Company prior
to voting on the Proposal for any changes in such estimate. Immediately
after the Special Dividend, the Merger will be consummated. See
"The Merger--The Merger Agreement." Holders of vested Options that are
exercised prior to the Special Dividend Record Date will participate in the
Special Dividend. Holders of Options that are not or can not be exercised
prior to the Special Dividend Record Date will not participate in the Special
Dividend with respect to the shares of Company Common Stock underlying such
Options. See "Interests of Certain Persons in the Transactions--Treatment of
Options" and "The Merger--The Merger Agreement--Merger Consideration--Stock
Options."
42
<PAGE> 51
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 FROM THE MERGER AND THE SPECIAL DIVIDEND, 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. The Special Dividend will also be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction for state, local and other tax purposes.
With respect to the Merger Consideration, 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 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.
With respect to the Special Dividend, a holder of shares of Common
Stock will recognize ordinary income at the Special Dividend payment date in an
amount equal to the cash amount of such Special Dividend.
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.
43
<PAGE> 52
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 (C(4)I) 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. At December 31, 1995, LCT owned a fleet of approximately 44 marine
gravity meters. Certain of its marine 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 information systems for C(4)I, 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.
C(4)I Systems
C(4)I 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 C(4)I systems degrade the capability of an adversary to
perform all of those critical functions.
There are a variety of C(4)I 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 C(4)I systems and to
protect U.S. systems from similar disruptions.
44
<PAGE> 53
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.
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
45
<PAGE> 54
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.
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.
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.
46
<PAGE> 55
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:
<TABLE>
<CAPTION>
Year Ended
- --------------------------------------------------------------------------------------
June 2, 1995 June 3, 1994 May 28, 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
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.
47
<PAGE> 56
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.
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.
48
<PAGE> 57
PROPERTIES
Geodynamics currently maintains the following facilities aggregating
approximately 214,000 square feet:
<TABLE>
<CAPTION>
Current Square Year Facility
Facility Footage Established Security Level
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
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.
49
<PAGE> 58
SELECTED HISTORICAL FINANCIAL DATA OF GEODYNAMICS
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
- ---------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT May 31, May 29, May 28, June 3, June 2, December 2, December 1,
DATA: (in thousands, 1991 1992 1993 1994 1995 1994 1995
except per-share data) (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 $ 1.22 $ .77 $ .80 $ .38 $ .73 $ .43 $ .33
share.................. ======= ======= ======= ======= ======= ======= =======
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
</TABLE>
(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.
50
<PAGE> 59
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>
PERCENTAGE OF REVENUES Fiscal Year Ended
-------------------------------------------------------------------------------------------------------
June 2, 1995 June 3, 1994 May 28, 1993
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
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
51
<PAGE> 60
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.
Backlog at December 1, 1995 was $99 million, approximately $26 million
funded and $73 million unfunded, approximately 2% lower than the $101 million
reported at June 2, 1995.
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 fiscal 1995 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 $26 million
funded and $75 million unfunded, 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.
52
<PAGE> 61
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 quarter ended December 1, 1995. 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.
RECENT DEVELOPMENTS
On January 17, 1996, the Company sold its LCT subsidiary 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 persons and which represented a loss to the Company of
$6,098,000. See "Pro Forma Financial Information Relating to LCT Disposition"
below.
A special committee composed of disinterested Directors of the Company
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 14.1% of Geodynamics' outstanding Common Stock.
After payment of the transaction expenses and the payment of the LCT
Earnout Payment, net proceeds to the Company equal approximately $3,726,843 or
$1.27 per share of Company Common Stock, assuming exercise of all vested
Options. Immediately prior to the Merger, the Company will effect the Special
Dividend, payable to holders of Geodynamics Common Stock on the Special Dividend
Record Date, equal to such net proceeds. The amount distributable per share of
Geodynamics Common Stock is not presently determinable and will vary, depending
upon the final calculation of such net proceeds and the number of shasres of
Geodynamics Common Stock outstanding on the Special Dividend Record Date, which
will be affected by how many Options are exercised prior to such date.
53
<PAGE> 62
This amount will increase to the extent Options are not exercised and may
only be decreased if the Company incurs greater than anticipated expenses.
See "Terms of the Special Dividend."
PRO FORMA FINANCIAL INFORMATION RELATING TO LCT DISPOSITION
Accompanying this Proxy Statement as part of the financial statements
is selected pro forma (unaudited) financial information relating to the
Company's disposition in January 1996 of its LCT subsidiary. LCT was acquired by
the Company in June 1994 as part of an attempt to diversify the Company's
operations from DoD-dependent businesses to non-DoD but technically compatible
businesses. The sale of LCT resulted in a $6,098,000 loss.
MANAGEMENT
Directors, Executive Officers and Significant Employees
The directors, executive officers and significant employees of the
Company and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
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
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
</TABLE>
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 Business 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
54
<PAGE> 63
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.
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 November 1994 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 (1979) 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,
55
<PAGE> 64
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 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.
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.
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.
56
<PAGE> 65
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.
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.
57
<PAGE> 66
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.
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.
58
<PAGE> 67
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) 1995 9,235 30,000 (1) 60,000 923
President and Chief
Executive Officer
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 112,199 6,000 (8) 5,000 11,211
1993 109,668 10,967
Jack Scherrer 1995 96,200 18,500 (6) 5,000 11,470
General Manager 1994 96,466 31,542 (7)(10) 2,500 9,646
Eastern Division 1993 92,456 8,930 (8) 9,246
A. Ronald Jacobsen 1995 100,613 11,598 (6) 11,221
General Manager 1994 107,590 22,199 (7)(9) 10,759
Western Division 1993 111,548 7,804 (8) 11,154
Harry Utter 1995 98,228 9,822
General Manager - GSC 1994 100,117 6,000 (9) 10,012
1993 98,228 9,823
- --------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(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) Employer's Contribution to Money Purchase Pension Plan.
(4) Leased Automobile.
(5) Relocation expense reimbursement for David P. Nelson of
$22,994.
(6) Includes CFY 1995 accrued vacation cashout of $18,500 for J.
Scherrer and $11,598 for A.R. Jacobsen.
(7) Includes CFY 1994 accrued vacation cashout of $2,496 for J.
Scherrer and $16,199 for A.R. Jacobsen.
(8) Includes CFY 1993 accrued vacation cashout of $8,930 for J.
Scherrer and $7,804 for A.R. Jacobsen.
(9) Includes bonuses in lieu of salary increase as follows:
David P. Nelson $6,000
A. Ronald Jacobsen $6,000
Harry Utter $6,000
(10) Includes relocation reimbursement of $15,000 and relocation
expenses reimbursement of $14,046.
</TABLE>
59
<PAGE> 68
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>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation (1)
- ------------------------------------------------------------------------------------------------------------------------------
Name No. of Options % of Total Options Exercise or Expiration 5% 10%
Granted Granted to Base Price Date
Employees in 1995 Per Share
- ------------------- -------------- ----------------- ----------- ---------- -------- --------
<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 $0.50 per share on each anniversary date of
Mr. Gordon's employment, April 19, 1995.
(4) Mr. Gordon was also granted a Director Stock Option in the amount of
18,182 shares (of which 20%, relating to 3,636 shares, was surrendered
in connection with his employment as Chief Executive Officer and the
granting of the employee options set forth above); however, vesting of
his Director Stock Option does not occur while Mr. Gordon is employed
by Geodynamics unless there is a change in control of the Company.
TEN YEAR-OPTION/SAR REPRICING
There have been no options or stock appreciation right repricings
during the last 10 years for the Chief Executive Officer or for any of the other
four most highly compensated officers of the Company.
60
<PAGE> 69
AGGREGATED OPTION/SAR EXERCISES
The following table shows the number of shares and the net value
realized from exercising stock options during CFY 1995 for the Chief Executive
Officers and the four most highly compensated executive officers of the Company
as of the end of the fiscal year.
<TABLE>
<CAPTION>
Year Realized
Shares (Market price at Total Number Unexercised Value of Unexercised in the Money
Acquired on Exercise less Options Held at FY-End Option at FY-End
Name Exercise Exercise Price) ($) (S)
- ----------------------------------------------------------------------------------------------------------------------------------
Vested Unvested Vested Unvested
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 29, 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 29, 1996 there were outstanding 2,706,590 shares of Company Common
Stock held by 302 shareholders of record.
61
<PAGE> 70
<TABLE>
<CAPTION>
NAMES AND ADDRESS
DIRECTORS AND EXECUTIVE OFFICERS (2) NUMBER OF SHARES (1) PERCENT OF CLASS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael E. Edleson....................................... 20,182 *
W. Richard Ellis (3)..................................... 25,682 *
Bruce J. Gordon (3)...................................... 76,546 2.8%
Donald L. Haas (3)....................................... 27,182 1.0%
Delbert H. Jacobs (3).................................... 31,682 1.2%
Thomas R. LaFehr (3)..................................... 153,712 5.6%
Will Stackhouse III (3).................................. 18,182 *
David P. Nelson (3)...................................... 27,500 1.0%
Jack Scherrer (3) ....................................... 5,000 *
A. Ronald Jacobsen (3) .................................. 36,662 1.4%
Harry Utter (3) ......................................... 14,500 *
All Directors and Executive Officers
as a group (17 persons) (4) ............................. 452,375 16.7%
</TABLE>
<TABLE>
<CAPTION>
NAMES AND ADDRESSES
BENEFICIAL OWNERS OF 5% OR GREATER NUMBER OF SHARES (1) PERCENT OF CLASS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William Strong (5)....................................... 227,940 8.4%
Mason Hill Asset Management, Inc.
477 Madison Avenue, 8th Floor
New York, NY 10022
Jeffrey L. Neuman (5).................................... 380,500 14.1%
Tudor Trust
233 South Beverly Drive
Beverly Hills, CA 90212
- --------------------
</TABLE>
(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
(including Options whose vesting may be accelerated by the Merger) as
follows: Mr. Edleson - 14,546; Mr. Ellis - 18,182; Mr. Gordon -
74,546; Mr. Haas - 24,182; Mr. Jacobs - 30,682; Dr. LaFehr - 18,182;
Dr. Stackhouse - 18,182; Mr. Nelson - 27,000; Mr. Scherrer - 5,000; Mr.
Jacobsen - 11,000; Mr. Utter - 10,500.
(4) Includes 262,302 Options exercisable within 60 days of the date hereof,
including all Options whose vesting may be accelerated by the Merger.
(5) According to filed Schedules 13D.
62
<PAGE> 71
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.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
----------- ---- ---
<S> <C> <C>
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
2nd Quarter........................... 13-1/8 10-1/2
</TABLE>
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 February 20, 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 $11-1/8 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 following table
were the only cash dividends declared and paid on the Common Stock since the
fiscal year ended May 31, 1991.
63
<PAGE> 72
<TABLE>
<CAPTION>
Fiscal Year Ended Cash Dividends
Per Share
--------------------------------------------------
<S> <C>
May 31, 1996 (to date) $.14
June 2, 1995 $.28
June 3, 1994 $.28
May 28, 1993 $.28
May 29, 1992 $.28
May 31, 1991 $.25
</TABLE>
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.
64
<PAGE> 73
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.
65
<PAGE> 74
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
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 Three and Six Months Ended December 1, 1995 and December 2, 1994 . F-4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended December 1, 1995 and December 2, 1994 ........... F-5
Notes to Condensed Consolidated Financial Statements ..................... F-7
Fiscal Year
Report of Independent Public Accountants ................................. F-9
Consolidated Balance Sheets as of
June 2, 1995 and June 3, 1994 ............................................ F-10
Consolidated Statements of Income for the Years Ended
June 2, 1995, June 3, 1994 and May 28, 1993 .............................. F-12
Consolidated Statements of Shareholders' Equity for the Years Ended
June 2, 1995, June 3, 1994 and May 28, 1993 .............................. F-13
Consolidated Statements of Cash Flows for the Years Ended
June 2, 1995, June 3, 1994 and May 28, 1993 .............................. F-14
Notes to Consolidated Financial Statements ............................... F-16
Pro Forma
Selected Pro Forma Data (Unaudited) ...................................... F-27
Pro Forma Consolidated Balance Sheets (Unaudited) ........................ F-28
Pro Forma Consolidated Statements of Income (Unaudited) .................. F-30
</TABLE>
F-1
<PAGE> 75
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-2
<PAGE> 76
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 1, June 2,
1995 1995
----------- -----------
(Unaudited)
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 77
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<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
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 78
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<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)
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 79
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------
December 1, December 2,
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING 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
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 80
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>
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.
F-7
<PAGE> 81
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-8
<PAGE> 82
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-9
<PAGE> 83
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 2, June 3,
1995 1994
----------- -----------
<S> <C> <C>
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-10
<PAGE> 84
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-11
<PAGE> 85
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
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
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-12
<PAGE> 86
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
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
========== =========== =========== ====== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-13
<PAGE> 87
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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)
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-14
<PAGE> 88
GEODYNAMICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
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
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-15
<PAGE> 89
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-16
<PAGE> 90
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-17
<PAGE> 91
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>
<CAPTION>
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-18
<PAGE> 92
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>
<CAPTION>
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)
========== ===========
</TABLE>
F-19
<PAGE> 93
<TABLE>
<S> <C> <C>
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>
<CAPTION>
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-20
<PAGE> 94
A reconciliation of income taxes at the statutory federal income tax rate and
the provision for income taxes is as follows:
<TABLE>
<CAPTION>
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>
<CAPTION>
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-21
<PAGE> 95
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-22
<PAGE> 96
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-23
<PAGE> 97
Information relative to common stock options is as follows:
<TABLE>
<CAPTION>
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-24
<PAGE> 98
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-25
<PAGE> 99
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>
<CAPTION>
DoD Non-DoD Consolidated
Contracts Services Totals
--------- -------- ------------
<S> <C> <C> <C>
Segment Data :
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>
<CAPTION>
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
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1994
-------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
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-26
<PAGE> 100
SELECTED PRO FORMA DATA (UNAUDITED)
The following statements provide summary unaudited pro forma income statement
data for the six months ended December 1, 1995, and for the year ended June 2,
1995, and summary unaudited pro forma condensed consolidated balance sheet data
as of December 1, 1995. This pro forma financial data gives effect to the sale
of LCT, as if it had occurred, in the case of the income statement data, on June
4, 1994, and, in the case of the balance sheet data, on December 1, 1995. Such
pro forma financial data may not be indicative of what the financial condition
or results of operations of the Company would have been had the transactions to
which it gives effect been completed on such earlier date, nor is it necessarily
indicative of the financial condition or results of operations that may exist in
the future. The following pro forma information should be read in conjunction
with the historical financial statements and notes thereto appearing elsewhere
in this Proxy.
F-27
<PAGE> 101
<TABLE>
<CAPTION>
GEODYNAMICS CORPORATION AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
As of December 1, 1995
Historical Less: Pro Forma
Consolidated LCT, Inc. Pro Forma Consolidated
(Unaudited) (Unaudited) Adjustments (Unaudited)
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash $ 2,866,000 $ 98,000 $ 1,809,000 (a)
(1,600,000)(b) $ 2,977,000
Short-term investments 3,970,000 -- 3,970,000
Contract receivables
Billed 12,419,000 1,159,000 -- 11,260,000
Unbilled 2,700,000 433,000 -- 2,267,000
Deferred income taxes 513,000 (139,000) -- 652,000
Prepaid expenses and other 1,421,000 310,000 -- 1,111,000
------------ ------------ ----------- ------------
Total Current Assets 23,889,000 1,861,000 209,000 22,237,000
------------ ------------ ----------- ------------
Equipment and Leasehold Improvements
Equipment and leasehold
improvements, at cost 28,421,000 8,658,000 -- 19,763,000
Less accumulated depreciation (17,300,000) (1,060,000) -- (16,240,000)
------------ ------------ ----------- ------------
Net equipment and leasehold
improvements 11,121,000 7,598,000 -- 3,523,000
------------ ------------ ----------- ------------
Other Assets
Noncurrent unbilled contract
receivables 920,000 -- -- 920,000
Investments 1,295,000 95,000 -- 1,200,000
Goodwill 1,387,000 1,387,000 -- --
Intangible assets 926,000 660,000 -- 266,000
Other assets 299,000 20,000 -- 279,000
------------ ------------ ----------- ------------
Total Other Assets 4,827,000 2,162,000 -- 2,665,000
------------ ------------ ----------- ------------
$ 39,837,000 $ 11,621,000 $ 209,000 $ 28,425,000
============ ============ =========== ============
</TABLE>
F-28
<PAGE> 102
GEODYNAMICS CORPORATION AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
As of December 1, 1995
(continued)
<TABLE>
<CAPTION>
Historical Less: Pro Forma
Consolidated LCT, Inc. Pro Forma Consolidated
(Unaudited) (Unaudited) Adjustments (Unaudited)
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts payable $ 5,022,000 $ 741,000 $ -- $ 4,281,000
Income taxes payable -- 680,000 (e) 680,000
Intercompany - LCT -- 8,121,000 4,950,000 (c)
(1,600,000)(b)
4,771,000 (d) --
Other current liabilities 1,297,000 926,000 647,000 (f) 1,018,000
----------- ----------- ----------- -----------
Total current liabilities 6,319,000 9,788,000 9,448,000 5,979,000
----------- ----------- ----------- -----------
Long-term liabilities 1,834,000 1,745,000 -- 89,000
----------- ----------- ----------- -----------
Shareholders' Equity
Common Stock 12,552,000 -- (3,141,000) (g) 9,411,000
Retained earnings 19,143,000 99,000 (6,098,000) (h) 12,946,000
Foreign currency translation (11,000) (11,000) -- --
----------- ----------- ----------- -----------
Total shareholders' equity 31,684,000 88,000 (9,239,000) 22,357,000
----------- ----------- ----------- -----------
$39,837,000 $11,621,000 $ 209,000 $28,425,000
=========== =========== =========== ===========
</TABLE>
(a) Cash proceeds from sale of LCT.
(b) Cash payment for settlement of earnout agreement with LCT
shareholders.
(c) Agreed sales price of LCT as adjusted.
(d) Loss on sale of LCT before estimated tax liability and
assumption of Bank of America debt.
(e) Estimated tax liability in connection with LCT sale.
(f) Assumption of Bank of America debt by Geodynamics.
(g) Repurchase of 261,756 shares of Geodynamics Corporation stock.
(h) Loss on sale of LCT.
F-29
<PAGE> 103
<TABLE>
<CAPTION>
GEODYNAMICS CORPORATION AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended
June 2, 1995
-----------------------------------------------------------
Historical Less: Adjustments Pro Forma
LCT, Inc. (Unaudited)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 60,770,000 $5,182,000 $ $ 55,588,000
Costs and expenses 57,937,000 5,342,000 52,595,000
------------ ---------- ------------ ------------
Income (Loss)
from operations 2,833,000 (160,000) 0 2,993,000
------------ ---------- ------------ ------------
Other income/(expense)
Loss on sale of
investment in LCT, Inc. (6,098,000) (a) (6,098,000)
Interest income 383,000 383,000
Interest expense (71,000) (130,000) (59,000) (b) 0
------------ ---------- ------------ ------------
Net other 312,000 (130,000) (6,157,000) (5,715,000)
------------ ---------- ------------ ------------
Income (Loss) before
provision for income taxes 3,145,000 (290,000) (6,157,000) (2,722,000)
Provision for income taxes 1,227,000 (147,000) 1,374,000
------------ ---------- ------------ ------------
Net income (loss) $ 1,918,000 $ (143,000) $ (6,157,000) $ (4,096,000)
============ ========== ============ ============
Income (loss) per share $ 0.73 $ (1.73)(d)
============ ============
Weighted average number of 2,630,000 2,368,000
common shares outstanding ============ ============
<CAPTION>
For the Six Months Ended
December 1, 1995
(Unaudited)
----------------------------------------------------------
Historical Less: Adjustments Pro Forma
LCT, Inc. (Unaudited)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $32,053,000 $4,081,000 $ $ 27,972,000
Costs and expenses 30,583,000 3,630,000 (350,000) (c) 26,603,000
----------- ---------- ------------ ------------
Income (Loss)
from operations 1,470,000 451,000 350,000 1,369,000
----------- ---------- ------------ ------------
Other income/(expense)
Loss on sale of
investment in LCT, Inc.
Interest income 159,000 20,000 139,000
Interest expense (50,000) (68,000) (38,000) (b) (20,000)
----------- ---------- ------------ ------------
Net other 109,000 (48,000) (38,000) 119,000
----------- ---------- ------------ ------------
Income (Loss) before
provision for income taxes 1,579,000 403,000 312,000 1,488,000
Provision for income taxes 608,000 155,000 135,000 (c) 588,000
----------- ---------- ------------ ------------
Net income (loss) $ 971,000 $ 248,000 $ 177,000 $ 900,000(d)
=========== ========== ============ ============
Income (loss) per share $ 0.33 $ 0.34(d)
=========== ============
Weighted average number of 2,905,000 2,643,000
common shares outstanding =========== ============
</TABLE>
(a) Loss on sale of LCT.
(b) Intercompany interest.
(c) Represents the reduction of costs and expenses related to
nonrecurring costs for Logicon merger and LCT sale activities,
net of tax effect.
(d) Net income and primary earnings per share from continuing
Geodynamics operations before nonrecurring charges directly
attributable to the transaction. Fully diluted earnings per
share do not vary significantly from primary per share data.
F-30
<PAGE> 104
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> 105
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached but
is inserted for convenience only.
<TABLE>
<CAPTION>
Page
No.
<S> <C>
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
</TABLE>
I-2
<PAGE> 106
<TABLE>
<S> <C>
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
</TABLE>
I-3
<PAGE> 107
<TABLE>
<S> <C>
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
</TABLE>
I-4
<PAGE> 108
EXHIBITS
EXHIBIT A Pro Forma Balance Sheet
EXHIBIT B Letter of the Company's Independent Auditors
I-5
<PAGE> 109
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> 110
"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> 111
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> 112
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
I-9
<PAGE> 113
with 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
I-10
<PAGE> 114
described in Section 6.06. The Company will 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
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 surrendered
I-11
<PAGE> 115
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
I-12
<PAGE> 116
interest in, or any interest convertible into or exchangeable or exercisable
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
I-13
<PAGE> 117
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 be reasonably
expected to have
I-14
<PAGE> 118
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.
I-15
<PAGE> 119
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.
I-16
<PAGE> 120
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 limitations for
I-17
<PAGE> 121
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.
I-18
<PAGE> 122
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),
4062,
I-19
<PAGE> 123
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
I-20
<PAGE> 124
Company or 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
I-21
<PAGE> 125
(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
I-22
<PAGE> 126
to be received in the Merger by the stockholders of the Company is fair from a
financial point of view to the 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
I-23
<PAGE> 127
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).
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 Order of any Governmental
I-24
<PAGE> 128
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.
I-25
<PAGE> 129
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);
I-26
<PAGE> 130
(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
I-27
<PAGE> 131
Payment and shall 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
I-28
<PAGE> 132
indicating the same may be 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.
I-29
<PAGE> 133
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
I-30
<PAGE> 134
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.
I-31
<PAGE> 135
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 indemnify
its own directors,
I-32
<PAGE> 136
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.
I-33
<PAGE> 137
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.
I-34
<PAGE> 138
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 whole, except
I-35
<PAGE> 139
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 Closing, of each
I-36
<PAGE> 140
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;
I-37
<PAGE> 141
(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 Parent in cash
I-38
<PAGE> 142
(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
I-39
<PAGE> 143
of the officers 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
I-40
<PAGE> 144
contemplated by 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.
I-41
<PAGE> 145
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> 146
AMENDMENT NO. 1
to the
AGREEEMENT 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 this 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") Transaction
2.01(e)(i) The Conversion Amount and the LCT Earnout. 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 Compnay Common
Stock, to discharge all obligations of the Company to pay the purchase price
for the shares of Stock of LCT purchased by the Company 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 Original Total Conversion Amount, reduced by the cash portion
of the Earnout Payment and increased by the cash received by the Company in the
slae of shares to the Geodynamics Corporation 1993 Stock Purchase Plan between
October 2, 1995 and the Closing Date, by (b) the sum of (i) the number of
shares outstanding on October 2, 1995 (2,662,414 shares), (ii) the number of
shares (912,488 shares) underlying Options to acquire Company Common Stock
outstanding on October 2, 1995 reduced by the number of Options canceled,
terminated or lapsed between October 2, 1995 and the Closing Date, which
includes, but is not limited to, the 105,000 options identified as the LCT
options, (iii) the number of shares of Company Common Stock issued to former
shareholders of LCT in the Earnout Payment (66,667 shares), (iv) any shares
issued subsequent to October 2, 1995 for reasons other than the exercise of
stock options and (v) Options outstanding on the Closing Date that were not
disclosed as outstanding Options on October 2, 1995 in Exhibit 3.02(b) to the
Company Disclosure Letter dated October 18, 1995. 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 2, 1995 (2,662,414 shares) as represented in Article III, Section 3.02
Capital Stock of the Agreement and Plan of Merger dated October 18, 1995, and
(ii) the number of shares (912,488 shares) underlying Options to acquire
Company Common Stock outstanding on October 2, 1995, as represented in "Exhibit
3.02(b) to the Company Disclosure Letter dated October 18, 1995, reduced by
the number of Options canceled, terminated
I-43
<PAGE> 147
or lapsed between October 2, 1995 and the Closing Date, which includes, but is
not limited to, the 105,000 options identified as the LCT options.
2.01(e)(ii) The Sale of LCT and Related Dividend.
Furthermore, the Company shall use reasonable diligence and timely efforts to
effect the sale of LCT, prior to the Closing Date, for a combination of cash
and Company stock. As soon as practical, those Company shareholders of record
on the date immediately preceding the Closing Date (the "Special Record Date")
and those vested Option holders who have validly exercised their Options for
cash or tendered an option agreement in a cashless exercise as permitted in
this Amendment, whose issuable shares underlying the option agreement being
exercised or tendered are not included in the shareholders of record on the
Special Record Date shall be entitled to receive a dividend per share or per
issuable share (to be paid in cash) equal to the Total Proceeds from the sale
of LCT (the "Total Proceeds") divided by the sum of (i) the number of Company
shares issued and outstanding on the Special Record Date, and (ii) without
duplication the number of shares issuable upon exercise of Options exercised or
tendered on a cashless basis. The Total Proceeds from the sale of LCT shall be
equal to the sum of the net cash received ($958,924) in connection with the
sale of LCT (after deducting cash paid out to redeem Company stock) plus the
product of the Conversion Amount and the number of shares of Company stock
(328,423 shares) redemmed in connection with the sale of LCT, less the
transaction costs arising from the sale of LCT as defined in Section
5.01(b)(ii)(I).
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).
3. The parties agree and acknowledge that the Company will take the
necessary corporate actions to permit (i) vested holders of outstanding Compnay
Options and (ii) holders of Company Options which automatically vest upon a
"change of control" of the Company to exercise these options, including
exercise on a cashless basis, based on the Conversion Amount, up to and on the
date immediately preceding the Closing Date. The option holders electing to
utilize the cashless exercise alternative will be credited with shares of
Company stock equal to the number of Options held multiplied by the difference
between the Conversion Amount and the exercise price and all divided by the
Conversion Amount.
4. The Company will send a letter to all current employees requiring
positive confirmation of the correctness of the Company's records regarding
outstanding Options.
The Company will request each Option holder to provide the Company
with a copy of his option agreement that is not being exercised for purposes of
preparing the documentation converting the Option in Geodynamics shares into an
option for Logicon, Inc. common stock.
5. All other terms and conditions of the Agreement shall remain in
full force and effect. Terms used but not defined herein shall have the
meanings, if any, assigned thereto in the Agreement.
I-44
<PAGE> 148
IN WITNESS WHEREOF, each party hereto has caused this Amendment to be
signed by its officers thereunto duly authorized and executed this 15th day of
February, 1996.
Attest: LOGICON, INC.
/s/ E. Benjamin Mitchell By: /s/ John R. Woodhull
- --------------------------- ---------------------------
E. Benjamin Mitchell, John R. Woodhull,
Secretary Chief Executive Officer
Attest: LIN, INC.
/s/ E. Benjamin Mitchell By: /s/ John R. Woodhull
- --------------------------- ---------------------------
E. Benjamin Mitchell, John R. Woodhull
Secretary
Attest: GEODYNAMICS CORPORATION
/s/ David P. Nelson By: /s/ Bruce J. Gordon
- --------------------------- ---------------------------
David P. Nelson Bruce J. Gordon,
Chief Executive Officer
I-45
<PAGE> 149
ANNEX II
A.G. Edwards & Sons, Inc. One North Jefferson
Investment Banking St. Louis, Missouri 63103
(314) 955-3000
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 $11.25 per share (as adjusted per the Definitive
Agreement) 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.
II-1
<PAGE> 150
A.G. Edwards & Sons, Inc.
Investment Banking
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;
II-2
<PAGE> 151
A.G. Edwards & Sons, Inc.
Investment Banking
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.
II-3
<PAGE> 152
A.G. Edwards & Sons, Inc.
Investment Banking
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 the 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
II-4
<PAGE> 153
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 days after
III-1
<PAGE> 154
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> 155
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> 156
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
------------------------- /X/ Please mark your votes like this
COMMON
GEODYNAMICS CORPORATION
21171 WESTERN AVENUE
TORRANCE, CALIFORNIA 90501
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING -- MARCH 21, 1996
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 Thursday, March 21, 1996 at 10:00 a.m. at the Torrance Marriott
Hotel, 3635 Fashion Way, Torrance, California, and/or at any
adjournment of the Special Meeting, in the manner indicated below, 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.
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 component of which is 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, $11.25, as adjusted
pursuant to the Merger Agreement. The adjusted merger consideration is
estimated to be approximately $10.77 per share.
/ / FOR / / AGAINST / / ABSTAIN
(Continued on reverse side)
<PAGE> 157
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 THE FOREGOING PROPOSAL OR IF ANY
OTHER BUSINESS IS PRESENTED, THIS PROXY SHALL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATIONS OF MANAGEMENT.
Signature:_______________
Date:_________________
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 your 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.
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
